October 20 1999
On June 1 of this year the Minister for Finance announced the list of projects earmarked by the government to pilot the public private partnerships (PPP) approach in Ireland. The total capital spend is estimated to be in the order of I£600,000,000. The list includes the following:
The government has also announced its intention to actively explore the possibilities for a PPP in connection with the development of the Kilcock- Kinegad section of the N4. Finally, the government has agreed to include, in the pilot programme, projects in the education, solid waste management, and water supply sectors. It is intended that specific projects will be earmarked in these areas following further consultation. The minister's announcement came almost one year after he had announced that the government had agreed to his proposal to endorse the PPP approach, on a pilot basis. The announcement makes it clear that PPP will be an important element in the next National Development Plan with the scale and scope of PPP investment being considered in the context of the National Development Plan as a whole.
It is no surprise that the government selected pilot projects within the infrastructure sector as it had previously announced its intention to do so. The minister's move towards the PPP approach would seem to have the clear backing of the Irish Business and Employers Confederation (IBEC) and the Construction Industry Federation (CIF) and other market players. Major Irish banks have already participated in a number of UK Private Finance Initiative (PFI) projects.
Examples of projects which have to date adopted one or more elements of the PPP approach include:
There has been much debate over the past 18 months about the government's commitment to the PPP approach. The minister's latest announcement goes some way towards reassuring industry that the government is at least willing to test the waters with a number of pilot projects.
The need for infrastructural development in Ireland is unquestionable. How the government proposes to fund that development is not, however, unresolved. To date, the government has been able to rely on the cohesion and structural funding which it has received from the European Union. The general government surplus means any government could, if it decided to do so, fund a considerable amount of infrastructural development itself. If the government were to adopt this approach then the future for PPP in Ireland (at least in the short term) would be questionable. However, there may be good reasons why the government may not wish to fund (at least entirely), infrastructural development itself. The government may, for example, wish to employ an element of the surpluses in the repayment of part of the national debt and it may also wish to build up reserves for a future down turn in the economy. Labour unrest amongst public sector workers and related demands for higher pay may also place a strain on the surplus. European Monetary Union (EMU) restrictions on the manner in which the government can raise finance also means that the government needs to look at alternative means of financing public infrastructure. The Minister for Finance's announcement is a clear signal that the private sector does potentially have a role to play in the design, building, financing and operation of roads, bridges and so on. Quite how significant that role will be is difficult to predict at this stage.
Although there are a number of legal obstacles to a successful roll-out of the PPP approach none of them could be categorized as being insurmountable. This of course assumes that the government is wholeheartedly committed to the PPP process. The following issues do, however, need to be considered:
Earlier in 1999 a PPP Unit was established within the Department of Environment and Local Government (the 'Department'). The purpose of the unit (which is headed by Eddie Lewis), is not to take forward individual PPP projects but to identify and progress PPP projects in general. The unit will develop sectoral models, provide information and assistance to interested parties including public sector bodies such as local authorities and private sector bodies. The unit will formulate policy on issues such as documentation and risk and this will be directed to local authorities. The sectors which are within the responsibility of the Department include water and waste water, roads, solid waste and housing.
There appears to be clear political support for a PPP programme in Ireland. The minister's recent announcement is clear evidence of this. However, this political enthusiasm is somewhat difficult to reconcile with the fact that the Exchequer is currently sitting on a significant cash surplus. All the indications are, though, that the government is on the brink of embarking on a number of pilot projects.
For further information on this topic please contact Michael O'Connor at Matheson Ormsby Prentice by telephone (+353 1 619 9000) or by fax (+353 1 619 9010) or by e-mail (email@example.com)
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