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Wednesday, 17th April 2024
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PPP movement needed now Back  
As Ireland’s infrastructual deficit balloons and EU Cohesion and Structural funds decrease by sixty per cent over the next four to five years, the PPP issue becomes hotter than ever, writes Tim Bouchier-Hayes.
F itzpatrick Associates, in their Report on the nature, scale and cost of Ireland's infrastructural deficit, noted that ‘Ireland cannot achieve and maintain average EU levels of income and living standards without EU style infrastructure’. The perceived wisdom is that, however healthy the economy, Ireland cannot finance the necessary infrastructural development without recourse (at least in the medium to long term) to private sector funding through the development of Public Private Partnerships (‘PPPs’).

The involvement of the private sector in the construction of public infrastructure is not new e.g. many canal and railway projects were constructed and financed by the private sector. However, interest in the concept was revived with the launch of the Private Finance Initiative (‘PFI’) by the Conservative Government in the UK in Autumn 1992. PFI has brought about major changes in the UK in the way the public sector operates in procuring infrastructural development. Should Ireland follow suit? The Government appears to be committed to the concept of private sector involvement in infrastructural development and there have been some (albeit a small number) notable successes in partnerships between the public and private sectors. The East and West Link Bridges, the Custom House Docks Development and the OPW's programme for the
development of decentralised offices are all examples of such cooperation.

We should seek to learn from the experiences of others in considering a suitable model for PPPs in Ireland. It is likely that, to a greater or lesser extent, any model which is adopted for use in Ireland will mirror many of the steps taken in the development of PFI in the UK; however, the Government should be cautious. It is important to recognise that the circumstances which exist in Ireland, in particular, the economic circumstances, are different from those prevailing in the UK and also, there is some evidence emerging that PFI has not been universally successful.

PPP or PFI involves not just private investment in public infrastructure. The fundamental principles involve risk transfer and value for money. Risk is transferred to the party who is in the best position to handle that risk at the least cost; the private sector is required to assume risks in return for the prospect of profit. There is more to PPP than simply risk transfer; unless the private sector is in a better position than the public sector to manage the risk, value for money will not be achieved. The intention behind the promotion of PPPs is that public sector skills and management expertise are used to deliver public services more efficiently. There is the added benefit for the State of shifting expenditure from capital spending now to future current spending.

If PPPs are to be launched in Ireland on a wide scale with a view to seriously addressing the infrastructural deficit which exists, there are a number of issues which need to be addressed, including:

l Lack of primary legislation - there is an urgent need for legislation which will govern how PPPs are to operate.

l Power of Contracting Authorities to enter into PPPs - one of the major concerns of potential investors in PPP projects is the issue of the ‘vires’ or the legal right of Contracting Authorities to enter into the arrangements contemplated. As things stand, particularly arising from a number of decisions by the UK Courts, there is some doubt as to the power of certain bodies to enter into arrangements which would arise in a typical PPP project.

l Landlord and Tenant issues - existing Landlord and Tenant legislation may act as an impediment to PPP projects e.g Tenants' rights to new leases.

l Planning Regime - current delays in the planning regime present a major obstacle in the early development of required infrastructure and, consequently, a major disincentive to private sector involvement.

These issues can and must be addressed as a matter of urgency. In the past the Government has shown itself to be creative in encouraging development by the private sector, primarily through the use of tax reliefs and allowances. It has also demonstrated that it is capable of addressing the problems presented by the planning regime, for example, in the Dublin Docklands Area e.g. by giving to the Dublin Docklands Development Authority power to issue Exemption Certificates for developments which comply with an approved Planning Scheme.

PPPs should be adopted to ensure additional infrastructural development, not merely as an alternative procurement mechanism for projects which are already in the pipeline, the development of which would, in the absence of PPPs, be undertaken through traditional procurement methods. The current infrastructural deficit can only be reduced if a concentrated and sustained effort is made to increase the extent of development significantly above the level achieved in recent years.

In considering the model to be adopted in Ireland, it is very important to have regard to the relatively small scale of projects suitable for the PPP approach. To be financially viable, PPPs must be structured in such a way as to minimise the cost in the pre-contract phase. To achieve this, it will be necessary, through consultation and discussion between the public and private sectors, to agree guidelines on key issues regarding the allocation of risk and contractual terms. Unless this is done, the parties involved in each project will expend significant monies in negotiating acceptable allocations of risk not merely between the primary parties but also as between those parties and the financiers to the project. If PPPs are to be successful in Ireland it will be necessary to ensure the early enactment of appropriate enabling legislation and adoption of a common approach by all parties to the issues of allocation of risk and standardisation of contract provisions. The Government has stated its support for PPPs - that commitment must now be translated into action on more than mere announcement of pilot projects.

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