Batt O'Keeffe (Cork South Central, Fianna Fail)

I welcome this opportunity to address the House on the annual report of the National Development Finance Agency, or NDFA, for the year ended 31 December 2005.

The NDFA commenced operations in 2003, with the functions of advising State authorities on the optimal means of financing the cost of public investment projects to achieve value for money and on all aspects of financing, re-financing and insurance of such projects. In broad terms, the NDFA provides advice on the best financial package for State infrastructure projects, not just PPPs, and negotiates on behalf of State authorities on the financial terms and conditions included in financial and legal agreements. Where it is appropriate to do so, the NDFA has the power to raise funds for projects itself. To date, this has not arisen.

The report details the activities of the agency during 2005, in its role as financial adviser to State authorities on a wide variety of large capital projects — both PPP and non-PPP. It also outlines its activities in its new role as a centre of expertise for PPP procurement following a Government decision in mid-2005.

Before outlining the specifics of its role and achievements, it may be helpful to outline the overall capital investment context. Total investment planned under the multi-annual capital envelopes for the years 2006 to 2010 amounts to nearly €43.5 billion. While the majority of projects will continue to be procured by traditional means, PPPs will play a significant role. Within the total capital investment envelope, €5.5 billion, or 13%, is provided for PPPs to be paid for by unitary payments by the Exchequer. There is, in addition, an allocation of more than €2 billion for PPPs funded by user charges, which will be met largely by the roads programme. Details on specific projects are a matter for the relevant Minister.

The sponsoring agency is required to seek the advice of the NDFA on all projects above €20 million and for projects with a lower capital value where State authorities require financial, risk and-or insurance advice. Where the NDFA acts as a financial adviser, the final decision on any project is, of course, one for the relevant Minister or sanctioning authority, or for the Government, as appropriate. The relevant State authority is not obliged to take the NDFA's advice.

In 2005, the NDFA completed its advice on 12 projects with a combined capital value of approximately €900 million. The cumulative value of the projects on which the NDFA had completed its advice was almost €2.4 billion by the end of 2005 and the NDFA expects this to reach almost €4 billion by the end of this year. Since its establishment more than 90 projects, both PPP and non-PPP, had been referred to the NDFA for its advice.

Sectors to which the NDFA provided advice on projects included social and affordable housing, roads and rail, justice, education, tourism and sport, environment, and the digital hub. Senators will see from the report the wide range of projects on which the NDFA has given advice. Examples highlighted in the report include the pilot housing project in Fatima Mansions in Dublin, where the NDFA advised Dublin City Council, the criminal courts project for the Courts Service and the extensions to the Luas lines, where the NDFA advised the Railway Procurement Agency, RPA.

The annual report also outlines the progress made by the NDFA in assuming its new role as centre of expertise in procuring and delivering PPP projects. The Government decided last year to establish a centre of expertise for PPP procurement in the NDFA to accelerate the procurement and delivery of PPPs for key capital infrastructure projects funded by unitary payments from the Votes of Departments or agencies.

The NDFA centre of expertise is to consolidate the core skills and capacity required to support these complex procurements in departmental areas. As is the case with the National Roads Authority, NRA, in the area of roads and the RPA in light rail and metro, it allows for public sector continuity in managing PPP procurement. Departments remain responsible for the selection of projects and for project budgets and for addressing relevant policy issues impacting on projects up front, but then will hand over the projects to the centre of expertise for the procurement phase.

These new arrangements will not apply to the roads and rails sectors where there are existing specialised agencies or to local government where PPP deal flow is established. The guiding principle is that a Department or agency can refer a project to the centre of expertise for procurement where the Department or agency does not have the expertise to undertake the procurement delivery stage of a PPP project itself. The decision to procure a project must of course be consistent with the rolling capital envelopes and other relevant requirements.

In tandem with this, the Government also decided to focus on a programme of PPP projects in a small number of key areas — initially in the justice, education and health areas — before considering other possibilities thereafter. The NDFA is already carrying out these new functions on a non-statutory basis, and the annual report sets out the very significant work already undertaken in their new role. The centre of expertise has already commenced work on more than €1 billion worth of projects within the education, health and justice sectors. The report outlines the developments up to this summer on the various projects in this sector in respect of which the NDFA will be responsible for procurement.

The annual report outlines usefully the key stages of the PPP process whereby the NDFA plays a role in advising State authorities. These include, for example, the preparation of the public sector benchmark, PSB, for PPP projects. This is a key tool to be used in the assessment of the private sector PPP bids and in the determination of value for money.

The PSB is a comprehensive estimate of the cost, including the value of risks, of procuring those elements of the project that the private sector is invited to tender for in the PPP contract, based on the whole-life cost to the sponsoring agency of procuring the project using traditional procurement arrangements. The NDFA also facilitates risk workshops and advice on risk analysis, which are key inputs to the PSB.

Given that this is a new development, it may be helpful to summarise, in broad terms, how the new arrangements for the centre of expertise will work. There is a clear distinction between the project development phase, which is the primary responsibility of the sponsoring Department or agency, with the assistance of advisers, as necessary, and the procurement delivery phase, which is the responsibility of the centre of expertise. It is a matter for the relevant Minister to decide what projects are to be pursued as PPPs within the designated areas.

The NDFA is responsible for the procurement to delivery stage of the projects, within the parameters set by the sponsoring Department or agency. The centre of expertise is to undertake the procurement after all policy issues are cleared by the sponsoring Department or agency, output specifications are set and the PSB is signed off, with the assistance of NDFA financial advice, as necessary. The NDFA is then responsible for procuring the projects within these parameters to the so-called turnkey stage. The projects will be handed back to the sponsoring agency or Department following completion of construction and commissioning. The unitary payments to the private sector partner over the term of the PPP contract, which typically covers a period of 25 to 30 years, will be made from the Vote of the Department or agency, and no unitary payments will be made by the NDFA.

There have been some more recent developments in PPPs since the 2005 annual report was published. I am pleased to report that a number of projects have been subject to further significant progress. In particular, the first bundle of schools in the new programme, which includes second level schools in Portlaoise, Ferbane and Banagher, has moved into its procurement phase and has now been brought to market by the NDFA.

In June of this year, the Government gave the go-ahead to the drafting of legislation to place the centre of expertise on a statutory footing. Senators will be aware that it is on the Government's legislative programme for this session and the Minister for Finance expects to bring it to the Government for approval to publish in the coming weeks.

The legislation will formally allocate the new procurement function to the NDFA by giving it the power to enter into PPPs with a view to transferring them to the relevant State authorities, or to act as agent for State authorities in regard to PPP procurement. It will also allow for the appointment of three additional board members, two of whom have been already appointed on an interim non-statutory basis.

On the resources deployed by the NDFA, the annual accounts appended to the report set out the details of the NDFA's own administrative costs. These costs amounted to just over €36,000 and related only to audit fees and costs associated with the board.

Under section 11 of the National Development Finance Agency Act 2002, the functions of the NDFA are performed through the National Treasury Management Agency, NTMA. The bulk of the agency's running costs, including salaries, is borne by the NTMA. The expenses incurred by the NTMA on NDFA functions in 2005 amounted to more than €2.75 million in the context of the NDFA's new procurement role.

The accounts of the NDFA are subject to audit by the Comptroller and Auditor General, whose report thereon is also included with the annual report. The chairperson and the chief executive officer can be called to give evidence to the Committee of Public Accounts and they regularly do so when the relevant reports of the Comptroller and Auditor General on the NTMA family, so to speak, are being considered.

As with a number of other functions and roles assigned to or performed through the NTMA, the NDFA is staffed by people who are employees of the NTMA. The annual report notes that the NTMA has 11 professional personnel dedicated exclusively to the work of the NDFA. In addition to the full-time employees allocated to the NDFA, other NTMA staff and facilities are used, as required, including information technology, security and legal and financial control, bearing in mind that the agency has specialists in various aspects of the financial markets.

The annual report notes that the recruitment of further professional personnel with financial expertise is ongoing. The agency anticipates a rise in the staff level to at least 20, dedicated solely to the NDFA's work. The NDFA is governed by a board which, under section 12 of the National Development Finance Agency Act 2002, is required to ensure that the functions of the agency are being performed effectively; set the strategic objectives and targets to be met by the agency; and ensure that these objectives and targets are met. The chief executive officer of the NTMA is chairperson of the board of the NDFA.

The board is being expanded by an additional three members in recognition of the additional responsibilities which the NDFA has as centre of expertise for PPP procurement and delivery. As Senators may be aware, the new ten-year social partnership framework agreement, Towards 2016, includes a statement that the Government is disposed favourably to providing for trade union representation on the board. I expect this will now be considered further by the Minister following the recent ratification of the agreement.

I am pleased the NDFA is continuing to face the challenges set for it by the Government, both in its original role and in its new capacity as a centre of expertise. The NDFA comprises just one element of the Government's broader commitment to delivering investment to promote national economic competitiveness, regional development and environmental sustainability within a sustainable economic and fiscal framework. In that respect, a prominent feature of all Government expenditure, including capital investment, is that it must deliver value for money, and the NDFA has a central role in supporting this. The objective, skilled and independent advice of the NDFA is and will continue to be a key complement to the broader initiatives the Minister for Finance has introduced to secure value for money.

I understand that, in November 2004, there were statements in this House on PPPs. I understand that Members expressed a positive view of PPPs if used in the right way for the right kinds of projects. Many also made comments reflecting their concerns or queries on certain aspects or projects. I understand that many stressed the importance of learning from experience, of being open to new ideas and of seeking and applying the right skills if we were to make the best use of PPPs.

The initial establishment of the NDFA in 2003 as the financial and risk adviser to State authorities on major capital projects, including PPPs, and the further establishment within it of a centre of expertise for PPP procurement demonstrates the Government's commitment to learning from experience, being open to new ideas and putting in place the institutional structures to ensure that the right skills are applied to the process.

I believe that the House will join me in welcoming the progress of the NDFA to date and congratulating the agency, its board and staff on the contribution that they have made, as well as wishing the agency well for the future.