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Thursday, 13th June 2024
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‘No shortage of equity for PPPs’ Back  
As pilot projects gear up, financing options are set out
Pilot PPP projects are set to come to market in the next six months and the PPPs are now being brought from concept to reality, the new head of the PPP unit at the Department of Finance has said.

Speaking to a conference organised by Farrell Grant Sparks and Chesterton Consulting, Eamon Kearns said, ‘The Department’s PPP Unit is open for business’, Eamon Kearns said, adding that the speed with which PPP projects are now being brought forward is impressive.

Julia Prescot, formerly of Charterhouse, said that an equity element of around 10 per cent would always be required in PPP financing, since bankers would not want to take on all the risks in long term projects. Asked by Finance about the sources and level of interest in an equity component of the ‘minimum target’ of IEP1.85 billion in the National Development Plan, she said that she ‘very much doubted’ there would be ‘any shortage of equity for IEP185 million’ of project opportunities. The likely sources were ‘trade investors typically’, such as specialist funds, and there would also be significant international interest.

Prescot said that experience in UK showed that it would be three to five years before there would be a functioning capital market for PPP equity investments. At the first stage, equity was taken on investors’ balance sheets; then we had the emergence of specialist PPP equity funds such as Inisfree’.

Equity returns are around 12-16 per cent in real terms, judging by Carillion’s recent results, she said. But they vary across projects to a considerable degree. Sensitivity analysis to main risk factors showed that equity returns could be wiped out, or made lower than bank debt returns, but at the other end, they could well exceed 20 per cent.

Ray O’Leary, Assistant Principal at the PPP Unit said that the key to successful PPP approach was the allocation of risk and value for money having allocated risk appropriately. Scarcity of public funds was not a primary motivator. He also dealt with some of the ‘potential criticisms’ of PPPs, such as the higher cost of funds, affordability, forecasting ability, public service discretion and contributing to over-heating the economy. In relation to the latter, he said, ‘we don't have any choice but to develop infrastructure’.

Eamon Kearns paid tribute to his predecessor, Jim O’Brien, who had shown how ‘staying in touch’ closely with the private sector was the key to progress. O’Brien recently won an IBEC award for his work on PPPs.

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