Tuesday, 3 October 2006
National Development Finance Agency Annual Report 2005: Statements
Batt O'Keeffe (Minister of State with special responsibility for Housing, Urban Renewal and Developing Areas, Department of Environment, Heritage and Local Government; Cork South Central, Fianna Fail)
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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.
I welcome the opportunity to discuss the 2005 annual report of the National Development Finance Agency. The agency is now almost four years old. It has stated that one of its principal functions is to advise State authorities on the optimum financing of priority public investment projects by applying commercial standards in evaluating financial risks and costs. Its overriding objective is to maximise value for money to the Exchequer.
These are worthy aims, and no doubt the agency strives to meet them. However, the story of the Celtic tiger has been one of incompetence in delivering capital projects. While the private sector and the economy have roared ahead, that private success has stood in stark contrast to the public waste. We have had some dismal experiences with public private partnerships where both the taxpayer and the user of public services have been left badly bruised. The toll bridges in Dublin are a sore reminder, and the Comptroller and Auditor General found that PPP schools projects were 20% more expensive than expected. The lesson is that one must be careful when choosing to use PPPs.
It is worth pointing out the level of waste over which the Government has presided in capital projects. In November 1999, the Minister for Agriculture and Food received a proposal from Punchestown seeking funding of €6.9 million to build an exhibition and show centre. The Department of Finance approved the full amount, but in June 2000 Punchestown requested an additional €6.4 million, something acceded to by the Minister for Finance. A further €1.48 million was sanctioned for the project by the Minister in 2002, and the total over-run was almost €15 million.
MediaLab Europe was established in May 2000 as a university level research and education centre to specialise in telecommunications, information technology and multimedia technologies. It is worth bearing in mind that it had become a pet project of the Taoiseach after a visit to the Massachusetts Institute of Technology. The State invested €35.5 million in the project which collapsed in early 2005.
In 1995, the Department of Justice began the refurbishment of Cork courthouse. The cost of €6.35 million was to be borne by the Department. However, the final cost reached €26.5 million, with an additional €5.2 million for rent on substitute properties also being borne by the Department.
From 1999 the Office of Public Works acquired several properties to house asylum-seekers, spending €18.9 million on five locations that were never used. The recent Kilkenny flood relief scheme entailed a combination of river widening and deepening, flood walls and drainage works. Originally costed at €13 million, the final cost was almost €50 million. Inadequacies in the initial design plan, post-contract changes, significant under-estimation of costs and failure to negotiate a fixed price contract were causes of the large overrun. Furthermore, the works were extended to three years owing to unforeseen archaeological work required, and there was at the time no risk management approach to flood relief schemes.
Who could forget the so-called Bertie Bowl? To facilitate the construction of the stadium, the Government moved the national laboratories to another location. Clearing the existing site cost €96.5 million and, in addition, the Government spent €3 million developing the Bertie Bowl only to suspend the project.
The citizens of Dublin are lucky enough finally to have their Luas. However, even that was a financial disaster. The original scheme was for a single continuous line from Dundrum to Tallaght through the city centre. It was adopted as Government policy in 1996. The project was costed in 1996 at €279 million, but the final cost was €750 million. Its target completion date was 2000, but it was completed in 2004.
The port tunnel runs from East Wall to Santry, connecting Dublin Port with the M1 motorway. Originally estimated in 1999 to cost €222 million, the contract awarded in 2000 was for €449 million, and the final cost is expected to top €1 billion.
In 2005, the Minister for Justice, Equality and Law Reform purchased a site for a proposed new prison intended to replace Mountjoy Prison and the Central Mental Hospital in Dundrum. The Minister spent €30 million on a 150-acre site, a price estimated by valuers to be more than eight times the going rate for land in the area.
All that is an appalling indictment of Government policy. It is a catalogue of embarrassing incompetence and, worst of all, came against the background of sparkling private success in our economy. Fine Gael and our partners in the Labour Party have spelt out our approach to getting capital projects built on time and within budget. Key to that approach is giving the Taoiseach and Tánaiste a central role in setting a limited number of strategic priorities for the Government. Furthermore, the Taoiseach and Tánaiste will assess ministerial performance against key high level targets.
The Taoiseach and Tánaiste will have a direct role in setting priorities for the Estimates process. They will be assisted by an Estimates strategy group tasked with ensuring that the Estimates reflect strategic priorities. We will enhance the role of the Department of Finance, both as promoter of economic and social development and as monitor of public spending outcomes. The Estimates process will be reformed to provide for a strategic reserve fund. Thus up to 2% of Government spending will be held back each year and allocated to achieve a strategic shift in policy and where demonstrable value for money can be obtained from additional spending. That will also enable the Government to foster reforming measures that enhance value for money.
We will establish a critical infrastructure commission to analyse key infrastructural priorities and monitor progress on major infrastructural programmes for economic, social and regional progress. We will reform and enhance project management by introducing a gateway system for major capital projects to enhance accountability and pin down responsibilities and by introducing a traffic light reporting system for projects to highlight emerging problems.
Those policies are spelt out in the joint Fine Gael and Labour policy document, The Buck Stops Here. Given recent events in the Government, it is a policy clearly not followed by Fianna Fáil or the Progressive Democrats. I note that in July 2005, the role and functions of the National Development Finance Agency were expanded to include a specialised procurement delivery function. The centre of expertise within the agency is for the specialist procurement of public private partnership projects, initially a programme of projects from the Department of Justice, Equality and Law Reform, the Department of Education and Science, and the Department of Health and Children.
At the time, Fine Gael deputy leader and finance spokesman, Deputy Bruton, rightly questioned whether the decision to transfer responsibility for capital projects away from Departments would be a success. The Minister for Finance, Deputy Cowen, obviously wanted to be seen to be doing something. Expanding the role of a quango is an easy option, especially when it removes responsibility from the shoulders of the Minister and his colleagues.
Using private finance is a more expensive way of raising money than traditional Government borrowing. However, savings should arise through superior management of risk by firms used to delivering a better performance in the private sector. The question now arises of whether the higher cost of using private finance will be offset by possible savings in the private sector. The work of the National Development Finance Agency is far from transparent. It will be difficult for the public ever to know whether the projects represent a win for the taxpayer. Like the National Roads Authority, the NDFA is not subject to close scrutiny by the Oireachtas. We are being asked to take a leap of faith.
There are also concerns about conflicts of interests that need to be explored. The NDFA has become the sole gatekeeper for approving PPPs in key sectors. However, it also has the role of organising investments in such projects. It has been given authority to borrow up to €5 billion to do so. It would not be in the public interest for the agency to be involved as both gatekeeper and agent for PPP projects. We made the point and continue to believe that the transfer of responsibility for capital projects away from Departments deserves, at best, one cheer. It remains to be seen whether that change will bring better performances or any benefit at all.
The report that we are discussing includes some good news. Given the appalling state of our social housing waiting lists, Fine Gael welcomes the involvement of the agency in housing projects in Infirmary Road, O'Devaney Gardens, St. Michael's in Inchicore, Jamestown Road, Dominick Street and Bridgefoot Street. To give credit where it is due, the M4 Kilcock-Kinnegad motorway opened in December 2005, ten months ahead of schedule, while the National Maritime College was built under a PPP in 18 months and came in on time and within budget.
However, those are not typical of capital project delivery in this country, and nobody should trumpet those small successes too loudly, if only because they are in stark contrast to so many badly handled projects. The key challenges that face the country in the future are the establishment of a suitable infrastructure for a First World economy. Despite all our wealth, we still have no metro, no joined-up Luas, not a single rail line to any airport and no real renewable energy infrastructure. Governments need to show real political leadership to get these things done. By leadership I do not mean anything like the glossy, flimsy and aspirational Transport 21.
I very much welcome this report. I wish to comment briefly on the history of the National Development Finance Agency. It was born out of the National Treasury Management Agency which is one of the most successful initiatives that has been undertaken in the past 20 years. I was privileged to have witnessed its inception. It was part of the policy platform for the February 1987 election, adopted by the late Taoiseach, Charles J. Haughey, who had the vision to engage in initiatives which have helped to save this country millions. Mr. Dermot Desmond, of course, was one of the inspirations for this initiative.
While the Department of Finance did a very professional job, when it was responsible, it became clear, given that the debt had grown to about £25 billion, as then measured, in March 1987, that a professional full-time agency was needed which could recruit staff directly, rather than civil servants who would move on to other functions. This agency has presided over a reduction of roughly 120% in GDP, depending on the measure one uses, down to well under 30% or indeed under 20% if the National Pension Reserve Fund is taken into account.
I spoke in the debate in 2004. One of the reservations one has about PPPs concerns the State as a sovereign borrower. A State in such good standing as Ireland is at present could obviously borrow at very keen competitive terms, which might be more difficult for any private sector enterprise, however good its standing. The excellent feature of this is that it effectively brings together — albeit under two hats — the people who manage our debt and who therefore are responsible for borrowing on behalf of the State, at the keenest rates. They are charged with getting the national debt down to as low a level as possible and for vetting the PPP projects so that we do not end up with projects that are very costly.
Our neighbours in Britain have had relatively bad experiences with what they call the private finance initiative, with large over-runs and heavy costs. They have been involved in something we do not have to do, namely, massaging the budget figures to keep borrowing in or around the 3% level. Fortunately, we do not have that problem and can examine the issues strictly on merit in terms of trying to get better value for money. That is excellent, instead of having different Departments and agencies — particularly those with not much experience in this field — trying painfully to invent the wheel. Instead there is an agency with experience across the board which is able to supply all the professional advice. It can give civil servants and, indeed, Ministers the confidence to proceed with valuable projects, whether housing, education, roads, rail or whatever so that they do not have to face heavy criticism, for example, from the Comptroller and Auditor General.
It is essential in the financial and other fields that the Civil Service equips itself with a proper specialised agency to provide professional advice and expertise so that civil servants are able to advise Ministers and can have the courage to take decisions in the national interest which are necessary. By all accounts, this is proceeding very well. Different Members of the House will have experiences of different projects. The M4 project, for example, which now stretches out to Kinnegad, is an excellent improvement which I assume is substantially, though possibly not wholly, self-funding. We can go back to 1990, to the West Link toll bridge, which has been discussed a good deal in this House. With the benefit of hindsight that does not appear to be a very good PPP deal. However, we have to be realistic as regards many new projects of this type, in particular, where there is bound to be a certain amount of trial and error. It takes time before the mechanisms are refined so that there are not over-runs, waste and so on.
I was more than a little surprised by Senator Finucane's contribution. I do not know how his stereotype of private sector efficiency and public sector waste appeal to his putative partners in the Labour Party, but I believe he is being simplistic in the extreme. We have an example, only today, of the private sector falling down on the job, as regards Smart Telecom. That type of ideological approach is certainly not followed by Fianna Fáil — and neither, I believe, is it followed by the Labour Party. When he mentions something such as Punchestown — excuse the pun — one can only say that this is flogging a dead horse.
I recall having a conversation with a former Fine Gael Taoiseach. We were discussing the various economic development initiatives in 1987, and one of them had not come through. With the best will in the world one has to be prepared to take risks and some will not work out.
Take the assertion that Luas is a financial disaster. Luas is an enormous public and financial success. The budget line for the current Luas subsidy is zero this year. Financial disaster my foot. Frankly, I have no faith whatsoever in the document amounting to tinkering and cosmetic proposals by which Fine Gael is attempting to suggest that somehow or other it will get better value for money by setting up various bureaucratic committees and procedures. I do not believe this adds up. It is talking about holding back 2% of the budget to concentrate on strategic priorities. Does that mean money will be taken off certain things that are being funded at the moment and held for strategic priorities? Perhaps it would be interesting for the electorate to know where the 2% budget cuts will fall.
In general I regret that with a fine agency such as this we have been subjected to a rather poor script from the Fine Gael research office. It is trying to make a political issue out of the agency instead of discussing seriously its worthwhile work. I have much confidence in this agency. Senior people have been at the job for nearly 20 years. Their results have been very good and they have made their contribution to the Celtic tiger economy as it existed up until the first quarter of 2001, as well as to the still very dynamic economy that we have today.
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.
I welcome the Minister of State to the House and I welcome the opportunity to have this debate. It is the right time for it.
On the Independent Newspapers website there is currently a straw poll that asks the question: "Is the Government incompetent when it comes to spending public money?" I am sure the Minister of State would have no doubt as to how he would answer that. As of a few minutes ago, the public response to that question was quite clear. No fewer than 86.4% of those who have already responded consider that the Government is indeed incompetent. I am sorry to reveal that to the Minister of State as, particularly on a night like this, it would not put a smile on anybody's face.
Without wanting to read too much into an informal survey of this kind, the question it asks is nevertheless pertinent to this debate. I suggest that, as legislators, it is the most important question we have to ask and it is one we should be asking constantly. In response to this question there is good news and bad news. I recently heard someone who had given his son the loan of his car tell a story about hearing good and bad news. His son telephoned him and told him he had good and bad news, asking which he wanted to hear first. His father replied that he wanted to hear the good news first. The good news, he was told, was that the airbag works.
The good news is in the report before us, namely, the annual report of the National Development Finance Agency. The bad news is in another publication that has just seen the light of day, the annual report of the Comptroller and Auditor General. First, the good news. I commend the work of the National Development Finance Agency and I commend the Government on its decision last year to extend its remit so that it now takes care of all State procurement under public private partnerships. The setting up of the agency in the first place and the extension of its remit are an acknowledgement — a belated acknowledgement but a welcome one nonetheless — that the raising of development finance is a matter for experts, and not one for amateurs. This is a field ploughed by some of the cleverest minds — certainly some of the highest-paid minds — in the financial world. To set that brainpower up on one side, and to attempt to compete with it on equal terms with a team of non-experts with no particular training in this highly specialised field was to guarantee a losing result for the State from the start. Now, at least, we have a level playing field with a balance of expertise on both sides.
The evidence from the first few years of the NDFA's existence is that it has brought about a huge increase in the value for money the State gets as a result of its activities in raising development finance. On the basis of that record, I have no doubt that it will make the same improvements in the area of public private partnerships, which perhaps have a lot to offer us in terms of delivering necessary infrastructural projects somewhat faster and more efficiently than we have been used to on the basis of direct State involvement. I say "perhaps" because I think the jury is still out on the issue of public private partnerships. It remains to be seen whether they can be worth the extra that they certainly cost.
I see the off-loading of this responsibility to the NDFA as a continuation of the trend that created the National Treasury Management Agency more than ten years ago and the steady expansion of its remit ever since. The NTMA is a monument to a principle that I should like to see extended to all public spending in this country. This principle is that the spending of public money is a serious matter, and one to which we must bring the very highest standards of professional management. In one way I am amazed that I should have to state this principle at all because it is surely self-evident. Self-evident or not, it is not a principle that we have acted on in the past across the broad spectrum of public spending.
We now look after the national debt in a highly professional way, and thanks to the NDFA, we are now taking the same approach with the raising of development capital. However, despite the large amounts of money we are now raising for development capital, it is a fairly small amount of overall Government spending. The truth is that for the majority of Government spending across all Departments our attitude as to how we spend money is, to put it charitably, lackadaisical. One does not have to rely on my opinion to come to that conclusion. Instead, all one has to do is read the annual report of the Comptroller and Auditor General. There, in black and white, one will be able to read all the chapter and verse that one could ever want. This is the bad news to which I referred earlier.
I will not waste the time of the House by reciting any of the latest glaring instances of misspending and bad value for money, not least because it is the subject of the Private Members' debate in the other House this week. What I want to do is call attention to the pointlessness of the annual charade we go through in vetting State expenditure after the event. The first stage in that charade is the excellent work of the Comptroller and Auditor General and his staff which results in the publication of his annual report. The second stage is the chorus of "oohs" and "aahs" thrown up by the media at the latest manifestation of gross misspending. The third and longest stage of the charade is the weekly grind of the Committee of Public Accounts, which diligently works its way through the voluminous Comptroller and Auditor General report questioning all the responsible Accounting Officers on their stewardship.
What happens at the end of this long charade which takes up the best part of a year? What is changed as a result of it all? Nothing at all changes is the short, shocking answer. When the charade is over, there is a deafening silence and a total lack of remedial action. By then it is almost time to start the cycle all over again for the following year.
I may be considered unkind in calling all this work by so many hard-working people a charade, but if we take no action as a result of it that is exactly what it is. As legislators we are the audience for this performance, and it has no effect whatever on what we do. The only purpose of unveiling all these instances of misspending is to do something about it. The whole thing is pointless if we do not take action. That is the purpose of what we do——
I take the Senator's point that it does learn. However, it seems to go on year after year and I do not know that we actually take action. I am a great believer in that everything we do should be aimed at taking action.
I have been a Member of this House for 13 years and I have watched this charade repeat itself over and over. I have now come to the conclusion that we need a radical shake-up in how we approach the spending of public money. We need the same kind of creativity that came up with the National Treasury Management Agency to devise a totally new approach to how we do our spending. This would look at how we approve it in the first place, and then, above all, how we monitor the spending to make sure it is well spent and achieves the purpose for which it was approved.
The first step in bringing about this change is to admit that we currently have a dysfunctional system. Those 86.4% of respondents in the Independent Newspapers survey were right in that the Government is indeed incompetent when it comes to spending public money. It is high time we put our minds to setting this right. We have the objectives, ambition and the wish. What we now need is the determination to get down and do something about it.
Clearly, I did not have the benefit of hearing all that Senators have said about the report. However, I commend those that have taken the trouble of reading the report and going through what they would see as the positives. I was in my office to hear some of the negative responses.
Member of both Houses, perhaps because they are inundated with paperwork of one kind or another, sometimes miss out on the opportunity to examine the kind of work that is done by the National Development Finance Agency, and the plethora of other agencies that benefit from public funds. In some instances those agencies believe they would benefit from significantly more public funds being made available to them.
The nature of the projects undertaken is diverse. There is an enormous number of possibilities and a level of challenge which could be addressed by the agency in a favourable condition. The Minister of State, Deputy Batt O'Keeffe, in his opening remarks spoke in particular about the PPP issues and the challenges involved. As the Minister for Finance has said in the House, the Government is committed to the use of public private partnerships in delivering public investment projects where they are appropriate.
We must be aware of difficulties which have arisen in other jurisdictions regarding PPPs, particularly in the context of partnerships which involve relatively long-term support of the initial building project. There have been instances in the United Kingdom and elsewhere of financial difficulties besetting the company subsequently which undermined somewhat the efficacy, particularly in fiscal terms, of the particular project.
The use of PPPs can have benefits when used for projects of the right scale, risk and operational profile. I am not sure we have always managed to get all those factors right. It is recognised that the PPP process places new demands on both the public and the private sectors. It requires more effort up-front in scoping, procuring and negotiating projects because PPP is a form of procurement that integrates a number of components and not just construction. The contracts are typically long-term ones and sometimes the long-term and the support elements are of enormous importance.
PPPs also face the same challenges as other large projects. Given that there are so few of them in western Europe in particular, people tend to direct a huge level of attention on negative experiences such as those that have occurred, particularly in the United Kingdom. The Government must demonstrate a willingness and the capacity to innovate, apply lessons learned from innovation with PPPs currently and, perhaps more importantly, benefit from the experiences in other jurisdictions.
PPPs are not the major part of the capital investment programme. It is important to highlight the extensive work the National Development Finance Agency is doing in advising State authorities on major capital projects which are not privately financed PPPs. There are significant public transport investments by the Rail Procurement Agency, RPA, and Iarnród Éireann among others.
There are clear fundamental issues regarding, for example, value for money. There are issues regarding the quality of the construction in the provision of projects of this nature and it is important that we would not lose sight of issues of that magnitude. Some Members raised concerns they had in that regard. It is vital that there be rigorous appraisal and best practice management in regard to projects of this nature. It is fair to say that has been the experience heretofore in respect of Ireland.
The Minister for Finance has already identified enhanced value for money measures to be applied such as the revised capital and appraisal guidelines, public procurement reforms, measures in regard to ICT and major consultancies, and value for money in policy reviews. In the PPP area these are backed up by specific guidelines and PPPs based on the general capital appraisal guidelines. Within that broader context the specific expertise of the NDFA is an invaluable support and, in the context of developing public procurement and public investment projects, will continue to be a hugely important component. It is fair to acknowledge that in the relatively short period since 2003 good quality advice has been given.
It is also clear from the current annual report that the NDFA is meeting its responsibility regarding its role in advising State authorities on public investment projects generally and its new role in procuring PPP projects. That is not to ignore the primary role of Departments and other State authorities in selecting, appraising and scoping projects. The Government has embarked on an ambitious programme of capital investment and has put in place rigorous procedures and institutional support to deliver value for money in public expenditure.
We want to deliver the first class economic and social infrastructure Ireland needs. I compliment the NDFA on its performance to date and I am confident that the agency will continue to play its part in the delivery of the Government investment programme.