Derek McDowell (Labour)

The simple fact is that most people do not know what the National Development Finance Agency is. Without wishing to cast aspersions on colleagues, it is a reasonable bet to say that most Members of this House do not know what the NDFA does. In that context, it is difficult to remember that it was the bright new idea for the last general election, announced with much enthusiasm and panache by the then Minister for Finance on the first day of Fianna Fáil's election campaign in 2002. It was announced with such enthusiasm because the then Minister saw it as a means of financing projects off balance sheet. That year was the weakest in the last 15 years in economic performance and the possibility existed for the first time that we could end up over the 3% deficit limit allowed under the Stability and Growth Pact. The former Minister for Finance came up with this idea to allow investment in infrastructural improvement continue by taking it all off balance sheet and doing it through the NDFA.

As luck would have it, economic performance improved and we did not have to go that route. In any event, the European Commission informed the Government that such a ruse was not on. It was not necessary for the NDFA to raise finance independently, but it did not do much of that anyway. It was not necessary either for the NDFA to set up the special purpose companies which were envisaged. Most of its role became redundant other than the still important role of providing advice on major infrastructural projects costing over €20 million. Therefore, it is worth remembering the history of how the agency came about.

It has now been given a significant new role in the procurement of public private partnership projects. Given the mess which was the procurement process for PPPs, that is no bad thing. I spoke for the first time on the issue of PPPs about ten years ago and I am sure Senator Mansergh has been doing the same thing for the same period of time. I have given the process a cautious welcome and approval which I will outline in a few moments.

However, we must look coldly at our experience and I will not go through the list that Senator Finucane read out. We have had individual bad experiences with projects, but that is not what I mean. I mean that our experience of the process has been pretty poor. I am not sure where the glitch arose, but there has been a distinct lack of enthusiasm for this method of financing within the Government. I am not sure whether this arose in the Department of Finance or within line Departments, but there is no doubt that the business community and those involved in financing PPPs were under the impression that the Government is not committed to this method of financing. I have no doubt that setting up the centre of expertise was intended to counteract those problems and perhaps it will succeed. However, there is no doubt but that the private sector simply did not believe that the Government was in any way serious about doing what it wanted to do, or perhaps that the Government was not competent in doing what it wanted to do.

There were other obvious problems and I am not sure that we have resolved them yet. This is a small country and we are inviting companies to bid for relatively small projects by international standards. The costs of bidding have been relatively very large. We invite companies to engage in a lengthy negotiating process, usually going on over a period of months, which costs those companies a lot of money. They may ultimately fail and if that happens, they must walk away with lighter pockets. That has been a serious problem in discouraging large companies and medium-sized Irish companies from engaging in serious negotiations and putting in bids. I am not sure we have dealt with that yet.

I read the report this morning. I thought that much of its detail had already been done by the Department of Finance, such as setting up the public service benchmark for PPP projects or allocating risk between the various parties. I remember listening to the former Minister for Finance, Mr. McCreevy, telling us four or five years ago that all of this was already in place. It comes as a surprise to read that this is being touted as something innovative. If it has been in place for the last few years and has not been working, then perhaps we are not getting the full facts.

I do not have a problem with PPPs, but we have been guilty of expecting too much from them. When we came up with this idea in the early 1990s, it looked like a brilliant way of spreading risk and of bringing in private sector finance and expertise. We expected too much. We did not learn as much as we might have done from the experience abroad and we must now learn from our own experience. It is best used whenever there is a possibility of implementing user charges to part-finance investment which could not have otherwise been made. The most obvious example of that is by using tolls. I do not endorse tolls in every circumstance, but there are circumstances where it is a good thing.

Senator Mansergh mentioned the pleasant problem for us, which is that we could finance projects far more easily out of current revenues. We have not usually been in a position where we can best finance capital projects out of current revenues, but at the moment we do not even have to borrow to finance many of these projects. We must look at things in a cold light and ask if we are better off paying for Thornton Hall over a couple of years out of current revenues, or if we are better off setting up a complex means of financing it over 30 years, which will ultimately cost far more. On the face of it, we are far better off financing it quickly out of current revenues, unless there are other risks or expertise which we can bring in. I am not entirely convinced that there are.

In a sense, PPPs were better in harder days. They were better when we needed to spread the financial risk and the financial cost over a period of time. At the moment, we do not need to do that. In almost all cases, spreading it over a longer period of time will cost us substantially more. Even if the Government borrowed from the international markets as it would have done 15 years ago, it would almost certainly cost a good deal less than using some sort of PPP mechanism to borrow the money or to finance it over a period of 20 or 30 years.

The other arguments — spreading risk and buying expertise — are more persuasive, but we must look at it on a case by case basis. The PPP process for schools has been done on a maintenance and operation basis or part-maintenance and part-operation basis. Many of those who currently maintain and operate our schools would need to be persuaded that there is expertise out there in the private sector that is better than what is currently available to us. It may be convenient for the Department of Education and Science, or for VECs, to divest themselves of that responsibility. However, by giving it to a private company which may well bring in immigrant labour with no expertise, it is hard to see the gain. The other advantage is that we spread the risk and this advantage is more clearly seen. We have seen this in some of the road projects that have been built by PPPs. The private sector has an expertise in this area which we lacked in this country as we had no experience of such large-scale building projects.

I wish the NDFA well. Only now is it starting to do serious work. I hope that it chooses its projects well. I read the report and there is a variety of projects in it, some of which would not be obvious cases for a public private partnership, but I do not have any particular expertise in this area. We need to keep a careful eye on these projects, because there are other ways of doing it and we can afford those other ways at present.