| PPP framework to be completed this year |
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| A year ago IBEC and the CIF made a submission to government which identified potential barriers to the successful and rapid launch of an ambitious PPP investment programme. Peter Brennan reviews developments since then. |
It is timely to review progress and to take stock of the current state of play as very many of these barriers have been addressed, many to the point of resolution.
Tax
As regards taxation issues, the Revenue Commissioners have issued a tax briefing on the treatment of the deductibility of tender costs in situations where a bid is successful or unsuccessful. In the latter situation, expenditure revenue can be offset as a deduction against the profits of a company's trade.
If a Special Purpose Company is set up the expenses associated with a successful bid will not be disallowed. The accounting and tax treatment of land used as a contribution towards project costs by a public sector body is also the subject of a Revenue briefing. The Finance Bill 2000 includes provisions in respect of consortium relief. Not yet resolved are the issues of the VAT treatment of Local Authority services. A major problem is the ruling of the European Court of Justice (due to be handed down within the next year) which will probably declare that tolls are subject to VAT and that the Commission is entitled to recover VAT from existing schemes going back to 1994.
Planning Bill
A late amendment to the Planning and Development Bill 1999 is designed to simplify the statutory processes for the approval of toll schemes. The Roads Act 1993 is being amended to remove the Minister for the Environment and Local Government functions in relation to approval, or revocation of toll schemes, approval of toll bye-laws and the approval of toll arrangements with private investors. The National Roads Authority will be vested with these functions in the case of national roads and local authorities will deal with non-national roads. The Minister will, however, be able to issue policy directives. A major consultancy study recently completed for the Minister has addressed tolling options other than hard tolls and it is expected that a clear statement of government policy in this crucial area will follow.
Pilot projects
There is also a greater recognition at government level that the pilot and other PPP projects should be of a minimum size. Some education projects are, for example, being bundled together and there is very considerable scope for achieving similar economies of scale in relation to water and waste water projects. In addition, the Kilcock-Kinnegad road may be tendered as a single scheme.
Progress is also expected in relation to risk allocation. The issues involved will be addressed in relation to the roll-out of the PPP pilots. Guidelines on project appraisal are also being developed. They will be based on the current guidelines for the appraisal and management of capital expenditure projects in the public sector.
Legal
Quite a number of legal issues were also identified and all have been addressed. The most important include the introduction of primary legislation in relation to the LUAS project. Legal changes required to facilitate the use of a PPP approach in the water, waste and roads sectors have been submitted to the Minister for the Environment and Local Government as have recommendations to ensure there is clarity about the power of local authorities and the NRA to enter into PPP arrangements (including the ability of local authorities to form or take a shareholding in private companies). Similar legislation may be introduced to permit VECs/third level institutions into PPP deals.
The important issues of sovereign risk and the credit strength of awarding authorities are also being considered.
Introducing changes to the landlord and tenant legislation is not excluded. The forthcoming Valuation Bill will address the manner in which rates will be imposed and dealt with on PPP projects in particular in relation to circular payments. Guidelines on public procurement procedures for PPP works and service concessions contracts are almost ready, including the option of competitive dialogue which could fast-track project selection. The Planning and Development Bill has addressed measures to expedite the delivery of PPP projects. Model PPP contracts have been prepared.
Cabinet committee
Another important milestone is the setting up of a Cabinet Committee on Infrastructure and PPPs. An Taoiseach is driving the process. A cross-departmental team at the level of Assistant Secretary is actively involved behind the scenes. The Cabinet has, for example, reviewed the NRA's detailed plans to build motorways out of Dublin and monitors progress on all routes on a regular basis. In addition, the Committee is considering the investment needed for public transport in and around Dublin. A significant PPP component will be agreed as part of the package. Within the past year all government departments that are involved in the PPP process have set up PPP units and, in many cases, hired in expertise. In addition, through an Advisory Committee, IBEC and other social partner members are provided with progress reports on the roll-out of projects and are de-briefed about the on-going work of the Cabinet Committee. Another dimension is the decision in the Programme for Prosperity and Fairness to set clear parameters for selecting PPP projects.
NDP and more
The National Development Plan set a minimum target of PPP investment of ?1.9bn. Details about ?1bn in road projects are ready for formal announcement. This overall package, all agree, is modest in comparison to the quantum of infrastructure that needs to be built and the urgency of removing infrastructure bottlenecks. IBEC has recommended to government that the volume of private investment should at least be doubled.
We would like to see additional PPP projects over and above what were identified in the NDP, including the designation of the Eastern Relief Road in Dublin - a study on this crucial bypass has been completed by the NRA - rail and light rail projects around Dublin, bundled water and waste water projects, and the decentralisation programme. Quite frankly, if there is slippage in the delivery of public sector infrastructure, more PPP projects will need to be brought on stream.
Of enormous importance to the future of the whole PPP process is the issuance over the coming months, and subsequent implementation, of the PPP guidelines at present before the Minister for Environment and Local Government. Any remaining doubts about the seriousness of the government's commitment to PPPs will evaporate once these comprehensive guidelines are published.
Challenges ahead
While much progress has been made over the past year, it would be misleading to suggest that all is plain sailing. Serious skills shortages exist within the public sector which could jeopardise the rapid roll out of all infrastructure projects - and not just PPP projects which are admittedly a bit more complicated. It is by no means certain, despite everyone's best efforts, that the endemic culture of legal challenges will be reduced. In addition, concerns have been expressed by government that capacity problems may emerge in the construction sector despite the initiatives taken to minimise these problems. Despite evidence in the UK that PFI projects have, on average, delivered savings of 17% compared to public sector alternatives, some senior civil servants remain unconvinced about the efficiency gains which PPPs can bring.
Barriers to go
Over two years ago practically nobody in Ireland had heard of Public Private Partnerships. IBEC’s pioneering efforts have secured not only strong government approval for PPPs, but the active commitment in key departments to the process. Certainly by the end of the year most of the barriers to the launch of an ambitious PPP investment programme will have been addressed. Potential project promoters, financiers and contractors will have a clear regulatory framework and agreed financial parameters in place. While any remaining PPP doubters may come off the fence at that stage, the PPP advocates should be well positioned to launch PPP equity funds. |
Peter Brennan is a Director of IBEC and Chairman of the Confederation's PPP working group.
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| Article appeared in the April 2000 issue.
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