Dáil debates

Wednesday, 27 April 2005

Other Questions.

Public Private Partnerships.

1:00 pm

Séamus Pattison (Carlow-Kilkenny, Labour)
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I remind the House that supplementary questions in response to answers on ordinary questions must not exceed one minute.

Photo of John DeasyJohn Deasy (Waterford, Fine Gael)
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Question 47: To ask the Minister for Finance the changes he plans to make in the public private partnership process to achieve the new targets for expenditure. [13312/05]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Public private partnerships are part of the overall strategy to deliver on investment priorities. The multi-annual capital envelopes introduced in the 2004 budget set out the Government's commitment to invest significantly in capital infrastructure through both traditional and public private partnership-National Development Finance Agency funded investment. We expect PPP-NDFA funding to comprise approximately 10% of total investment as set out in the capital investment envelopes. Of the total investment programme of more than €36 billion for 2005 to 2009, the PPP-NDFA allocation, funded by unitary payments from Departments' Votes, is approximately €3.5 billion. In addition, there is a target of €1.2 billion for PPPs funded by user charges.

It is expected that the target for user-funded PPPs will be largely met by the roads programme. Adjustments to the targets for PPPs to be funded by unitary payments were made in the 2005 budget to take account of a shortfall against projected targets in 2004. There are a number of reasons for this, including the complexity of the process and the lead time involved in bringing such PPP projects to construction, typically 18 to 24 months.

In this context, I am actively considering what changes, if any, are appropriate to support the continued evolution of the process of projects funded by unitary payments from Departments' Votes. Building on the lessons learned to date and on the progress and expertise already developed, I am considering, with a view to bringing proposals to Government, how best to ensure that the appropriate skills and capacity are in place to assist Departments in procuring PPP projects.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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I thank the Minister for his reply but it is not informative regarding what different actions he plans to take to reduce the period. Perhaps the Minister will confirm my understanding that he has had a number of high level discussions with key players in this field who have identified some of the problems, such as the high cost of the bidding process and the delays experienced. Has the Minister any practical proposals to submit that would begin to progress events more quickly?

There is a great deal of scepticism among all parties in the House as to whether PPPs represent good value for money. One reason for this is the reluctance or refusal of the Department of Finance to allow any publication of the comparators which would show standard public sector procedures versus PPPs. Some doubts have been cast on the education programmes where the Minister had access in the case of the Comptroller and Auditor General, although he condemns these doubts as unfair. Will the Minister publish the comparators to lend us confidence about delivering value in the system? This would support his approach if he were to simplify the bidding process. On the basis of what has been achieved since the 2004 budget, does the Minister believe he will deliver this year's target for the PPPs regarding the user charges and the non-user charges?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I made the point that I have nothing to conceal. The National Roads Authority and the Railway Procurement Agency are doing good work. We are witnessing the entry into contracts and the completion of major contracts before time and within budget in the area of transport, including the Kilcock-Kinnegad motorway, the Dundalk bypass, the Fermoy bypass and the second West Link bridge.

Paul McGrath (Westmeath, Fine Gael)
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There is no bonus to the Department, only to the builders.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Politicians in this House ask for something to be done. The point of this is the economic benefit derived from continuing our public capital programme. Some people say that we should now forget about PPPs if the Comptroller and Auditor General's report is to be believed. I disagree. There are lessons to be learned as we roll out this new procurement mechanism. Not every project is suitable for a PPP but this does not mean we should have none.

One can have all the comparators one wishes and one could work under traditional mechanisms for a certain amount of money, but how long would the work take? If I were to choose between a hard financial analysis——

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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My question was about what the Minister is doing.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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——or a wider economic benefit analysis, I would take the latter and I believe——

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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The Minister has not said what he is going to do about this.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I said I am in the process of doing something, which the Deputy indicated he knows. I have met many people on this matter to determine how to do this better.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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Can the Minister not share his information with us?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I am not in a position to share it with the House until I get agreement. Deputy Bruton was in Government. There are PPP units across the service. I have proposals that must be agreed and approved. I am in the process of developing ideas that will improve the situation and must get agreement on them. I cannot decide off the top of my head what I want to do.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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The Minister could enlist the support of the House for some of his ideas.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I look forward to the Deputy's support when the Government approves the ideas as they will improve the present situation. I do not have to give all my information today without Government approval simply because a question has been asked. Deputy Bruton knows this because he was in Government. I do not know why he would ask me to do so.

Photo of Richard BrutonRichard Bruton (Dublin North Central, Fine Gael)
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The Minister could tell the House something of his thinking. This is an important public policy issue and we are here to debate it.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Correct.

Paul McGrath (Westmeath, Fine Gael)
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The Minister should not hide his knowledge under a bushel. He should share it.

Photo of Caoimhghín Ó CaoláinCaoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I have the impression the Minister resents us asking him questions.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Not at all.

Photo of Caoimhghín Ó CaoláinCaoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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He should at least grant us——

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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I am explaining why, for obvious reasons, I cannot be as expansive as Deputy Bruton would like.

Photo of Caoimhghín Ó CaoláinCaoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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The Minister could have come part of the way. He and I have discussed the PPP approach before. If it is the case that the rationale for the Government's employment of PPPs in the provision of capital for specific projects is the savings made, a criterion which the pilot project failed to meet — miserably so I said on the previous occasion, as a result of which the Minister lambasted me — in that the project was between 8% and 13% over the assessed cost of the State providing for the four schools concerned, what steps will the Minister take to ensure that PPP-funded projects in future will meet the criteria of capital savings and will prove to be cheaper than public moneys raised? I worked in banking for a number of years and do not have the same experience as chartered accountants but a simple observation is that private finance is more expensive than——

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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What was the Deputy's last point?

Photo of Caoimhghín Ó CaoláinCaoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Private finance invariably proves to be more expensive than money accessed by Government. We have demonstrated previously how money can be raised to finance projects more cheaply. The Government can do this more cheaply through publicly funded enterprise.

What steps is the Minister taking to employ the lessons learned from the failed PPP pilot project in terms of its rationale and criteria rather than specifically in terms of the schools in question? Will the Minister assure the House that we will see better performance on a financial——

Séamus Pattison (Carlow-Kilkenny, Labour)
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The Deputy must comply with the one minute rule.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The PPP is an integrated procurement option and has an important role to play when applied to appropriate projects where there is the right scale, risk and operational profile to harness the benefits of the new approach. The assessment of value for money in a PPP project involving private finance takes account of issues such as the risks transferred to the private sector. The key test involves comparing the cost of procuring the project using traditional means with the cost of procuring it by means of PPP. Other factors, such as the long-term nature of the contract with the private sector, the optimum combination of whole-life cost and quality, the potential for quicker delivery of infrastructure and performance related payments, are also relevant to establishing if a particular option is the best value for money solution overall in a project.

If one looks at this objectively, there is no question that the PPP design build operate models, which have been designed by the National Roads Authority to provide us with the roads programme which is now being rolled out, could not have been rolled out with the same budgetary discipline and with time lines being respected through traditional procurement. Not all the skills involved in the appraisal, design and execution of those contracts are available in the public service. It is, therefore, a question of marrying these skills and identifying the public procurement requirements, the priorities and the way the PPP will provide us with the means to get the job done. However, it depends on the nature of the project as this would not apply to every project. Ensuring good contractual arrangements, transferring risk and incentivising the need to get the job done quickly are means of saving money which would not be possible if we went through traditional procurement means.

The wider economic benefit is part of the analysis. It cannot be a hard financial analysis of one over the other. There is a wider economic benefit by bringing a project on stream more quickly. According to the mid-term evaluation of the national development plan, the return is approximately 16% on the investment. That is what the Economic and Social Research Institution said. There is no question that PPPs have a role. Do we decide that is it for PPPs because of a report by the Comptroller and Auditor General? The evidence is quite the contrary.

Given that it is a new procurement mechanism, we can learn lessons as we go along. I do not claim to know everything about it, no more than anybody else, but other governments use it effectively. Given that we complain about infrastructure deficits here, there and everywhere, we must use PPPs as part of a number of responses, including traditional procurement and traditional means of doing a job. It is clear that is the case. We should have sufficient confidence in what we have rolled out so far and take the independent evaluation of that as a means of looking at the big picture rather than decide there was a problem with a particular school or with a bundle of five schools. It might have been different if it had been a bundle of 20 schools. That is another point about PPPs, namely, that one gets greater critical mass rather than 20 individual contracts.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Is the Minister saying he is not concerned by the Comptroller and Auditor General's report that the cost of the bundle of schools is between 8% and 13% more than if the schools had been built by the State using the direct build method? The State spent €70 million on the national aquatic centre in Abbotstown. It has been closed for more than three months. All water sports associated with this massive investment have been halted for four months. In regard to the tax break factor for PPPs, Kinnegad and other projects, has the Department of Finance factored that into the comparative costs and the cost comparators?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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If the Deputy tables a parliamentary question, I will provide her with the detail.

Photo of Dan BoyleDan Boyle (Cork South Central, Green Party)
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The Minister seemed to indicate that the Comptroller and Auditor General's report is not independent. If one applies the 8% to 13% valuation to the whole schools building programme at the lower end of the scale, one school in every 12 will not be built and, at the higher end of the scale, one school in every eight will not be built. That is the trend in the Comptroller and Auditor General's report.

The Minister also spoke about the 16% guaranteed return mentioned in the ESRI report. The Comptroller and Auditor General's report mentions a guaranteed return of 13% in the Department of Education and Science's bundled projects. Will the Minister explain why that 13% guaranteed return, which is effectively the interest rate, is somehow better than borrowing on the open market at a much lower cost to the State? That is the nub of public private partnerships. Not only do they cost more to construct, we know from analysis carried out by the Comptroller and Auditor General that they cost more to maintain over a 20 to 25-year period. Where is the benefit other than the early construction of this infrastructure?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The benefit is in the roads programme being rolled out. In regard to the Comptroller and Auditor General's report, I respect his view which I will take on board. I will not run away from PPPs.

Photo of Dan BoyleDan Boyle (Cork South Central, Green Party)
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What is independent evaluation?

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The ESRI has given independent evaluation on the roads programme. The Deputy suggests the total capital programme is five schools in the north west or somewhere. Millions of euro are being spent. Huge contracts are being executed, finalised and completed before time and within budget through PPPs.

Photo of Dan BoyleDan Boyle (Cork South Central, Green Party)
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At a higher cost.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Should we forget about PPPs because the Deputy has a problem with a school or two which was the first PPP effort by the Department of Education and Science? Is the Deputy out of his mind?

Photo of Dan BoyleDan Boyle (Cork South Central, Green Party)
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There is a trend.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Perhaps the Deputy does not want the roads programme. I forgot that.

Photo of Dan BoyleDan Boyle (Cork South Central, Green Party)
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The Minister will say we do not want schools either.

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Some 600 schools have been built and refurbished since this Government came into office.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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In Dublin West 300 children cannot get a primary school place for next September.