Speech
Statement to Dáil: Public Private Partnerships in Capital Infrastructure
From Department of Public Expenditure, NDP Delivery and Reform
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From Department of Public Expenditure, NDP Delivery and Reform
Published on
Last updated on
Opening Statement by Minister of State Patrick O’Donovan TD
Check against delivery
I welcome this opportunity to address members of the Dáil on Public Private Partnerships (PPPs) and their role in delivering public capital infrastructure in Ireland.
Since the late 1990’s, significant infrastructure projects have been delivered on behalf of the State using the PPP approach, including the Pilot Schools Bundle (2002), the National Maritime College (2004), the Cork School of Music (2007), the Criminal Courts Complex (2009), the National Conference Centre (2010), further Schools Bundles and of course a number of major motorway projects from 2005 onwards.
In July 2012, in response to the fiscal crisis, the Government announced plans for a new €1.4 billion PPP programme of investment in public infrastructure, as part of a wider €2.25 billion stimulus plan. This comprised 8 new PPP projects across the Health, Justice, Transport and Education sectors. This new phase of stimulus PPPs was followed up in 2014 with a second phase, valued at €300 million, to deliver social housing, and a third phase in 2015, to deliver projects to a value of €500m across the Higher Education, Health and Justice sectors.
It is clear, therefore, that PPPs have played a very significant role in facilitating the delivery of important infrastructure projects across a range of sectors. They were particularly useful in recent years, when the Exchequer was seriously constrained in terms of its ability to fund infrastructure directly. PPPs, and their use of private finance on an off-balance sheet basis, enabled important projects to proceed during this period, which would not otherwise have been deliverable on the basis of Exchequer funding alone.
However, now that we have emerged from the economic and fiscal crisis, and the recovery is well underway, the Government has decided to prioritise, and significantly increase, direct Exchequer investment in capital and infrastructure. Under the National Development Plan, Exchequer funded capital investment is set to increase to 3.8% of national income (as measured by GNI*) in 2021, and 4% by 2024, with sustained investment averaging 4% on an annual basis over the period 2022 to 2027. This is a very significant level of planned capital investment, which will see Ireland move to amongst the highest levels of investment in the EU.
Against that background, it is appropriate to review the role that PPPs should play in delivering public capital infrastructure into the future.
With that in mind, an Inter-Departmental Group was established in 2017, comprising Departments and Agencies with experience of using PPP to deliver capital infrastructure, to review that experience and to report to the Minister for Public Expenditure and Reform with recommendations on the future role of PPPs, in the context of the new 10-year NDP being developed at that time.
The detailed report of that PPP Review is currently with the Minister, and he will publish the report once he has brought it to Government for noting. However, the key findings and recommendations of the Review have already been published – in the NDP. In summary, the review noted that PPPs have been very useful in the past in facilitating the delivery of important infrastructure projects, particularly, as I have already indicated, when the Exchequer was seriously constrained in terms of its ability to fund infrastructure directly. However, given the NDP plans to significantly increase public capital investment, to amongst the highest levels in the EU, the report concludes that there is no longer the same requirement to use PPPs for the delivery of additional projects to compensate for a sub-optimal level of Exchequer investment in infrastructure, as was the case in recent years.
Seeking to procure additional projects by PPP, which would further expand the investment programme outlined in the NDP, would put even greater pressure on the capacity of the construction sector to respond to the increased demand. Following such an approach could contribute to inflationary pressures and potentially undermine value for money for the increased investment.
The PPP Review therefore recommends that PPPs should continue to feature as a procurement option available to Government for appropriately structured projects, which demonstrate value for money over a traditional procurement option and which meet the robust and rigorous tests for project appraisal that apply to all public investment projects under the Public Spending Code. However, this should be as part of the NDP, rather than in addition to what is planned under the NDP.
Accordingly, in delivering the NDP, all large scale projects will be assessed, as required under the Public Spending Code, in terms of the most appropriate delivery mechanism – traditional or PPP – with value for money being the key consideration when assessing the procurement options. In this way, decisions on pursuing further PPPs will be taken on a case by case basis, based on the merits of using PPP in the case of each individual project.
The Review recommends that projects which have the potential to cover some of their cost by generating revenue, for example from user charges, should, in particular, be considered in terms of their suitability for procurement as PPPs, based on a concession model.
This approach to future PPP policy is also fully consistent with the recommendations of the recent IMF Public Investment Management Assessment of Ireland, which was also undertaken in 2017.
Having established that PPPs can potentially play a valuable role in the delivery of public infrastructure, the review also examined the budgetary control mechanism used to ensure that PPPs are used in a sustainable manner which is affordable in the long term.
The purpose of the budgetary control mechanism is to avoid a situation in which excessive use of PPPs could lead to the pre-commitment of unsustainable levels of Exchequer capital resources to fund the future unitary payment costs over an extended period of time.
On the basis of the recent reviews, it has been decided to discontinue the policy introduced in 2015, of limiting future PPP-related expenditure to 10% of the aggregate Exchequer capital allocation. Instead, there will be a return to the previous budgetary control arrangement which applied prior to the financial crisis, whereby the capital cost of a PPP project is notionally charged to the relevant Department’s approved Exchequer capital allocation over the construction period – as if it was being delivered with Exchequer funding. This approach, which was recommended by both the IMF PIMA report and the PPP Review, will ensure that the use of PPPs is assessed on a level playing field with traditional procurement, with value for money being the key deciding factor in selecting the procurement option for each project.
This arrangement will apply to all new PPPs. However, it will not affect PPPs which have already been announced and which are in planning or procurement – i.e. the projects being pursued under Phases 2 and 3 announced in Budget 2015 and Budget 2016, respectively.
The Department of Public Expenditure and Reform will oversee the implementation of this mechanism and will monitor the build-up of future PPP unitary payment liabilities, details of which will be published on an annual basis as part of the budget documentation, as also recommended by the recent Reviews.
It is recognised that as our PPP Programme continues to be pursued, the experiences and learning gained on each project must be assessed and shared between the relevant Departments and agencies. Post Project Reviews, which are to be undertaken for all PPPs and which will now be published, will facilitate greater transparency in relation to the costs and benefits of PPPs, while the institutional learning will continue to be facilitated, in particular, through the bi-monthly meetings of the Inter-Departmental PPP Steering Group, chaired by the Department of Public Expenditure and Reform.
A number of other changes in the reporting arrangements for PPPs have also been recommended, and will be implemented, with a view to increasing transparency in relation to PPPs so that there can be a better informed debate about their use. Details of these will be announced when the report of the PPP Review is published.
Finally, in recognition of the scale, complexity and long-term nature of typical PPPs, the review also recommended that consideration be given to the possible development of a new, alternative PPP model, to complement the existing PPP model. Such a new option could comprise a less complex and shorter-term alternative PPP-type contractual arrangement, that could still offer some of the advantages of PPP but for smaller scale projects – maybe €20m-€50m in size – and over a shorter time period – maybe 10 years.
Such an alternative PPP option, could also facilitate greater competitive tension in the procurement process, as it would open up the PPP market to smaller, domestic contractors, who tend to be too small in scale to bid alone for typical PPP projects, where the market tends to be heavily reliant on the participation of the larger international players.
The Minister intends to have this option explored by the Department in conjunction with the NDFA.
Having set out the Government’s position in relation to PPPs, and how we see them being used into the future, I am interested in hearing what opposition Deputies may have to say on the subject, and in particular any proposals that could further improve our approach to using PPP as a value for money procurement option into the future.
Thank you.