Profits made by companies building new hospitals, prisons, roads and schools under the Private Finance Initiative (PFI) will be curbed under new rules rushed through by the Treasury that come into force today.

The move comes as the Government has pledged to step up spending on infrastructure, largely building schools and hospitals in partnership with the private sector, as a way of lifting the economy out of recession.

Treasury officials have produced new rules in the past fortnight that mean that future private sector investors will receive only 30 per cent of any profit on refinancing, while the public sector takes 70 per cent of the profit. Currently gains on refinancing are split 50-50. The new terms apply on any net gains over £3 million, when projects are refinanced.

About 790 projects worth £54 billion have been delivered using the controversial funding mechanism. The revised refinancing rules will be applied to about 200 projects, worth £26 billion, which are expected to reach financial close before 2010.

Analysts say that the Government is using the credit crunch, which has made loans to private companies engaged in PFI more expensive, to extract improved terms from PFI deals.

A leading investor in PFI told The Times that in the light of the changes it was considering its interest in the sector because ministers seemed determined to limit the return on equity that the private sector can now make.

Stephen Ratcliffe, chief executive of the Construction Confederation, said that there was much uncertainty over the changes in terms. “Special times call for special terms. It seems that the Treasury is anxious that contractors will all make a killing when the debt markets improve,” Mr Ratcliffe said.

A senior executive at a large public company, which declined to be named, said: “This definitely makes us think twice about investing.” He added that many contracting companies were reluctant to criticise the rule change because infrastructure work was their only source of income at present, as work in the housebuilding sectors and for commercial property developers has all but dried up.

The Labour Government was embarrassed when private sector investors made returns of 67 per cent on the Norfolk and Norwich University Hospital. Its refinancing in 2003 was criticised by patient groups and MPs as “the unacceptable face of capitalism”.

In another change, the public sector can also call for refinancing - previously the private sector partner controlled the timing of any refinancing.

Robin Priest, a real estate partner at Deloitte, the consultancy firm, said that if the PFI market was to remain attractive to the private sector, the Government would have to return to a 50-50 split of profits. “Equity investors will have to accept a smaller profit for now but they will want to make sure that any subsequent refinancing returns to the 50-50 principle,” he said.

The PPP Forum, which represents main contractors and investors in PFI schemes, said: “Given current conditions in the debt markets, we understand why the Treasury has changed the terms of the refinancing gain sharing formula for new projects.” However, it added that investors were likely to change the terms of bids, and some contractors may pull out of deals.

Britain's most expensive road improvement programme, the £4.5 billion widening of the M25, is one project that has run into financing problems because of the paralysis of lending between banks. The financial crisis has also hit a £350 million agreement in Manchester to provide new waste facilities, where there have been last-minute hitches in securing financing.

Balfour Beatty, one of the members of the M25 consortium, declined to comment on the change saying that it was too early to assess its impact. A spokesman for Carillion said that there was currently “no scope for refinancing our portfolio” and it could not see when the situation would improve.

The Treasury said: “Tougher refinancing terms have already been inserted into some of the contracts signed this year. This change standardises it and makes it mandatory. The terms would be reviewed after 18 months to see if the PFI market has returned to pre-credit crunch levels.” Champions of PFI believe it is an efficient way of delivering new facilities, but critics say the Government has to pick up the tab when things go wrong.

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