Thursday, 30 November 2006
National Development Finance Agency (Amendment) Bill 2006: Second Stage
I am pleased to be before the House to present the National Development Finance Agency (Amendment) Bill 2006, the purpose of which is to provide a statutory basis for the Government's initiative to improve the capability of Departments or agencies to undertake public private partnerships, PPPs. The measure involved the establishment in 2005 of a centre of expertise for PPP procurement within the National Development Finance Agency, NDFA, in addition to the NDFA's existing advisory and financing functions. I stress that the Bill is amending legislation. The basic legislative provisions for State authorities to undertake PPPs and the establishment of the NDFA are in place in the State Authorities (Public Private Partnership Arrangements) Act 2002 and the original National Development Finance Agency Act 2002.
I will outline some background information on PPPs generally and go through the specific provisions included in the Bill. Senators will recall previous statements on PPPs in the Seanad on 17 November 2004 and the NDFA annual report on 3 October this year. The overall context for the use of PPP arrangements includes a national framework for PPPs agreed with the relevant social partners in 2001 under partnership structures, legislation to facilitate State authorities' engagement in PPPs in 2002 and to establish the NDFA in 2002 and the inclusion of PPP targets in the rolling multiannual capital investment envelopes from 2004.
A key activity of the NDFA is to advise on the optimum means of financing public capital investment projects within the State sector, including PPPs. The NDFA reports that, to date, it has been asked to advise on more than 100 projects, of which PPP procurement may be considered for more than 60. It completed its advice on 22 projects at the end of 2005. Its annual report for 2005 outlines that the cumulative value of the projects on which it had compiled its advice was almost €2.4 billion by the end of that year and is expected to reach almost €4 billion by the end of this year.
The PPP approach can provide value for money and for the timely delivery of infrastructure when applied to projects of the right risk, scale and operational profiles. The process is intensive and demanding because it requires that the whole-life costs and service requirements of the asset being procured be quantified, the negotiation of a contract that will typically be of 25 to 30 years in duration and a number of formal value for money tests. After a project is identified as suitable for procurement as a PPP, it can take 18 to 24 months or more to reach construction stage. Overall, delivery times have been impressive.
The use of PPPs has become well established in respect of roads, with a steady stream of projects moving through the planning process and reaching the market. There are three toll-funded PPP roads in operation procured by the National Roads Authority, namely, the Kilcock-Kinnegad motorway, the Dundalk bypass and the Rathcormac-Fermoy bypass. Regarding environment and local government, local authorities have brought forward a range of projects in the areas of water services and housing with and without the use of private finance. They are also advancing waste projects.
I will turn to the specific background to the legislation before the House. By 2005, deal flow was established in respect of roads and in the local government sector. However, progress was not at the pace anticipated in the area of PPPs funded by unitary payments from Departments' Votes. A variety of reasons for this was identified and the need for specialised skills and capabilities to manage this relatively complex procurement process was singled out as a key factor. Finding the most appropriate way to put in place the full range of necessary skills, particularly in areas that lack experience of the process, has proved to be a challenge across many jurisdictions. After a period of review and consultation, the Government decided last July that the full range of the procurement delivery skills required for the PPP procurements in question should be centralised in a centre of expertise, which the Government decided to locate in the NDFA. This measure was designed to improve the capacity of the public sector to develop PPPs funded by unitary payments from departmental or agency Votes. The NDFA's centre of expertise will consolidate the core skills and capacities required to support these complex procurements in departmental or agency areas. As is the case with the National Roads Authority in respect of roads and the Railway Procurement Agency in respect of rail and metro, it will underpin strong continuity in managing PPP procurement in the public sector.
The Government also decided that the PPP projects to be initially pursued with the assistance of the centre of expertise should be in the education, justice and health sectors. Projects already in train outside the new arrangements have been handled pragmatically in terms of the existing level of involvement of the centre of expertise.
Since the announcement of the centre of expertise in July 2005, a number of projects are in train in the area of PPPs funded by unitary payments from Votes. The first major initiative for the centre was in the education sector. The Minister for Education and Science announced PPP programmes for 23 new post-primary schools, four new primary schools and 17 projects at third level to be procured by the centre on behalf of her Department. Significant progress has been made in the programme. The first bundle of schools, consisting of St. Mary's CBS, Portlaoise, Scoil Chríost Rí, Portlaoise and two amalgamation projects in Ferbane and Banagher, has entered the procurement process with the NDFA. A second bundle of schools was announced last week, consisting of six schools on five sites in Cork, Limerick, Kildare, Wicklow and Meath. Progress is also being made in the justice area with the criminal courts complex and the Mountjoy complex relocation, and in the health area with regard to radiation oncology units.
The NDFA commenced the new PPP procurement role on an interim, non-statutory basis, pending the making of the necessary legislative provisions. Acting on a non-statutory basis does not present significant problems for the early stages of the procurement process. However, statutory provision is now a prerequisite to enable the NDFA to conclude contracts for PPP schools projects in the first half of 2007.
I will set the procurement role of the NDFA in context. The NDFA is a project taker. The agency is responsible for the procurement to delivery stage of projects, within the parameters set by the sponsoring Department or agency. The relevant Minister decides what projects are to be pursued, within the allocations available for such projects. Under these arrangements, there is a clear distinction between the project development phase and the procurement delivery phase. Project development is the primary responsibility of the sponsoring Department, with the assistance of advisers, including NDFA financial advice, as necessary. Procurement delivery is the responsibility of the centre of expertise. The centre of expertise undertakes the procurement after all policy issues are cleared by the sponsoring Department or agency, output specifications are set and the public sector benchmark is signed off.
The existing arrangements for NDFA accountability to the Committee of Public Accounts will embrace the new procurement function accorded to the agency by virtue of the extension of the NDFA's powers in the proposed legislation. The projects will be returned to the Department or agency at turnkey stage and the unitary payments to the private sector partner will be made from the Vote of the Department or agency. These new arrangements will not apply to the transport sector or local government where PPP deal flow is established and where the existing procurement arrangements will continue.
The Government decision of 25 July 2005 also provided for the strengthening of the NDFA board by the appointment of two additional members. This reflected both the generally increased workload of the board under the new arrangements and the importance of deepening and widening its resources for procurement. As an interim measure, I appointed two additional members to the board on a non-statutory basis, Mr. Fred Barry, chief executive of the National Roads Authority, and Mr. Stewart Harrington, quantity surveyor, but their formal appointment requires amending legislation to increase the statutory limit on the number of board members in the National Development Finance Agency Act 2002. This is provided for in the legislation before the House.
Provision is also sought for a third additional board member. In the context of negotiations with the social partners on Towards 2016, it was agreed that the Government would favourably consider the appointment of a trade union representative to the board of the NDFA. I have already followed through on the Government's commitment and have appointed Mr. Liam Berney of the Irish Congress of Trade Unions to the board on an interim, non-statutory basis pending enactment of this Bill.
As I said earlier, the centre of expertise will, in the first instance, procure projects in the justice, education and health areas. Existing arrangements are being maintained for particular PPP projects already in train outside these programme areas, to provide consistency and to allow those projects to be completed.
The move to the centre of expertise is to be complemented with more streamlined decision making in Departments, based on a clarification of roles, and the development of a more standardised approach to PPP contracts. The procurement phase for all future PPP projects in the areas funded by unitary payments by Votes or agencies will be centralised in the centre of expertise, with the exception of projects agreed between the appropriate Minister and the Minister for Finance. My Department recently revised the central PPP guidelines on the assessment and procurement of projects to take account of the revised capital appraisal guidelines issued in 2005, the establishment of the centre of expertise and my recent value for money initiatives. These aim for a pragmatic approach, while maintaining an appropriate level of rigour in consideration of the various steps. The new PPP guidelines will provide a further support to the implementation of the targets for PPP investment in the rolling multiannual capital envelopes.
I have outlined that the NDFA is already carrying out the new procurement functions on a non-statutory basis. I am informed that practical arrangements have been developed to manage the interface between the centre of expertise and the relevant sponsoring Departments to date. I also understand that these have facilitated access to pre-existing expertise. The centre of expertise continues to expand and is building up the necessary skills to ensure the sustained delivery of projects into the future. The NDFA annual report for 2005, which was laid before the House earlier this year and debated in the Seanad just a few weeks ago, sets out the significant work already undertaken in its new role and the resourcing arrangements now being put in place.
This Bill formally allocates the new procurement function to the NDFA. The provisions are enabling rather than prescriptive. The Bill also allows for the appointment of the three additional board members. The Bill includes consequential amendments to existing provisions governing the NDFA's functions, addressing issues such as ministerial guidelines and charging of costs. It also provides for a small number of other matters pertaining to the legislation generally.
I will now turn to the specific provisions of the Bill. Section 1 is a standard interpretation section to define terms used in the Bill, in this case defining the National Development Finance Agency Act 2002 as the principal Act. Section 2 is a technical amendment to the definitions in the principal Act, to make the text consistent with the wording used elsewhere in legislation.
Section 3 amends section 3 of the principal Act, which sets out the functions of the NDFA. The amending provisions enable the NDFA to carry out two new functions, namely to enter into PPPs with a view to transferring the rights and obligations under the PPP to a State authority and to act as agent for any State authority in entering into PPPs. It is anticipated that in most cases the NDFA will act as agent for a State authority.
Section 4 inserts a new section in the principal Act, requiring the NDFA to draw up a code of conduct relating to PPPs based on best practices to ensure good corporate governance, to be approved by the Minister for Finance. The code of conduct is intended to address, inter alia, any potential conflicts of interest or objectives. It is considered desirable to provide for a statutory code of conduct in the context of the new procurement functions and the legislative framework governing public procurement at European level.
Section 5 makes a consequential amendment to section 4 of the principal Act. It extends the existing obligation on the agency to have regard to ministerial policy and guidelines on PPPs to include the exercise of the new procurement functions. Section 6 amends sections 12 and 14 of the principal Act, providing for the appointment of three additional members to the board, and making a consequential increase to the quorum for meetings from three to four.
Section 7 amends existing provisions governing the signing of contracts by the NDFA in section 15 of the principal Act. The provision will allow for contracts to be signed by any two staff authorised in writing by the board as well as by members of the board, in recognition of the volume of documentation involved in PPP contracts. As NDFA does not directly employ staff but carries out its functions through the National Treasury Management Agency, the section refers to NTMA employees signing contracts.
Section 8 amends section 18 of the principal Act, to allow NDFA to disclose confidential information to an appropriate Minister as well as to the Minister for Finance. "Appropriate Minister" is defined in the principal Act and covers any Minister of the Government who has functions or general responsibility in connection with a PPP or a State authority.
Section 9 amends section 22 of the principal Act to bring the procedures for adding bodies to the list of State authorities, covered by the legislation, into line with current good practice in regard to the use of secondary legislation. The new provision takes account of developing case law in this area.
Section 10 substitutes a revised section for section 26 of the principal Act, which deals with the expenses of the NDFA and how they are to be met. In an elaboration of the original provisions in the principal Act, it is proposed that expenses incurred by NDFA on specific projects — in practice, the cost of specialist external advisers — should be charged directly to the relevant State authorities and not solely to Votes, as was provided for previously. The provision for recovery of expenses is being extended to cover the new procurement functions of NDFA as well as its advisory functions. The provision also clarifies that NDFA may pay expenses from the central fund in the first instance, with subsequent recoupment from the relevant bodies.
Senators will be aware that NDFA's functions are performed through the NTMA under section 11 of the principal Act. The NTMA also incurs costs in performing these functions, including staffing costs, and these are met from the central fund, as is the case for NTMA costs generally.
Section 11 updates the Schedule to the principal Act to include all public bodies added to the Schedule by statutory instrument since the enactment of the principal Act and includes a new general category, in line with the provisions of section 9 of the Bill. Section 12 amends the Schedule to the State Authorities (Public Private Partnership Arrangements) Act 2002 by adding the National Development Finance Agency, to ensure that those PPP arrangements that NDFA enters as principal are also covered by that Act. Section 13 is a standard construction and citation provision.
The establishment of the centre of expertise is one of a range of measures to enable the public sector to avail of PPPs where they are appropriate. As I have stated on a number of occasions, the PPP approach has benefits when applied to projects of the appropriate scale, risk and operational profile. While PPPs are not the main procurement option for the capital investment programme, I expect PPP to play a more significant role in the next national development plan.
Of course, PPP is ultimately only a means to an end. The objective is to put in place public services and infrastructure on a value for money basis for the taxpayer so that Ireland remains well-placed to meet the challenges which it will face in the coming decades. I believe that PPP has shown it has a role to play, along with the other procurement options, in delivering investment in our economic and social infrastructure and that the steps we have put in place will help PPP to fulfil that potential as we move forward. In that context, the provisions contained in this amending legislation, together with the other steps the Government has taken to support the process in a practical and realistic fashion, will help to bring about the kind of world class investment in social and economic infrastructure that we are committed to delivering over the coming years.
I look forward to hearing the comments of Senators on this Bill and to a more detailed debate on Committee Stage. I commend this Bill to the House.
I welcome the Minister back to the House. One is reminded of the adage about public transport buses, that there is never one available when one wants it but when a bus eventually arrives, several arrive together. So it is with debates on finance in the Seanad. In recent weeks there have been five or six discussions on finance, and the budget next week will provide more opportunities for the Minister and some of his colleagues to have further discussions on the issue in this House.
I welcome the Bill and will not oppose it being passed by the House. However, the Minister made a long contribution and I wish to take up on a number of the points he made. The main issue I have with the National Development Finance Agency is that there is not enough scrutiny of its role and operation by the Oireachtas. Perhaps we are to blame for that. There was a debate a few months ago on its activities but such debates should be held more frequently. Under this amending legislation we are giving more powers to the new section being established within the National Development Finance Agency. We should examine the operation of the agency in more detail, both in the Houses and at committee level.
The National Development Finance Agency was established more than four years ago. One of its principal functions is to advise State authorities on the optimal financing of priority public investment projects. It is an important function which should be carried out with a view to maximising value for money for the Exchequer. This has not always been given the priority it deserves by the Government over recent years. The Minister outlined a number of areas where success has been achieved in securing value for money from investment in public capital projects, so I will take this opportunity to remind the House of some areas where the Government has been less than successful.
The Minister put great emphasis on public private partnerships. This country has had a mixed record with PPPs and taxpayers have not always benefited to the extent they should have under the objectives of those partnerships. The toll bridges in Dublin are an example of public private partnerships that did not work to the optimal level. The Minister mentioned a number of school building schemes that are due to be undertaken on a public private partnership basis. The report earlier this year from the Comptroller and Auditor General on such public private partnerships found that some school projects were up to 20% more expensive than expected under this initiative. That is not how public private partnerships were sold to the public when they were introduced.
MediaLab Europe was established in May 2000 as a university level research and education centre, specialising in information technology and multimedia technologies. It was a joint collaboration with the Massachusetts Institute of Technology. The State invested almost €36 million in the project which collapsed in early 2005.
Since 1999, the Office of Public Works has acquired several properties, including a couple in my constituency, to house asylum seekers. Almost €20 million was spent on five locations which were never used. One of them is in County Carlow.
In November 1999, the Minister for Agriculture and Food received a proposal from Punchestown racecourse seeking funding of €7 million to build an extension to the show centre. The Department for Finance approved the full amount. In June 2000, Punchestown racecourse requested an additional €6.8 million, which was approved by the Minister for Finance. A further €1.48 million was sanctioned for the project by the Minister in 2002 and the total overrun on the scheme was €15 million.
It is also worth recalling the fiasco of what became known as the "Bertie bowl", that is, Campus Stadium Ireland. A sum of €100 million was spent between clearing the site and the initial feasibility studies on developing the stadium. This can hardly represent value for money for the taxpayer.
I have referred on a number of occasions to the flood relief scheme undertaken in Kilkenny in my constituency. It was initially costed at €13 million but eventually cost almost €50 million. Even then, significant changes had to be made subsequently to install a fish path on the river. This had not been successful when it was initially installed under the original project.
The cost of the Dublin Port tunnel was originally estimated in 1999 at €222 million. The estimate was increased in 2000 to €450 million and the final expected cost will be more than €1 billion.
Despite the Minister's comments, the Government's approach to spending taxpayers' money over the past nine years offers numerous examples of vast wastage of money. For that reason, it is necessary that the House take as many opportunities as possible to discuss spending.
The Fine Gael and Labour Party approach was outlined recently in a joint policy document on strategic planning. The key to the 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. They will have a direct role in setting priorities for the Estimates process and 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. 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 also reform project management by introducing a gateway system for major capital projects to enhance accountability and pin down responsibilities, and by introducing a new reporting system for priorities to highlight emerging problems.
These policy priorities are outlined in the document, The Buck Stops Here, which the Minister is welcome to read.
It was announced in July 2005 that the amending legislation before us would be introduced. The centre of expertise under the National Development Finance Agency will have specialist responsibility for procurement of PPP projects. Initially, its programme will comprise projects from the Departments of Justice, Equality and Law Reform, Education and Science and Health and Children. At the time of the announcement a number of people expressed doubts about whether the decision to transfer responsibility from Departments would meet with success.
The work of the National Development Finance Agency is far from transparent. It operates in the same manner as the National Roads Authority and several other agencies, whereby Senators often find it impossible to raise issues in the House. More transparency is needed in the operations of the NDFA.
I do not see the need for section 6 of the Bill under which it is proposed to double the membership of the board of the NDFA. I am not convinced by the Minister's argument. While I am aware of the commitment made under the social partnership agreement to include a representative from the trade union sector, I remain to be convinced of the necessity of providing two additional positions for Government appointees to State boards.
I also have concerns about potential conflicts of interest. The NDFA has become the sole gatekeeper for approving PPPs in key sectors. However, it also has a role in organising investments in projects and has been given authority to borrow up to €5 billion to do so. It is not in the public interest for the agency to act as both gatekeeper and agent for PPPs.
I welcome the Bill in broad terms. The need for a centre of expertise has been made clear by the activities of the NDFA and the Government and while I have some reservations, I will not be opposing the Bill.
I welcome the Minister and warmly welcome the National Development Finance Agency (Amendment) Bill 2006 which is designed to achieve value for money through a practical scheme which will be worth more than any number of window dressing policies from the Opposition. I have greater faith in the Bill's abilities than the enhanced roles proposed by the speaker opposite for a Fine Gael Taoiseach and a Labour Party Tánaiste.
The National Treasury Management Agency, of which the NDFA is an extension, was an excellent Opposition initiative of a type that the Senator should examine. Twenty years ago the late Charles Haughey was one of its prime movers and it has helped to reduce the national debt from 125% of GNP — virtually the highest in Europe — to its current level of 25%, as it is now measured.
One of the arguments made against PPPs is that the State, as a sovereign borrower of good financial standing, can borrow more cheaply than the private sector. However, those who will advise on the adoption and negotiation of projects will be members of a branch of an agency which has helped us to dramatically reduce our sovereign borrowings in the past 20 years. The agency has an exceptionally good track record and will be able to compare options in determining the correct decision on a project. Central expertise is important to ensure Departments and agencies will not constantly have to try to reinvent the wheel. While some bodies such as the National Roads Authority and local authorities have developed expertise in this area, a number of Departments will benefit from the work of the proposed agency. Civil servants tend towards caution in their advice because they do not want to enter situations which could cause them to be investigated by the Comptroller and Auditor General. However, such timidity can lead them to avoid matters about which they feel they have insufficient expertise.
Senator Phelan rehearsed the usual list of problematic projects but every Government faces similar issues. I doubt, for example, that the rainbow parties are proud of the sale of Irish Steel or the second mobile phone licence which allowed certain individuals to make vast profits, despite the presence of famous programme managers in various Departments. Governments will always face challenges in that regard but the question remains of how we can make the system as efficient as possible to minimise mistakes.
I am reminded of a conversation I had at a summer school many years ago with a former Fine Gael Taoiseach who had extensive ministerial and economic experience. I expressed regret about an unsuccessful initiative which my party had taken in 1987, to which he replied that not every initiative was successful. As Senator Quinn knows given his business background, if guarantees are sought before any decision is made, little will ever be done.
The private finance initiative which was introduced across the water has had a chequered experience of overruns and bad value for money. Such an experience is precisely what we want to avoid in Ireland. One of the great advantages of our current comfortable financial circumstances is that we do not have to resort to PPPs as a means of getting around the 3% borrowing requirement. We only need to follow that route when it represents the best option.
I am familiar with the road projects to which the Minister referred. The Dundalk bypass, the Fermoy-Rathcormac bypass and the M4 are all welcome additions to the road network. One could spend a long time getting around Dundalk or be stuck in traffic entering or leaving Fermoy or Mitchelstown, although the latter is not a PPP project. At certain times of the week, the N4 was a nightmare. The Minister might be amused to know that Wolfe Tone and his men complained about Kinnegad 200 years ago, although purely from the perspective of its being a transport bottleneck.
The Minister mentions three areas where PPPs will operate. The new prison at Thornton Hall is a very ambitious project, and in this House we have heard a great deal about it from the Tánaiste and Minister for Justice, Equality and Law Reform, Deputy McDowell. Schools projects are very important, and all public representatives spend a great deal of time in schools meeting principals and boards of management. The way in which the country is developing means that the population is growing, and fairly constant work is needed on schools, with different demographic profiles emerging. It is important that we get on with that work.
Senator Phelan mentioned problems with the West Link and East Link toll bridges. Those very early projects ran into trouble, but that does not mean to say that they were not badly needed. Unfortunately, in life, including political life, there is a fair amount of trial and error. One will not always get everything perfectly right on the first occasion, and there are times when one must mend one's hand. It does not follow, however, that neither project should ever have been embarked upon in the first place. I do not know what the situation will be after the port tunnel opens, but at least the East Link toll bridge has not been a source of problems. I joined the Taoiseach's office in 1981 and was proud that it was the very first example of the new approach, which will also be valuable regarding health, an area in which vast expenditure is needed.
The Minister stated quite rightly on page 11 of his speech, regarding the national development plan, to which we all look forward early next year, that while PPPs are not the main procurement option for the capital investment programme, he expects them to play a more significant role in the next NDP. That is only right, since their use must be kept in proportion. In other countries there have been times when people suggested that PPPs were a panacea, which they are clearly not. They will work best if operated on a focused, selective basis where they genuinely represent the right solution.
Senator Phelan questioned the expansion of the board. To be fair, he accepted that there would be merit in having a trade union representative. It would also be useful to have a quantity surveyor. We must get away from the idea that elected representatives can always second-guess quite technical decisions and provisions. We obviously have a general monitoring and review role, focusing very closely when things go wrong to see what the problem is, but we should not delude ourselves. The State has substantial expertise available to it in different areas, and it is not necessarily our role to second-guess every decision systematically.
On the contrary, much of the time I would put my faith in judgments made after careful consideration, consultation and advice. Each of us has an individual perspective and experience and may have something to contribute to the discussion, as is clearly our role.
I very much welcome this legislation, which is a better, more concrete value-for-money initiative than any I have seen in Opposition policy documents. We have enjoyed tremendous growth over the past ten years, and that has created pressures. We did not get everything right, but PPPs provide a means for us to come much closer in that regard in future.
I welcome the Bill and the Minister for Finance, Deputy Cowen. I was particularly impressed at his ability to handle TLAs and FLAs. I am sure that he has no idea what I am talking about. A TLA is a three-letter acronym, examples of which include the PAC, the Public Accounts Committee, PSB, the public sector benchmark, and PPPs, public private partnerships. Now, however, there are the NDFA, the National Development Finance Agency, and the NTMA, the National Treasury Management Agency. I congratulate the Minister on being able to deal with them, since they are quite a handful. I am engaged with TLAs but find that I must now remember FLAs.
I thank the Minister for his words and congratulate him on this Bill. Senator Mansergh said that if one wants guarantees on anything before making an investment, it is unlikely that one will ever be able to follow through. The National Development Finance Agency has been a great success. Members who heard me speak last month on the annual report of the NDFA will know that I am an admirer of that body, and of its approach to public spending. The establishment of the agency and the extension of its remit last year, to which the Bill gives a statutory basis, are an acknowledgment that the raising of development finance is a matter for experts and not for amateurs. Some might say that the acknowledgment in question is belated, but it is welcome nonetheless.
Development funding is a field ploughed by people with some of the cleverest minds, and certainly some of whom are the highest paid in the financial world. To set that brainpower on one side and have a team of non-experts with no particular training in that highly specialised field attempt to compete with it on equal terms, was to guarantee that the State would lose from the start. Now we at least have a level playing field with a balance of expertise on the two sides. The off-loading of this responsibility to the NDFA is a continuation of the trend that created the National Treasury Management Agency over ten years ago and led to the steady expansion of its remit since. The NTMA is a monument to a principle that I would like to see extended to the whole of public spending, namely, that spending public money is a very serious matter to which we must bring the highest standards of professional management. It is certainly not a game for amateurs.
In a way, I am amazed that I should have to state that principle at all, since it is surely self-evident. Be that as it may, we have not acted on it across the board in public spending. However, it is certainly true that we now manage the national debt highly professionally. As Senator Mansergh said, it has been reduced considerably. It is also true, thanks to the NDFA, that we are now taking the same approach to raising development capital, which we had not done over the years. The evidence from the first few years of the NDFA's existence is that it has brought about a substantial increase in the value for money that the State secures as a result of its activities in raising development finance. On that basis, I have no doubt that it will make the same improvements to PPPs.
Such partnerships may have much to offer in delivering the type of infrastructure projects that are needed in a faster and more efficient manner than is the case with direct State involvement. The jury is still out, however, on the extent of any such benefits. It remains to be seen whether the additional costs involved are worthwhile. It is an inescapable fact that public private partnerships are inevitably a more expensive way of funding a project because they must allow for an element of profit to cover the risk the private sector partner is taking by getting involved.
As Senator Mansergh observed, too many private sector operators have been unwilling to take on board that risk in the past. There never can be an investment that comes with a guarantee of success. Nobody in business can ever expect such a guarantee. An investor who succeeds in four out of five ventures does extremely well. In many cases, an investor will succeed in only one venture in five but that is sufficient to his or her long-term success.
Two questions should be asked in regard to every proposal for a public private partnership. The first is whether the additional cost is worthwhile. At an earlier stage in the development of the State, public private partnerships gave us access to funding that was otherwise unavailable. This was the original justification for the concept. Our national financial resources were so constrained in the past that we were unable to carry out some of the investments that were needed. In those circumstances, paying slightly over the odds was necessary if the project was to go ahead. This was a sensible approach.
Those circumstances no longer apply in these affluent times, however, when it seems that no matter how much a project costs, the resources are available to fund it. There must, therefore, be another justification for taking the more expensive route. Whenever I raise this issue, I am overwhelmed by neither the quantity nor quality of the replies. I suspect for many people, the justification is ideological. It is rooted in a belief that the private sector always produces the best and the most cost-efficient result. As Members might expect, I am a great champion of the private sector, but even I find it difficult to accept that proposition without any firm evidence to support it in particular cases.
The second question that must be asked about each proposed public private partnership project relates to the extent of the risk being carried by the private sector partner. The NDFA can play an important role by evaluating and quantifying the private sector risk. Few will deny that our early experience with public private partnerships showed that private sector partners were often successful in negotiating their way out of any real risk. In such cases, this route proved expensive for the State.
I emphasise that I am not opposed to public private partnerships in principle. I contend, however, that the jury is still out on their value to the public purse. I have no doubt that if we must have such partnerships, the way to manage them that is proposed in this Bill is the correct approach. I commend the Government on taking this worthwhile step. We should recognise that this Bill represents an effort to achieve something we all support.
I welcome the Minister of State, Deputy Parlon, and the officials from the Department of Finance. I commend both the Minister of State and the Minister, Deputy Cowen, on bringing forward this important legislation, which establishes on a statutory basis the centre of expertise of the National Development Finance Agency. This sound proposal represents a continuance of the good governance of which we have seen evidence for some time. I do not wish to praise the Government too much because self-praise is no praise.
The Government has taken a tremendously businesslike approach in this and other matters. As a successful businessman, Senator Quinn, in particular, will appreciate this. The Minister, Deputy Cowen, and his predecessor, Mr. Charlie McCreevy, have done a fine job in running Ireland Incorporated. The Taoiseach, who is the chief executive officer in this analogy, is performing well, as are his Ministers, who are akin to programme managers.
I take this opportunity to commend the Minister of State on his wise approach to the sale of Office of Public Works properties. He has raised a phenomenal sum of money, sufficient almost to finance the State. The Minister of State showed his generous spirit when he provided a site for a youth centre and crèche facilities for the Lions Club in Roscommon town. The Government is not concerned only with making money. It has a humane face when it comes to projects that are of benefit to people in a particular area.
Public private partnerships are worthwhile and have a role to play in the provision of public facilities. The State should be more proactive in providing facilities for Departments and State agencies. During my tenure as chairman of the former Western Health Board, for example, I sought a grant of some €3 million or €4 million to build new offices in Roscommon. It seems logical that such a project should be undertaken either by means of a public private partnership or through direct State funding. In this instance, however, it was deemed more suitable to rent premises on a five-year lease at €300,000 per annum. This was illogical.
The Minister of State should review all premises rented by the State. I understand the health board in the example I gave was not permitted to raise capital to purchase the building in which its headquarters was located. Instead, it was obliged to pay €300,000 per year in rent. When the former North-Western Health Board took the initiative of building new headquarters in Manorhamilton, it was reprimanded by the Committee of Public Accounts on the basis that it had not attained full permission to proceed. I am sure a cost benefit analysis of that project would indicate that the correct decision was made irrespective of whether the Minister for Finance or Government liked it. It has been a great success.
Why can the NDFA and other financial agencies which manage the pension fund not buy into Aer Lingus? Why is that such a bad idea? We have an investment fund of some €17 billion but can do nothing as we watch a company like Ryanair buy shares in a successful State company. The Government has faith in Aer Lingus, and so too should the investment agencies. The development of the second terminal at Dublin Airport seems an ideal investment route.
Although I should not have been surprised by it, I was taken aback by the recent Green Party attack on the Government. The Minister should respond to allegations made by Deputy Boyle, the Green Party spokesperson on finance. The Green Party should be the last to lecture on unethical investments. On 17 November 2006, it issued a statement on Ireland Online with an allegation that the National Pensions Reserve Fund had made investments in Darfur. It claimed taxpayers would be concerned about such investments. I will give a copy of the statement to the Minister of State. The Green Party has a neck——
I did not mention any names but Senator John Paul Phelan can imply who he likes. Anyway, we all know to whom I refer.
Senator Ryan also criticised the question of ethical investments recently. The Government allows an investment to be made for the maximum result within reason. It has taken an ethical approach so far. I hope the majority of investments are made in Ireland.
The pension fund has increased to €17 billion. The Minister for Finance must ensure that Fine Gael and the Labour Party never get their hands on that fund. At the previous general election they threatened to spend it on various projects. Legislation should be introduced to prevent that fund being used to fund the so-called promises of Fine Gael and the Labour Party at the next general election.
I commend the Bill to the House. I wish the Minister for Finance well in next week's budget. I congratulate the Minister of State, Deputy Parlon, on the work well done on the decentralisation programme. He is the champion of the Fianna Fáil-Progressive Democrats Government. He is a credit to his work and we in County Roscommon are delighted with the progress with the programme.
This is the second debate in the House on the National Development Finance Agency. In October, we had statements on its annual report. That debate was pretty poor because so many Members did not have a notion what the agency was. I suspect many of them still do not. That is not terribly surprising because the role of the NDFA has changed since it was first mooted several years ago. The then Minister for Finance, Charlie McCreevy, came up with this wonderful idea before the previous general election to fund capital projects off balance sheet. It became clear after the election that the European Commission would not stand for it. The current primary purpose of the NDFA was then grafted on to the legislation.
I re-read the Official Report for the National Development Finance Act 2002 and it is still not clear to me why it was necessary to set it up as an independent agency within the National Treasury Management Agency. The then Minister, Charlie McCreevy, gave some explanation about a possible conflict of interest in financing. It did not make much sense to me then and it still does not, even after re-reading the Official Report four years later. The reality is the NDFA is a brass plate within the NTMA. It comprised 11 people when established on a non-statutory basis but now has 20 people providing expert advice.
One could be forgiven in thinking that the NDFA has been asked to carry out cost-benefit analyses of Government decisions for projects and, therefore, ensure better value for money. In one way it will ensure better value for money, but in another it will not. As it does not decide which projects are to be advanced, it cannot ensure better value for money. That is still a political decision for Ministers. If for example, the Minister of State, Deputy Parlon, decides to relocate hundreds of happy civil servants to Cavan and commissions a building there, the NDFA does not have the right to veto his decision. One may claim that is right.
We will debate that another time. The decision in principle to commission a building project is made by the Government. The NDFA decides the funding mechanism for the project. This is technical advice that calls on the agency's expertise on funding and putting together contracts. It does not proof against a bad decision by Government. It ensures that once a decision on a project is made, it is implemented in the most cost effective way.
The purpose of this amending legislation is to transfer PPPs to this centre of expertise. I do not want to be harsh on those who have been working in this area heretofore. It is obvious the legislation is a commentary on recalcitrant Departments that did not like PPPs or were nervous of them, as Senator Mansergh claimed. It is clear some Departments did not want to use PPPs to fund their projects. It will inevitably be seen as a commentary on the capacity of the central unit in the Department of Finance to perform much of the work which the NDFA is now doing. I appreciate this was novel territory to us and we were expecting too much in generating the expertise within the Civil Service. The establishment on a statutory basis of the agency is a commentary on our inability to get it right.
We have had a chequered experience of PPPs. This is largely because we did not know what we wanted from them. I am not sure if we still know what we want from them. Senator Quinn's interesting contribution set out questions that need to be asked. I do not believe PPPs offer a great deal in schools building projects. Will the Minister of State outline the advantages that accrue to the Exchequer or the Department of Education and Science in building schools through PPPs? He may claim it will provide a model for a 450 pupil school that can be built across the State, similar to the regional technical college project some years ago. However, why can this not be done in the current school building structure? Perhaps the Minister means that because there will be a unit or company managing the schools in future, we benefit because the teachers and principals who were responsible previously do not have to look after maintenance. That may be the case but the record is not persuasive. I cite that as one of the three examples the Minister gave in his contribution.
PPPs have been quite successful in getting roads built fairly quickly and reasonably inexpensively. That, however, does not cover all roads and the operation of the National Roads Authority, NRA, will not fall under the NDFA. We need to be sure what we want from this agency. We will not get work done more cheaply. We may be able to postpone payments but that does not apply when we have enough money up front for most of the work we want to do. We may be able to benefit from the expertise of particular companies which we do not have within the State service but that requires serious critical analysis and I would need to be persuaded that we cannot buy it into the Civil Service in many cases which might be a better idea.
Risk is transferred only if the private company has greater expertise in the first case, and in some cases it will. We did not have much experience in building large-scale motorways until relatively recently but that does not apply, for example, to schools. I am not against PPPs in principle. In fact I helped to persuade my party that there were benefits in choosing that option on occasion and undoubtedly there still are, but it requires careful analysis case by case.
Senator John Paul Phelan has already mentioned the expansion of the board to seven members. As I expect that we will take all Stages of this Bill today, will the Minister of State explain who will be the additional members? The Minister mentioned two in his contribution.
In respect of Senator Leyden's one serious point, about the National Pensions Reserve Fund, I am at a loss to understand why this has not progressed. The present Minister, his predecessor, Mr. McCreevy, and the Government stated they did not see any reason in principle the €17 billion in the fund could not be used for investment in Ireland as part of PPP provision. This would be done on a commercial basis, not on the basis of giving money away or being spendthrift. Taking Senator Leyden's example, the fund has invested in a raft of airlines, apart from Aer Lingus. The list includes most of the major European airlines. They are not large holdings but they are significant.
The fund has also invested in projects around the world, in virtually every European country and in most developed countries yet there is virtually no investment in Ireland. Nobody is suggesting that the fund invest €17 billion in Ireland or that it be done in a way that would distort the market or compete with the private sector in any serious way. There are however, occasions when the pensions reserve of the people of Ireland can be best used for the people by investing in Ireland. While the Government has paid lip-service to this notion, it has singularly failed or refused to do this.
In support of the Green Party, there is no reason in principle a section of the reserve could not be set aside for ethical investments. Commercial insurance companies and pension funds find that it is possible to do so and that there is a demand for it. Senator Leyden knows and we would all agree that the people demand to use some of the reserve fund in an ethical fashion. I cannot see why there should be any objection to that.
I do not have a problem in principle with the Bill inasmuch as we have PPPs, although not as many as we once thought we would. It is right that we should get the best value for money or use the best and most professional procurement policies in doing so. In that respect I support the Bill.
I thank the Minister for State for coming into the House and I welcome the opportunity to speak on this Bill. My party is broadly in favour of PPPs and this Bill in particular but the Minister of State should outline some examples of how this might work because the terms in the Bill are complicated, referring for example, to more interaction between the PPPs and the NDFA. I would like examples of how this will work in respect of water and sewerage facilities. I can see how it will work in respect of schools and similar projects but I am not optimistic about water and sewerage projects.
According to the Bill this will be based on best practice but where is there best practice in this country? PPPs have not worked in England. Is the Ringsend sewerage plant an example of best practice? I am not sure it is. There is major concern about water pricing and waste water treatment facilities for the next 20 to 25 years. This could be a major cost to businesses and farmers. The cost is not known yet because the people involved in PPPs do not want to lose money. They will build an annual inflation rate into the pricing every year for 20 or 25 years. Will the Minister of State outline how this will work in practice? If the annual inflation rate is built in year on year, in five or 15 years the cost of water and sewerage facilities will be prohibitive for small businesses and this could drive them out of operation.
When one adds the polluter pays principle to the PPPs, the business community must pay a significant portion of the installation and running costs of new schemes. In many cases the business community will have to pay for water leaks. Under some schemes, every house and business in the country is being metered. Every property that has a water connection will be metered in the few years.
Water and sewerage and waste water treatment units will be a major business. It might happen that the production of water will be in the hands of a few because the PPP system is another way to privatise these facilities. Will the Minister of State comment on that because few people would have the expertise in providing PPPs and those already in the business will have first call? Until now in most cases local authorities have managed these facilities but they are being pushed out. The town councils no longer have a function in waste water management but county councils should be responsible for water services, whether waste water or water quality.
Otherwise, if we are to do it through PPPs, we are handing it over to private individuals. This would be a first step towards the privatisation of water treatment and waste water facilities. I support the Bill but I invite the Minister of State to outline how he envisages projects operating from start to finish.
I am not altogether happy to hear projects are to be conducted on the basis of best practice because there is no best practice in this country and that approach under PPPs did not work in the UK. I have reservations on this aspect of the Bill. I favour the best practice approach in other areas but not in the area of waste water treatment.
I thank Senators for their welcome for this legislation and their contributions to the debate. In particular, I thank Senator Leyden for his appreciation of my efforts. He was most generous and warm in his praise.
While the Bill is essentially a technical measure extending the functions of the National Development Finance Agency to permit it to procure PPPs for State authorities, I am not surprised at the variety of issues which Senators have raised. Public private partnerships can cover arrangements in a wide range of areas and, by their nature, require consideration of all matters arising over the contract terms of up to 30 years. It is in that context the Government recognised the need for a centre of expertise where specialised PPP procurement skills and expertise could be concentrated in conjunction with the existing financial skills in the NDFA. The centre of expertise, with its specialised PPP procurement expertise, complements the specialised sectoral knowledge of Departments and agencies and, working together, they can help ensure the ongoing delivery of PPPs to be paid for in unitary payments by Departments and agencies.
Senator John Paul Phelan, who spoke first, raised the issue of value for money for projects generally. There can be no doubt about the Government's focus on value for money. The Minister for Finance introduced several measures in the past two years to improve the attainment of value for money, including reforms to public service construction contracts, value for money measures on capital and ICT projects and consultancies, the establishment of the central expenditure evaluation unit, and a requirement on Departments to focus on the evaluation of projects and on project management.
As for what was learned from early PPP projects, I assure the House that the lessons learned have been incorporated into central guidance on the process issued by the Department of Finance. A number of projects referred to were not part of the current PPP programme which was initiated in 1999 with a pilot programme of projects.
Senator Quinn inquired what value can be gained by involving private finance in a deal. I agree that the additional costs associated with private finance must be justified by the risks transferred to the private sector or otherwise offset through innovative proposals to address the sponsoring agencies needs. This is tested in the value for money assessment of projects. The availability of the National Development Finance Agency as adviser on PPP deals is an important part of the process.
Senator Leyden raised some issues about the National Pensions Reserve Fund. I wish to clarify that under its legislation, the commission is required to adopt a standard commercial investment policy. The National Pensions Reserve Fund commission controls and manages the National Pensions Reserve Fund with discretionary authority to determine and implement the fund's investment strategy in accordance with the fund investment policy set out in the National Pensions Reserve Fund Act 2000. This investment policy is based on a commercial investment mandate with the objective of securing the optimal return over the long term, subject to prudent risk management.
With regard to commercial investment in public sector projects, the commission has stated that it will make equity and-or debt finance available to the winning bidder in the tender process for public private partnership projects, provided it is satisfied with the prospective rate of return. I understand that, to date, no moneys have been invested by the commission in any such projects.
Senator McDowell inquired about the appointments made to the board. The Minister referred to these in his speech. They are: Mr. Fred Barry, chief executive officer of the National Roads Authority, Mr. Stewart Harrington, chartered surveyor, director of Killeen Properties, and Mr. Liam Berney, industrial officer with the Irish Congress of Trade Unions. The other members of the board are, Mr. Michael J. Somers, chief executive of the National Treasury Management Agency, Ms Anne Counihan, chief executive and head of legal and corporate affairs, National Treasury Management Agency, Ms Ann Fitzgerald, executive chairperson, National Consumer Agency, Mr. Terry Jones, business consultant, and Mr. Peter McManamon, chairman, CEVA Incorporated.
Senator Paddy Burke referred to the UK approach which was originally focused on the balance sheet treatment of projects. Our focus has always been on value for money and project delivery. The role of stakeholders has also been reflected from the start, through the PPP framework agreed with the social partners. The NDFA provides a source of professional financial and risk advice, independent of Departments, in regard to PPP projects under development and negotiation.
Building on experience here and elsewhere, a number of safeguards have been built into Irish PPPs. These include, sharing any refinancing benefits, generally post-construction, gain sharing — toll revenue, for example — regulation of maximum toll revenues, and inclusion of prepayment rights in certain contracts, that is, a right to buy out some or all of the private debt finance after a specified time.
Senator Paddy Burke also referred to water pricing. That is a matter for the Department of the Environment, Heritage and Local Government. It is a separate issue to PPPs.
I thank all Senators who contributed to the debate for the many interesting points they made and for their support generally for the legislation. I look forward to their ongoing support in passing the Bill.