Dáil debates

Wednesday, 4 June 2008

Priority Questions

Public Private Partnerships.

2:30 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 76: To ask the Minister for Finance if his attention has been drawn to the recent comments of the outgoing Comptroller and Auditor General with regard to public private partnerships; his views on this analysis; if a review is required of the structure and financing of PPPs to ensure value for money for the State and an appropriate alignment of interests between the State and PPP contractors; and if he will make a statement on the matter. [21986/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I presume the Deputy is referring to the comments that Mr. John Purcell, the former Comptroller and Auditor General, made during his recent appearance on a television programme. Speaking after his retirement, Mr. Purcell noted that public private partnerships are not a panacea for all of our infrastructure requirements and that PPP procurement suits appropriate projects. In the 2008 public capital programme, the Government set targets for PPP investment that average 16% of total capital investment per annum for the period 2008 to 2012. Hence, the majority of public capital projects will continue to be delivered using conventional public sector procurement.

The former Comptroller and Auditor General also noted, at a recent hearing of the Committee of Public Accounts on 17 April, that "it is not the case that PPP is good and traditional procurement is bad, or vice versa" but rather that "certain situations are more suitable to PPP solutions". I agree with these views. PPPs are one of the options available to Government to serve its objectives. I have no plans to abandon that option.

Naturally, there are a variety of PPP models that can be applied in the procurement of projects. In choosing to adopt the PPP approach for particular projects, Departments and agencies must assess, in conjunction with their advisers, the optimum structure to use, including whether to include private finance. In this regard, State authorities have access to the financial expertise of the National Development Finance Agency, NDFA, to assist them in determining the optimum means of financing public investment projects in order to achieve value for money. The NDFA can also advise State authorities on all aspects of financing, refinancing and insurance, including risk analysis.

3:00 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Has the Minister engaged in a reassessment of PPPs? One of the aspects regarding PPPs is that they are meant to transfer risk from the State to the private sector. This was fine when interest rates were low. In light of the international credit crunch, however, interest rates for private sector investment have risen dramatically. Some time ago, the former Comptroller and Auditor General, when he examined a number of school building projects that were carried out under the PPP process, pointed out that the cost of capital relating to PPPs is significantly higher than would be the case if the State borrowed such capital and commissioned projects through the traditional direct procurement method. Now that interest rates relating to the private sector are so much higher, what is the justification for engaging in so many PPPs?

What is the position as regards risk? There have been a number of reports to the effect that in the Irish case very little risk is transferred to private developers. Did the Minister feel sorry regarding what happened in the case of Dublin City Council and the private developer, Mr. Bernard McNamara, who walked away from five PPP projects in Dublin city? Thousands of people were depending on these projects proceeding in order that they might obtain new homes. The preferred bidder walked away, presumably on the basis that, in light of the current economic climate, he could no longer make money out of these projects. What is the Minister's view on this matter, particularly in light of the fact that Mr. McNamara is the preferred bidder in respect of the construction of a prison at Thornton Hall? In the latter instance, the State will be the guaranteed customer and there will, as a result, be no risk to the private provider. It walked away from the five PPPs in Dublin city but is the preferred bidder for a prison at Thornton Hall, where the State is the guaranteed customer, and there is therefore no risk to the private provider. The State, with current interest rates, may now end up spending much more on the cost of this PPP.

The Minister should be concerned about mortgaging future generations at a very high price when using the PPP procurement method unless risk is clearly transferred and the PPP provider produces the item at a much cheaper cost. I do not understand how this can happen with interest rates at an astronomical level.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The National Development Finance Agency is there to advise us on these and it is linked with the agency which manages our debt. It has a considerable competence in advising us on these matters. On the general abstract issue of PPPs raised by the Deputy, there are advantages in the PPP, as the Comptroller and Auditor General himself accepted in an answer to the Committee of Public Accounts earlier this year. Of course, we must be vigilant about them.

There are certain other advantages to PPPs as well. They involve a payment linked to performance over the entire lifetime of the project and they are long-term contracts where bidders focus on the whole life-cycle cost of the project and not just on the upfront capital cost. The construction times post-contract tend to be faster as the private sector is incentivised to complete the project in order to begin to receive regular payments.

The private sector innovation and commercial management expertise is brought into delivering important public facilities. A contractual framework to allocate risk to the party that can manage it best is devised.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I have asked the Minister to comment on my question.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The approach allows for a number of projects.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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He is just reading a long text.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I will comment. I am giving the Deputy reasons——

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Will the Minister comment on the questions I asked?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I am giving the Deputy the advantages——

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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What is the Minister's view of the provider walking away from the Dublin City Council PPPs and the fact the provider is the preferred bidder on Thornton Hall? What is the rationale of keeping the provider?

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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I would like to deal with that.

Photo of Seán ArdaghSeán Ardagh (Dublin South Central, Fianna Fail)
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Unfortunately, we have no time.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy asked an abstract question. With regard to the concrete question, they are two entirely different public private partnership arrangements. They are not the same.

Photo of Seán ArdaghSeán Ardagh (Dublin South Central, Fianna Fail)
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The whole matter deserves a full debate but we only have six minutes for this question, which have expired. I ask the Minister to move to Question No. 77.

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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As I understand the position, the developer is contractually committed in one of the Dublin arrangements to which Deputy Burton referred. In the other case, no legal arrangement was entered into.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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So four of the five are not legally binding? Why is the developer the preferred bidder on a prison project?

Photo of Seán ArdaghSeán Ardagh (Dublin South Central, Fianna Fail)
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We cannot go any further. I ask the Minister to move on to Question No. 77.