Tuesday, 28 June 2011
Department of Finance
Public Private Partnerships
Stephen Donnelly (Wicklow, Independent)
Question 113: To ask the Minister for Finance his views on whether there needs to be more transparency in the public and private partnership negotiations, in particular, publication of the forecast profit that the private partner will earn from each venture or project, for example measured by total net or gross profit, internal rate of return, net present value or return on invested capital [17319/11]
Michael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
The overriding concern for state procuring authorities in all contract negotiations is to ensure value for money and these procurements are conducted strictly under EU procurement directives and regulations. The state does not enter into PPPs unless it can be clearly demonstrated that they provide value for money and there are a number of specific tests throughout the procurement and tender negotiation processes to ensure that best value is derived for the state. Details of the timing and content of these value for money tests are set out in the various PPP guidance issued by the Department of Finance which are available on www.ppp.gov.ie. A key factor for the state is not to lose advantage in its attempt to try to negotiate the best deal for the State - both in terms of costs and innovation. The current PPP disclosure framework reflects international norms.
The Deputyâ€™s proposal is well intentioned but in practical terms it raises a number of issues, for example, with respect to commercial sensitivities and may serve to lessen international interest in domestic PPP projects when in reality we would like to see as much interest as possible.
I would emphasise that in PPPs, any forecast profit is fully at risk depending on the performance of the private partner over the full life of the contract, which is normally 25 years after construction. This performance conditionality â€“ which is particular to PPPs - puts the payments to private partner at risk, if the contracted standards are not met. In PPPs, there is significant risk transfer from the State to the private sector.
Moreover, if certain performance standards are not met, the contract can be terminated by the State. The forecast profit is just that â€“ a forecast - and does not take account of which risks, borne by the private sector, will materialise. It is also important to recognise that the value can only be assessed over the full contract period, which can be up to 30 years.