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Sunday, 14th July 2024
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PPPs are ‘corporate welfare’ Back  
The recent controversy surrounding Government aid to National Toll Roads (NTR) has again raised the issue of the viability of public private partnerships, says Constantin T. Gurdgiev.
Public-private partnership (PPP), arrangements whereby cash-strapped governments get private companies to provide public services seem like a great idea. The public get their service and governments don’t have to raise taxes to pay for them. No one, other than the left, has a problem with them. The left, however, are right,
Ireland has been using PPPs as a way of funding infrastructure development since 1998. Projects include schools, water treatment, car testing and motorway extensions.

There is, of course, a catch. Private investors need to get their money back. One type of PPP that’s been attracting most attention recently involves the construction of sections of motorway by private companies and the use of tolls as a ‘concession’ to allow the private partner to recover their ‘investment’.

There is a distinct lack of transparency in the way major private ‘partners’ and the state, do business. As far back as 2003 questions were being asked by Joan Burton, Labour’s finance spokesperson about the granting of tax concessions to a private consortium building the Kilcock-Kinnegad motorway.

Ms. Burton, who is not against all PPPs, claimed that net construction costs incurred by the firms would be deductible from the corporation tax owed. This was, she claimed, a ‘secret deal’ between the Revenue Commissioners and the private ‘partners’, whereby the latter were offered an estimated €25 million in tax write offs. Since that time no information has emerged to contradict Ms. Burton’s view. If true, such an arrangement, is simply a tax payers’ subsidy to private business.

PPPs have been justified on the grounds that they are a way for the state to off-set financial risk. The argument runs that if the private partner shares the risk and the costs then the tax payer will get a better deal. However there is no real proof that these arrangements are good for the taxpayer. There is plenty of evidence that they are very good indeed for the private sector firms involved.

The entire issue is back in the news because it has emerged that NTR, a private company, operating Dublin’s WestLink toll bridges received €6.4 million in state subsidies during 2002 to 2003. After the state requested that NTR freeze its toll rates during the construction of the second bridge due to disruption caused to motorists NTR sought and received compensation for lost revenue from the state.

Whilst NTR is allowed to increase its charges in line with inflation it has, since 2003, increased tolls by nearly 40 per cent. These increases were supposed to fund the construction of the second bridge and so it is not clear why the state saw fit to subsidise NTR with nearly €6.5 million. Add to this the fact that the number of vehicles using the toll bridges is twice the original projections. The whole thing is starting to look very expensive.

The Department of Finance’s website claims ‘PPP is basically just a different method of procuring public services and infrastructure by combining the best of the public and private sectors with an emphasis on value for money and delivering quality public services.’

Another way of describing it is that it’s a form of opaque corporate welfare. The state has agreed to investigate whether the arrangement with NTR offers value for money. Don’t expect toll rates to come down anytime soon.

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