State Authorities (Public Private Partnership Arrangements) Bill, 2001: Second Stage.
Minister of State at the Department of Finance (Mr. Cullen): I move: "That the Bill be now read a Second Time."
I have great pleasure in presenting the State Authorities (Public Private Partnership Arrangements) Bill, 2001 to Dáil Eireann today. It is an essential element of the Government's strategic approach to the development of public-private partnerships. The events of 11 September and the international economic slowdown will impact on the Irish economy and could affect investment decisions across a range of sectors. However, it is in precisely these uncertain economic conditions that the PPP process can come into its own, with its principles of reduced risk to the taxpayer and value for money.
The Bill is enabling legislation. Its aim is to facilitate the implementation of Government policy in respect of PPPs. That policy envisages the development of pilot projects across a range of sectors. The Bill facilitates that process. It reflects the Government's determination to harness the potential of PPPs to contribute positively to the delivery of priority economic infrastructural projects under the national development plan. Most importantly, it offers the high level of legal certainty sought by investors wishing to embark on this new method of public procurement. I am not asking the House to make any new policy statement in relation to PPPs. I am, however, asking for its support for the Bill which will ensure State authorities will have the opportunity to engage in PPPs.
PPPs represent a growing trend across developed market economies. They represent the coming together of public services and private business. In some countries this is a new phenomenon. In Ireland we have not had State monopolies, for instance, in the provision of essential public services such as health and education. These services have always been funded and provided by a mix of central and local government, private, voluntary and community-based organisations. Moreover, many local authority services have been delivered through contract arrangements with the private sector. PPPs are consistent with these long-standing practices.
Our experience of public-private co-operation naturally reflects our particular historical circumstances. It is also consistent with and supportive of policies directed towards greater integration of economies within the European Union and across the wider global economy.
International experience clearly shows that real benefits can be gained from PPPs. They can give better value for money compared to traditional procurement by transferring risks from the public to the private sector. PPPs can deliver improved efficiency in the adoption of whole life costing of services and innovation in the design, building and operation of assets. PPPs can also provide better quality services through increased compe tition, incentives to higher standards and performance and an enhanced focus on the customer. PPPs can allow faster delivery of individual projects by linking the provision of the asset or service to payments, particularly in relation to more complex capital projects. PPPs can give us a better utilisation of assets through extended third party usage and can provide the context for better regulation as Government agencies focus on the role of regulator, planner and monitor rather than day-to-day service provision. Moreover, PPPs can help maintain competitiveness through the opening up of sectors now sheltered from competition.
While all international experience points to all these benefits, the crucial element of successful PPPs is optimal risk transfer. By this I mean that a good PPP will ensure project risks are allocated to the party best able to manage them at least cost.
Our primary objective is to establish the procedures needed to capture the advantage of effective risk allocation through developing our pilot project programme. A well-managed PPP will be based on optimal risk transfer. Effective risk identification, assessment and allocation are crucial to achieving increased value for money for the Exchequer and the taxpayer. For the private sector an opportunity is created to engage in a long-term business relationship.
The PPP unit in the Department of Finance is managing the standardisation of PPP procedures to ensure risks are evaluated in a consistent way across all sectors. For the public sector, this will ensure procuring authorities will have a sound basis for a rigorous qualification of risks to be transferred. The private sector partner will know that risk issues will be dealt with in a transparent and realistic way.
A related benefit is that long-term cost factors are recognised in addition to the initial capital expenditure. There are real incentives to focus on a holistic approach in the amalgamation of the design, construction, finance and operation in the creation of an asset from a whole life perspective. A further advantage of PPPs is that the taxpayer only pays for the services actually delivered. The private sector firms and their bankers take the risk that where they are unable to provide the required level of service, they do not get paid.
For small economies such as our own, an additional benefit of PPPs is that they can facilitate bigger and more complex infrastructural projects than would have been feasible under other arrangements. These larger projects become more attractive to major international design, construction and engineering firms. The entry of overseas competition to a smaller market can generate the transfer of competencies and management skills through co-operation and joint ventures.
The Government will weigh the benefits of PPPs and analyse the potential difficulties and problems to be overcome in rolling out the PPP programme. Of course, we recognise that there are obstacles that can create disadvantages in adopting PPPs. They can present difficult and complex contractual issues for both public and private sector partners. The public sector has to be satisfied that the business case for proceeding with a project on a PPP basis is sound when compared with the conventional approach.
For the private sector, the costs associated with bidding for PPP projects can be substantial. However, the Programme for Prosperity and Fairness specifically provides for negotiation in relation to the question of client contribution to PPP tender bid costs. For employees, significant issues can arise where public service staff are transferred to the private sector under PPPs. Discussions at the public-private advisory group will address these complex human resources issues.
It is important to recognise these issues. My approach is to ensure issues are resolved before they become problems, that problems are solved before they pose impediments to PPP projects and that impediments are removed by dialogue and agreement before they obstruct the successful delivery of PPP projects. However, I should stress that PPPs must not be seen as a means of avoiding more fundamental difficulties in individual projects. A project should stand on its own merits irrespective of the method of procurement.
The commitment of the Government to PPPs is critical. Part of the reason we have made such good progress on PPP is that there has been solid Government support for it at the very highest level. This support is grounded in a clear appreciation of the economic case for PPPs and a focus on deliverables, based on a requirement for a sound business case evaluation. In this regard the structures for delivering PPPs is of crucial importance.
The Government established a central PPP unit in the Department of Finance to lead, drive and co-ordinate PPP. There are also units with responsibility for individual sectors in relevant Departments.
The Cabinet committee on infrastructure and PPPs gives high level direction to the development of PPPs. It includes the Tánaiste, the Minister for Finance, the Attorney General and other senior Ministers. In addition, the head of the central PPP unit in my Department is chairman of two groups managing the PPP process: an interdepartmental group on PPPs which brings together key decision makers to ensure there is coherence and consistency in developing partnership arrangements with the private sector; and a public-private informal advisory group on PPPs which includes representatives of employer organisations, the Irish Congress of Trade Unions, the construction and civil engineering sectors and the National Enterprise Development, Science and Technology Innovation Board.
These groups have already advanced the PPP process by helping to address and resolve major legal and financial questions. The IAG negotiated the framework for PPPs, which was formally launched by the Minister for Finance in conjunction with the social partners earlier this month. The adoption of the framework is an acknowledgement that the delivery of projects through PPP gives us all an opportunity to maximise the interaction and co-operation between the public and private sectors. Agreement on shared goals, objectives, principles and the appropriate distribution of risks for public investment and services delivery is fundamental.
The framework constitutes an important statement of the high level principles for the conduct of PPPs at national sectoral and project level that will help embed PPP as an important pillar of public capital procurement and the provision of quality public services. A major communications and awareness raising programme is being rolled out in the coming weeks by the central PPP unit of the Department of Finance with the assistance of the social partners. The aim of this programme is explain to stakeholders and the public what are PPPs and to allay many of the unfounded concerns about the PPP process.
The Bill is a major step aimed at addressing a critical issue which has arisen in other jurisdictions in relation to the PPP process – that of certainty or the vires of public authorities to engage in public-private partnerships. In all countries where PPPs are in use as a public procurement option, it is recognised that the issue of legal capacity, or vires, of public authorities to enter into PPPs is crucial to their overall success. Investors in PPP projects require a high degree of legal certainty regarding the vires of public sector contracting authorities. The Bill was published with this in mind. It provides certainty as to the powers of State authorities to enter into PPPs and gives local authorities the power to enter into joint ventures.
Although the purpose of the Bill is to verify that State authorities have the statutory powers to enter into new procurement arrangements, these powers supplement their existing powers already provided under relevant legislation. It is also important to note that traditional out-sourcing of contracts or arrangements whereby the private sector designs and constructs an asset for the public sector are not covered in the Bill.
While the Bill will be considered in detail by Members on Committee Stage, I will outline some of its important provisions. Section 1 deals with interpretation. This is a standard section containing definitions of words and phrases used throughout the Bill. Section 2 provides that the State authorities covered in the Bill are those named in the Schedule.
Section 3 provides for, and thus defines, what is meant by the term "public-private partnership arrangement." It gives statutory underpinning to the concepts of design-build-operate projects and design-build-operate and finance projects. It also provides that a State authority may arrange or provide for payments to a private sector partner and that the State authority has the power to contract with a person who has provided funding for the public-private partnership arrangement. One of the benefits of PPP is that the State authority only pays for what it gets. This section allows for those financing the project to intervene or step in, if necessary, where the operator of a contract fails to deliver the required performance. A State authority may also form a company or become a shareholder in a company and may transfer an asset of the State authority to a partner. Under a public-private partnership arrangement, such a transfer would be for a defined period only.
Section 4 deals with the functions of a partner and State authority. It provides that the functions specified in the PPP arrangement may be conferred upon the partner. The partner may perform these functions in its own name subject to the control of the State authority. Notwithstanding this, the functions will continue to be vested in the State authority. The relevant Minister's responsibility for the performance of that function is not affected. Where a number of local authorities or bodies join forces to engage in a PPP, they may agree that their functions will be performed by a lead local authority or body.
Section 5 covers the effect of public-private partnership arrangements. It gives retrospective authority to State authorities in respect of PPPs entered into prior to the entry into force in due course of the Bill. Section 6 covers directions. It authorises the appropriate Minister to give written directions to a State authority and a company formed to undertake a PPP project in relation to the management, accountability, accounting and financial affairs of that company. The section ensures the appropriate Government accounting procedures are adhered to during the PPP process and that the Accounting Officer of the relevant Department may, via the relevant Minister, take steps to ensure this is the case.
Section 7 provides that the Minister for Finance, in consultation with the appropriate Minister, may amend the Schedule by adding or deleting a public authority by way of order to be laid before the Houses of the Oireachtas. Section 8 is a standard provision allowing expenses incurred in the administration of the legislation to be paid out of moneys provided by the Oireachtas. Section 9 is also a standard provision dealing with the Short Title and providing that the Bill shall come into operation four weeks after it is passed. The Schedule lists the State authorities covered by the Bill.
A balance has been struck between, on the one hand, the needs and interests of the public sector and, ultimately, the Exchequer and, on the other, the private sector. Public-private partnership is a new departure and the Government is committed to the creation of an environment in which it can develop and flourish as a rewarding method of public procurement for all concerned. I have described how the process can help meet the significant infrastructural and other challenges posed by the NDP for our expanding economy.
My main aim in introducing the Bill is to ensure sufficient certainty is created in relation to thevires of State authorities to become involved in PPP projects. I hope the Bill can contribute to the creation of an environment that offers the private sector sufficient encouragement to participate in the many opportunities that exist for PPP in Ireland across a range of sectors, while at the same time safeguarding the interests of the Exchequer and, ultimately, those of the citizens. Public-private partnerships offer a “win-win” situation for all concerned and I am pleased to be associated with the Government's efforts to create the environment in which this new method of public procurement can flourish. I commend the Bill to the House.
Fine Gael welcomes the Bill. We recognise the need for progress on public-private partnerships and will introduce amendments on Committee and Report Stages.
Fine Gael is looking forward to returning to government and implementing a PPP programme that appears to have been set aside by this Fianna Fáil-Progressive Democrats Government. There has been much talk about PPP, including press releases and affirmations that it would happen. However, to date very little has been done. For example, the PPP programme for the road from Kilcock to Kinnegad is already running approximately ten months behind schedule. The Government has created this problem. It did not proceed on time and failed to address outstanding issues in the correct manner. That is the reason for these long delays.
I reiterate a commitment given last week by my party leader, Deputy Noonan, that on returning to government, Fine Gael will ensure the PPP programme is administered and will proceed as quickly as possible. Road construction is the most widely recognised area where PPP can be implemented, but it can also be implemented in waste management, water treatment and, perhaps, the provision of an infrastructure for the ailing health service. This aspect needs to be clarified and progressed as quickly as possible.
Public-private partnership appears to have acquired a bad name in the past and is seen to have originated in Thatcherite Britain. Many concerns privatised in Britain were not suitable for privatisation. The debacle involving the railways in the United Kingdom is an example. It has turned out a mess and we should learn from such mistakes. I was astonished to hear recently from somebody living in Manchester that a single train fare from Manchester to London on the new service being provided by the private sector is £128. This is as a result of the PPP, and it is outrageous.
I wish to return to PPPs in the context of the roads infrastructure and the long delay in bringing on stream the new road from Kilcock to Kinnegad and on to Galway, and many other such schemes throughout the country. Why has it taken so long to bring them on stream? What has caused the delays? Why is there such opposition to them from various quarters? A major reason for the delays is the way in which many of these projects have been handled by the NRA. The NRA has been very poor in terms of communications. Sometimes farmers were not aware their land was being surveyed and on occasion people went on to their farms without permission. Sometimes farmers read in newspapers that routes had been selected before they had been consulted. The consultative process has been weak and poorly handled, and the NRA must take responsibility for this. They should take a leaf from the way in which communications have worked in relation to Luas. One can hardly pick up a paper without seeing generally positive vibes about Luas. It seems much consultation took place with regard to Luas and I wonder why the same has not happened for roads. Why has the NRA not handled things in a similar way?
Another issue is landowners and how they are treated. There have been ongoing discussions between the IFA and the Department regarding how farmers should be treated. Many land owners have been devastated as a result of the severance of their land because of new road developments. I could cite many examples of farmers and farming families who legitimately feel they will be put out of business because of a road going through their property. It is easy for us to talk about it in the House and make laws and pass enabling legislation, but the Acting Chairman, who is from a rural area, has some appreciation of what it is like for somebody to feel their livelihood will be lost. For example, I know of a farming family with a small 50 acre farm. Ten of their best acres are being taken by way of compulsory purchase order, amounting to 20% of their total land holding How can such a farmer be compensated for future loss? There is opposition because of such uncertainties. It raises fundamental questions regarding compulsory purchase orders.
The compulsory purchase order legislation dates back to 1919 when it was brought in mainly to acquire land to build houses for those who did not have houses. It was good for the public in general that such a system should be in place, and land was needed to provide accommodation for those who did not have any. The same compulsory purchase order legislation is now used to purchase land to enable major roads to be constructed which we are told will be funded under the PPP. The essence of a PPP is that public and private moneys will be invested. A company will decide to invest in a project on the basis that it will make money, and we have examples of how that worked. The toll bridges in Dublin, for example, worked very well and are now making a handsome profit. This morning I crossed the West Link toll bridge, and the toll there is now £1. Not too long ago it was 30p, so it is no wonder this investor is making a handsome profit.
What will happen to land which is taken from a farmer by compulsory purchase order? It will be given to a private company to make a profit. This is very different from the initial idea of com pulsory purchase orders. It also makes one wonder why a farmer who is forced to sell land is paid at agricultural land prices.
Nobody is being paid at agricultural land prices.
I will come to that in a moment.
That is nonsense, and the Deputy knows it is nonsense.
Why should a farmer be paid at those prices?
The Deputy should not be disingenuous.
If we are genuine about PPPs and want land owners to get a fair crack of the whip then, given that a development company will take over their property and use it to make profits, their land should be sold at development prices. If it was a housing or commercial development, farmers would be paid a certain price. However, up to now farmers have been paid quite meagre sums under compulsory purchase orders. Despite what the Minister has said the average price per acre received by farmers under the compulsory purchase order has been from £4,000.
This was the figure for the Mullingar bypass for example.
That was a long time ago.
It was eight or nine years ago. Some of the farmers have not yet been paid.
We are talking about a public private partnership process which is current. The Deputy can add another digit—
I ask for the protection of the Chair.
Acting Chairman:
I am anxious to facilitate the Deputy.
There are other compensations built into the provisions, but my contention is that farmers or any landowners should be paid a proper rate. I am aware that negotiations are at an advanced stage with the IFA and that a programme has been worked out whereby farmers will get better compensation for their land. I understand the deal which has been worked out with the Government is that if a person loses, for example, six acres under the compulsory purchase order scheme, they will get a sum of money for the six acres in keeping with the price of a similar piece of land sold in the area. Recently I met a farmer who told me he will lose eight acres under the compulsory purchase order scheme, and he said he was quite satisfied as there was a recent sale of eight acres in the locality for £162,000. That farmer is expecting to get £162,000 for his land under the new deal which I understand has been agreed by the Government, plus consideration for the severance, disturbance, etc.
Perhaps the Minister will comment on that.
Perhaps the Minister will confirm it. I understand it has also been agreed that there will be an early settlers clause to accommodate farmers who sign up early and agree to a particular road. I am all in favour of it. I understand the Government has offered £3,000 per acre under the early settlers clause and that the IFA is seeking £4,000 per acre. I am sure a compromise can be reached and that there will be agreement. Another big question, that is, the taxation of that money, is still in the melting pot.
On the overall issue, the farmers and landowners have a legitimate claim. It is not fair to use a compulsory purchase order system for something that will, obviously, benefit a private company in a development context. I suggest some options for consideration in those circumstances. First, has the Minister of State considered the possibility that the landowners should be given an opportunity of becoming shareholders in the company that will provide the money and construct the road? In the case of Eircom and other State companies which have changed hands recently, there have been share options for the workers. Why not give the landowners concerned in this case the opportunity of taking a share in the company? Is that not possible and reasonable in the circumstances? In the context of future tolling of those roads, why not offer the farming families concerned the facility of travelling toll-free on those roads? I understand that a transponder can be installed in a car, which registers as one goes through the tolling station and provision could be made for exemption from payment.
The Deputy is waxing lyrical in favour of payment. Is that in line with Fine Gael policy?
I am glad the Minister of State is interested in what I am saying. I am trying to assist the Government to move ahead with the PPP programme. The Government has delayed the process and placed many obstacles in the way. It has not completed negotiations which it entered into with various groups and it has presided over the bulldozing of people's concerns in relation to route selection, negotiations and unacceptable impositions. I am trying to put in the way of the Minister of State the facilities by which, perhaps, he will be able to find a way out of the mess the Government has got itself into and move forward.
Tolling is part of the Kinnegad to Kilcock scheme – the toll has been set. In various replies to parliamentary questions, the Minister for the Environment and Local Government has said he has no role in the tolling of roads. That is not true. The NRA sets the toll rate and so on, but it must get the approval of the Minister and, unless he approves it, it cannot go through. I question the concept of direct tolling because it will cause problems and will disadvantage certain parts of the country. In my area of County Westmeath, thank God we have an influx of people and our towns are growing rapidly. Many of those who live in places like Kinnegad, Killucan, Rathwire and Rochfortbridge are commuting daily to Dublin. I ask the Minister of State to consider the additional cost which will be imposed on them if they have to pay a toll each way on their journey to and from Dublin. Currently, it amounts to about £1.60 per trip, or £16 per week.
There are weekly tickets available.
I welcome that information and I would ask the Minister of State to elaborate on it, including the cost. I hope it is a greatly reduced cost. Are the actions of the Minister for the Environment and Local Government part of a move to discourage people from commuting to work and driving them onto the rail system? If that is his intention, why does he not say so? The Government should consider the downstream effects of tolling in areas like Westmeath. That county is in the BMW region and, according to CSO projections, the midlands area is the one area which will have a population decline over the next 20 years. The north of the county is suffering a severe loss of population and we have recently lost industry. It is very important to bolster the opportunities in that area and boost industry so that it can survive and become competitive. In that context, I question whether direct tolling is the best way forward.
Has the Minister of State investigated the possibility of shadow tolling, the effect it might have and the possibility of a more even spread of the burden of toll roads. People commuting from Kinnegad to Dublin already pay their taxes, part of which will go towards building the new dual carriageway. They would feel very aggrieved if they had to pay further taxes for the use of the road towards which they have already contributed.
They could use the other road if they do not wish to pay the toll.
That suggestion is not valid. It would mean that people could not use a facility for which they had paid and that is not a fair proposition. The Minister of State should seriously consider shadow tolling in terms of how it would work and the effects it would have.
Local usage is an important issue. There was a great deal of discussion recently on the effects which a proposed toll road around Dundalk would have on the town and on local usage. The question was posed as to whether it would force traffic back into the town rather than have the desired effect of moving it out of the town. That aspect has to be considered. Shadow tolling is a real possibility and the Minister of State should consider it. Perhaps in his reply at the end of Second Stage, he will indicate if that has been considered and with what outcome.
Will the Deputy spell out what he means by shadow tolling?
Suppose, for example, the Kilcock to Kinnegad road is built under a PPP arrangement, the private company involved will put up £X towards the project in a deal whereby it will get a return over a number of years. There will also be public money invested in the building of the road. There are two ways of recouping the private company's investment. It could apply direct tolling in the form of a fixed charge on every vehicle using the road or, alternatively, shadow tolling might operate as follows. If the company anticipates a return of £10 million per year over a number of years, that could be subsidised by way of shadow tolling from central Government, enabling the toll rate to be greatly reduced, possibly to a nominal level. There would be a top-up figure to maintain the level of return to the company at the specified level. If the turnover was £15 million, rather than the anticipated £10 million, the Government top-up would be correspondingly less and if the turnover was £8 million, there would be a greater top-up.
Who bears the risk? Who pays the cost of maintenance and further development of the motorway?
The risk is for the private company which put the money up front. Obviously, it will not be given a 100% return – it is a matter for negotiation. One arrives at the best arrangement.
Another point relates to the quality of the roads being built. The standard of road proposed in my constituency is reduced dual carriageway. Reduced dual carriageway has two lanes of road on each side. There is no hard shoulder. This is a new concept in road design and road building.
It is reduced motorway, not reduced dual carriageway. There is a fundamental difference between the two. It will be largely motorway or reduced to dual carriageway in certain circumstances. It is not reduced dual carriageway.
You said reduced motorway and reduced dual carriageway. Which is it?
It is reduced motorway. It is not reduced dual carriageway.
Members should address their remarks through the Chair.
I am sorry, a Cheann Chomhairle. It is extremely important to achieve the highest safety standard on these roads. We must ensure the roads are of the best quality. I recently had a discussion with somebody from the NRA during a committee meeting in the House. He talked about the cost benefit analysis of building these roads and the number of accidents and possible deaths that would be prevented. I welcome that.
Adopting the reduced dual carriageway standard as distinct from full dual carriageway or reduced motorway or motorway means there are different standards of safety attached to each road. Each has a higher standard of road safety. The motorway has the highest. On the other roads safety is compromised to a certain extent. A reduced dual carriageway has a lower safety standard than a full dual carriageway due to how it is built. On one there are two lanes on each side without a hard shoulder while the other has the hard shoulder. Accident statistics demonstrate that this difference results in a reduced safety standard. We must take that into account when we build our roads.
The NRA indicated that the reason it opted for a reduced dual carriageway on a certain stretch of road was the possible additional cost. There would be additional costs in moving up to the next standard. That is a matter of fact, regardless of what anyone else tells the Minister. I hope he will respond to that point and outline his thoughts on the different standards of roads and how they can improve road safety.
I am suffering a little this evening so I will keep my contribution even quieter and more succinct than usual.
Deputy McGrath said much that was of interest in the course of his contribution. I will discuss some of it later but I am provoked in particular by the first point he made about the compulsory purchase procedure. I will respond as an urban dweller and as a representative of an urban constituency.
We drove the last pig from Dublin North-Central in the late 1970s and the farms have since been replaced by substantial housing estates. There are no farmers left in the area. Compulsory purchase is an issue where we have not got the balance right. There is a balance to be struck between the rights of landowners and private property owners and the requirements of the economy and the people. The compulsory purchase acquisition rules generally seem to be fair. I am not sure that the procedure is as efficient as it might be. There might be an argument for front loading it, that is, acquiring the land first and working out the compensation later if that is what must be done. The rules, however, are fair.
I have often wondered in recent months whether there would be the same decibel level in this debate if an IFA election were not due shortly. I would be disappointed and disturbed if the type of deal described by Deputy McGrath were suddenly announced in the next couple of weeks. We should not run the risk of doing damage to the way in which we have used compulsory purchase orders generally for social good for decades by making a once off fix at this stage, particularly when the Government has been slow to take a lead on this issue. Certainly, it has not done so in public. However, that is just an aside.
We are thankful. It is different from what Deputy Penrose would say.
Yes. I emphasised that I made my point as a representative of an urban constituency. However, there is a balance to be struck here.
The phrase public private partnerships or PPPs has become a buzz phrase which has been much in vogue over recent years. To comment on it in an intelligent way, we must have an agreed position as to what we are discussing. For me, a PPP is or should be a means whereby the public and private sectors can both give of their respective expertise in providing infrastructure or public services to the greatest possible benefit of customers, consumers or citizens. It is about the provision of public services or services to the public.
It was and is the traditional left wing Labour Party view that it is the primary responsibility of the State to ensure that public services are provided to citizens and that most of that provision will be made directly by the State. That, however, does not exclude the possibility that there are and will be circumstances where the involvement of the private sector is not only appropriate but is also desirable. It is probably fair to say that most of the scepticism on the left, particularly in the past 15 years, about PPPs in Ireland results from the PFI experience in the United Kingdom where the then government under Mrs. Thatcher, now Lady Thatcher, introduced privatisation in a number of enterprises under the guise of PPPs.
It is probably fair to say also that the political motivation of that government, which was not seen to be in any way sympathetic to the provision of public services and certainly not direct provision of public services by the state, informed people's view of the process. That is important. It is impossible, having seen the process that government went through, to come to any other conclusion than that it was looking to take public services out of the realm of government and off the balance sheet. In many cases there was a sub-agenda, sometimes a more up front agenda, of casualising the work force, attacking the public service unions and making a political point by virtue of doing that. It sat alongside and frequently intersected with a massive programme of privatis ation, some of which has been greatly discredited in recent years.
The background to the debate in Ireland, therefore, has not been positive. Certainly, the Labour Party looked askance, particularly in the early 1990s, at the PPP proposals being made here as a result of its knowledge and experience of what had happened in the United Kingdom. I am reluctant to be negative but it is important to point out that I do not regard PPPs as privatisation or as being analogous to privatisation.
I do not support privatisation in a number of circumstances. I would not support the privatisation of most of the utilities that are still within public ownership in Ireland. I do not, for example, support the privatisation of a utility that is providing a service of strategic importance, where real competition in the market place might be difficult to achieve or to achieve at an acceptable cost. An example of such a case is the ESB. It appears to be accepted at present that in order to achieve competition in the market, it will be necessary for the regulator to agree on an increased price of electricity for customers. It cannot be reasonable to assert that we must, for ideological reasons, seek to bring other players into the market if the consumer is to be disadvantaged from the start by virtue of that fact. I cannot see that the case is persuasive in any way.
I do not support privatisation where there is a universal service obligation which is virtually certain to clash with the profit motivation which lies behind most, if not all, private companies. If that happens, either one ends up compromising the universal service obligation or paying too much for it. To put that in more simple English: if one looks at a company such as the VHI, either it or Government comes under pressure to change the regulations in order that one does not have to make the provision for community care that is part of the regulations or legislation that governs the VHI. Alternatively, it must be subsidised and money given by direct subsidy to the VHI, BUPA or any other competitor in order to fulfil the obligation which was previously a given in terms of one State-owned insurance company. In those circumstances I cannot see that we, older people or those suffering from a chronic illness would benefit from the privatisation of the VHI.
In many cases the difference between privatisation and using PPSs may actually come down to a matter of scale. A group water scheme in a rural area, for instance, in Deputy Connaughton's or Deputy McGrath's constituency, may be run by a co-op. Effectively, it is privately run. If it was on a larger scale, it might well be put out to what one might call a PPP and operated by a private contractor on the basis of an agreed contract. That, to all intents and purposes, is a PPP. In many cases it might well be the most efficient way in which to operate a scheme of that kind. I would actively support such a scheme.
That is quite different, however, from saying that one would take the water supply for a whole region or, for that matter, the entire country and simply privatise it. I note that there is no proposal to do so, but I want to draw a distinction. In such a case one would give discretion over an important public service to a company which one could, at best, look to regulate by way of statutory instrument or registration or regulation. Based on experience in other countries, I am not convinced that it can be done effectively and well. The smaller scale of a local group water scheme in a rural area may allow PPPs to work very well. I would have grave difficulty with the privatisation of whole networks on a grand scale.
PPPs are project-orientated and governed or should be by contract. In many cases these contracts are quite explicit, detailed and complex. They require a great deal of negotiation. That is as it should be. It is important that in drawing up contracts of this kind with private operators the public body, whether it be the local authority or central government or the Department of the Environment and Local Government, should spell out in careful detail exactly what is required of the contractor. If the contractor is constructing a building, it should be made absolutely clear that it must be open 12 or 15 hours a day, for perhaps 364 days a year, and that a certain standard of service should be provided for the State or the users of the service. The contractual obligation of the contractor is central to the whole deal and of considerable importance.
We must stress that there are, potentially, different types of PPPs, not all of which are new to this country. We have had "design and build"; "design, build and operate"; even the odd "design, build, finance and operate." The so-called Dublin Bay project currently under way is being undertaken on a DBFO basis. A private operator is building the pipeline under the bay from Sutton to Ringsend and will provide for the tertiary treatment of sewage in Dublin from next year onwards. It seems to be a perfectly intelligent way of making use of expertise in an area where we clearly need it.
Both the Minister and Deputy McGrath have said that politics is of some importance in relation to this issue and I agree. I was struck in reading some of the literature about PPPs that the consultants concerned believe that the political background was of some considerable importance in informing the market as to how the Government and, in particular, the Minister for Finance would want things to move. That is the most important distinction that can be drawn between the experience in the United Kingdom in the 1980s and the experience I hope will apply here.
As Deputy McGrath said, the Minister was slow to grasp the real potential of PPPs other than on a purely ideological level. I acknowledge there are signs that has now been done. I welcome the establishment of the unit within the Department of Finance. I have met officials of the unit more than once and know them to be people driven by a mission. It will take some more time for this to filter down through the various line Departments and, more importantly, the local authorities, the NRA and various other State bodies which will ultimately deal with PPP projects. A good start has been made within the Department which I hope will serve to inform the rest of the process.
Having made the distinction between PPPs and privatisation I will state what PPPs will give to the State and the citizen. I support the idea in principle. In the past we have perhaps been more fixated than we should have been on the whole business of asset ownership rather than the provision of services. Ultimately, it is the business of Government and the House to ensure services are provided on a decent basis for citizens. It is a matter for us to decide the basis on which citizens will have access to those services. In many cases we will ensure there is universal access. We must ensure it is done at the least possible cost to citizens. These are all matters for regulation and may be matters for legislation. They may, on occasion, require asset ownership, but we should also acknowledge that there are plenty of occasions on which actual ownership will not be required in order to ensure service delivery.
Traditionally, the main argument in favour of PPPs was that it allowed services to be provided with an upfront payment. One can afford more now than could have been afforded in different circumstances. Ironically, since PPPs have become a real prospect in the last five years or so, that argument has not really held good. We have had plenty of money in the coffers to finance capital investment straight out of the Exchequer finances, but that is now beginning to change. The fiscal situation is nothing like as strong as it was even a year ago and it seems likely that we will have to borrow this year in order to fund some of the infrastructural projects which are part of the national development plan. That is necessary and should not in any sense discourage us from making that investment. The investment is not only needed, it has been needed for a long time. It would be deplorable if we were to hold back in any sense simply because we had to borrow. This of course changes our assessment of the monetary benefits. We must then compare the cost of borrowing the money up front with the cost to the State of making payments over a concessionary period of 30 years.
This is a technical matter, but it is also of some importance in terms of value for money for the State. We must look at the premium we are paying in order to have services delivered over a period of years and compare it to the cost of borrowing. A premium of some kind is desirable from the point of view of private companies and inevitable from the point of view of the State. It would otherwise be impossible to attract private companies into the business. We must ensure the premium is of a reasonable level. Looking at the experience in the United Kingdom I am not sure that it always was from the point of view of the public sector or the State.
We will have difficulties in the next few years in terms of Structural and Cohesion Fund moneys which have been central to our infrastructural programme in the last decade. There is the matter of the stability and growth pact which, unfortunately, does not distinguish between capital and current spending.
I know that the Minister, Deputy McCreevy, disagrees with me strongly on this matter, but I wish to repeat it. We should be among those in the European Union seeking to have the understood terms of the stability and growth pact changed. There is a central difference between borrowing for infrastructural investment and for current day-to-day spending. This has to be reflected in the Maastricht criteria and the stability and growth pact. If some of the bigger countries such as Germany or Italy are looking to take the lead in making that case, then Ireland should be supporting it. As the Minister knows, we do not need to do that just now as we are not currently in those circumstances but we might well be in five or ten years time and, given where we are starting from, we should make the argument up front.
The Minister's argument about risk is an essential core of this debate. It is all about risks and expertise. It is about transferring certain risks to the private sector, which they are best able to carry, and about using the expertise of the private sector in areas where they have greater expertise than the public sector.
The area of roads is not a bad example here. Irish construction companies, by and large, are not geared up for the level of project that is now coming on stream here. We will need to buy in the foreign expertise as part of the delivery of the national development plan and the same is true of the project I referred to earlier, the Dublin Bay project, where we are buying in expertise on a scale that is not available to us here. In order to do that we need to look at different ways and structures of doing things.
I am familiar with the Waterford-Kilmacthomas bypass which was recently delivered by a French company. It is already happening in advance of a more formalised approach to PPP. I agree with the Deputy that we would not be able to deliver on the NDP without their involvement.
In fairness we cannot transfer, nor should we seek to, all risk. There is a great debate as to whether one should transfer all planning risk to a contractor, whether delays which are effectively caused by delays in the planning system should be the responsibility of the contractor and if he should be exposed to financial penalties because of those risks. Given the way things work here it would be unreasonable to do that. It is reasonable to bring the contractor in at an earlier stage of the design system than we typically do but it is not reasonable to ask them to carry that planning risk with the potential of financial penalties.
The difficulty for the State is that if companies are asked to take unreasonable risks it ends up paying far too much for them to take on those risks, otherwise nobody will be interested in taking on the contract in the first place. We have to strike a balance here. There is no doubt that there is a benefit to the State, to a local authority or the NRA in having risks of delay transferred to a contractor who is better able to deal with them.
During his contribution, the Minister of State mentioned the advisory groups made up of the social partners who I believe to be an important part of the process. I welcome the involvement of IBEC and ICTU in discussions over the last several years with the Government and other third parties.
I am concerned that this debate, which has been going on at a high level has not percolated down. In my own dealings with the trade union movement, and indeed from some discussions that I had at our recent party conference when the issue was debated, I learned that ordinary trade union members who are working in the construction field or in some cases for local authorities are concerned at what they see as an effort to casualise them. This is something we must grasp and not allow to become a barrier. If people feel that they are going to be shifted from working for a local authority – where they are unionised and have some security of tenure and agreed conditions as well as a set negotiating procedure – to a private company with a completely different ethos and background, then it is understandable that they are going to be concerned at the very least. It is important that as part of the protocol it should be made clear that will not happen.
The Minister may come back and say that the transfer of undertakings directive will come into play here but based on how I have seen the directive work I am not sure it will answer all the questions. There needs to be a high level agreement which is then explained and argued for at local level as to what exactly happens in such circumstances. The word cannot go out to workers that they are in some way being casualised or that their rights are being compromised. If it does, then this process will be stopped in its tracks and that is something we should try to avoid at all costs.
The Minister of State tells me that the Bill is largely seeking to deal with the issue of vires. He then goes on to say – and his officials have told me this previously – that they do not think there is a vires problem, but just in case there is, they will plug the hole and be doubly sure.
As I understand it, it is primarily intended to cater for joint venture companies and in that regard I have some difficulty with section 6 of the Bill. Although I understand the motivation, I think it goes further than it needs to go in the powers given to the Minister. It allows the Mini ster to give directions to the joint venture company on a variety of issues ranging from the capital formation of the company to the payment of dividends, the creation of debt and others which include the sale of assets. I cannot see too many private companies which would be willing to engage in a joint venture company where the Minister effectively has the legal power to say how things should be done, irrespective of anything in the companies Acts or any agreement that might have been made. In our anxiety to ensure accountability we may have gone too far by giving excessive powers to the Minister in terms of the instructions he can give to such companies.
Deputy McGrath was right when he said that transport, the provision of roads and the Luas and Metro systems are likely to be the most expensive areas in the next few years, aside perhaps from water and sewage. That brings up other issues, some of which are sensitive, such as tolls. My own party has taken the view that tolls are not appropriate in all circumstances and individual members of the Labour Party have been active locally in criticising tolls.
As indeed have members of my own party.
I do not doubt that. I do not think hard tolls are appropriate on bypasses in circumstances where we are actively seeking people to use particular roads in order to discourage them from going through the city centre.
I believe motorways are effectively inter-urban roads. For the sake of argument, people travelling from Dublin to Waterford, while they would doubtless appreciate the wonderful scenery of the Ceann Comhairle's constituency, might not actually want to leave the road at any point as their primary aim might be to get to the Minister of State's city. I am obviously failing to provoke the Ceann Comhairle.
The motorway's principal purpose is to facilitate people getting from one large centre of population to another. It is, in effect, to support the economy by supporting business in the fast and efficient movement of goods and not necessarily for those who wish to scoot ten kilometres down the road to go to the pub or the supermarket or whatever. Perhaps if having a relatively modest toll has the effect of discouraging people who do have an alternative to the motorway for a ten kilometre journey, then that might not necessarily be a bad thing. In circumstances where one is actively encouraging people to use a ring road to take them out of busy city streets then we should follow the example of the French autoroute where the area immediately beside large urban conurbations is not tolled.
This Bill gives rise to many issues of principle but we must concentrate on the practice which must quickly lead to an improvement in our public services and infrastructure. Provided it is done in a sensible and reasonable way I do not see there being any major opposition to that. On behalf of my party I endorse the principle behind the Bill.
I welcome the Bill. The public private partnership approach is not a new one and has been used in many countries throughout Europe in one way or another and while we may be just getting to grips with it in this economy, it has great potential to deliver the type of infrastructure that we have been debating in the House for the last four years.
We need such an infrastructure to ensure that our economy continues to grow and to ensure that it is delivered efficiently and quickly and to a high standard.
I am glad to see a reference in the Minister of State's speech to the unit within the Department of Finance which has the overall responsibility for PPPs and how they are rolled out. There is a need to educate all those involved in State agencies about what is meant by public private partnership, what is expected from it, what can be achieved by introducing it and what plans and projects within each Department could be realised.
On the one hand the public interest must be protected by ensuring projects can be delivered efficiently to the standard required by each State agency. There is an element of risk but there is nothing wrong with State agencies and others involved in PPPs taking on some risk because local authorities, health boards and so on should begin to understand the risk and responsibility involved in undertaking large projects. Risk will be part and parcel of any PPP for both private companies and State agencies. I have no doubt the private sector will provide significant expertise, which is lacking in terms of the scope of the projects to be undertaken under the national development plan and which will be required throughout the economy to ensure many of these projects are driven and delivered.
I hope the framework implemented under the legislation will be flexible enough to be attractive to the private sector and will be understood by those in the public sector so that proper partnerships can be developed. Local authorities have been involved in PPPs in recent times and there has been a certain reluctance among them to take on such projects. Perhaps during the debate the concept will become more clearly understood. The legislation should outline how partnerships work, how they can deliver for local communities and State agencies and the benefits that could accrue if they function properly as part of the National Development Plan.
We live in a different world economy following the events of 11 September and these are changed times for our economy in comparison to the past four years. However, that may be no harm because sometimes when there is a great deal of money available for investment in an economy by a Government, the focus shifts from value to money, which should be part and parcel of any project that is undertaken. Sometimes projects increase in size simply because more money is available from the Government. Value for money audits should be conducted on all projects approved by local or national Government to ensure the projects are required and are not being undertaken because the money is available to do so.
The manner in which the roads infrastructure is being delivered and the level of compensation being paid to do so was mentioned earlier. We could get bogged down on that issue. Many other PPP projects are ready to be undertaken by health boards, local authorities and so on such as the provision of swimming pools and the strategy for the health service, which provides investment of £10 billion over the coming years. I have no doubt if the PPP process is not speeded up and does not become more efficient, the building programme which must be undertaken to meet the requirements of the health strategy will not be delivered.
Many projects have fallen behind schedule because of planning issues, the lack of availability of the necessary expertise and the lack of input by major companies, which are busy with other projects. As the Minister of State correctly pointed out, companies have been successfully attracted from France and other parts of Europe to fulfil contracts here. The delivery of water and sewerage systems has been progressed through PPP. The framework for such schemes must be absolutely clear and understood by local authorities and private sector companies. The provision of factories by IDA Ireland could also be exploited through PPP.
The provision of fibre optic cable and connectivity throughout the regions has been debated in the House on numerous occasions. Such provision has failed. Telecommunications companies have laid cable but it is largely unused. The Minister for Finance should introduce a tax on such cable if it is not utilised after a certain period. This would be similar to the principle that governs derelict sites. Such a principle could be adopted in regard to use of fibre optic cable.
Local authorities should be encouraged to link up with private companies in the provision of information communications technology infrastructure to ensure it is utilised. That is a major issue in terms of the economic development of the regions and it can be addressed through PPPs. Many of us are confronted by housing problems in our constituencies. The provision of housing through Respond and other voluntary agencies is done through partnership. This partnership could be used more extensively by local authorities in a more imaginative way to provide houses to eliminate waiting lists.
The functions of Departments and agencies will be different in terms of how PPPs operate and evolve. I have no doubt there will be difficulties for public servants because employment will be an issue in the delivery of PPP projects. If people have an open mind and understand the concept, they will recognise new career paths will be created within this structure that will allow them to move as options open up for them. I have no doubt it will take some time for this notion to be taken on board by officials who are used to doing their work in a set way and delivering projects in a conventional manner. PPPs will be a major change for them but they should be embraced because much could be achieved through them.
Rail transport is also an example of a service that is not being delivered adequately to consumers, whether passengers or freight carriers. There are issues in terms of how the service is being delivered and financed. Perhaps local or regional authorities should be involved in a PPP to ensure Government policy on rail transport is delivered. There is also the issue of how the regions are being serviced in terms of freight and travel. The delivery of rail services and the road construction programme should be intertwined to ensure there is a joint approach to the traffic and transport problem.
Public private partnerships could be broadened in how we restore our heritage sites and what we do with them. I am trying to pick out the areas where we spend a huge amount of money trying to attract tourists to the country and where sites are largely under developed. There may be people in this country or abroad who would be willing to come on board in a public private partnership either with the Department, the local authority or the local tourism organisation to develop these sites. This would compliment the tourism industry and perhaps find a function for the site. I mentioned this to the Minister by way of parliamentary question and so on and there is nothing wrong with developing such sites to benefit the public, the economy and to find either a commercial or community use for these sites. There is nothing wrong with restoring and using heritage sites in that way. Mount Juliet is a fine example of such restoration work. There are other examples throughout the country of houses being restored. This attracts people into local communities and helps to develop these heritage sites.
Since I was elected to this House I have been concerned about one aspect of public private partnerships. The more we speed up the development of the economy and efficiency of the delivery of projects in order to provide greater services for the people we represent the further away we seem to push responsibility to this House. In any public private partnership, whether it is driven by a local authority or a health board, there should be some method included in the legislation which would allow us to scrutinise the activities of that authority or agency on its day to day working or involvement in a public private partnership arrangement. There is, for example, the road construction programme. If one asks a question of the NRA or any other authority in this House one is told it is not the Minister's function. It is my function as a public representative to watch how a project is delivered. If I find fault with the project or if I need to ask a question about it, there should be a method within this House by which that question can be raised. I consider I am representing the public. At times one is a watchdog on behalf of the public, so to speak, and if one cannot raise a question in this House, people ask what use are we in that regard.
I refer to the delivery of the Piltown-Fiddown bypass – other examples were given earlier. It is a fine bypass but there are questions in regard to it. When one asks the Minister to intervene and conduct an inquiry into how it was delivered, one is told it cannot be done. I do not want to see the public private partnership process in this instance, which I support, at arms' length from this House. There should be some method included in the legislation which will allow Members to ask questions on its progress, value for money and so on. That is not interfering with the process, it is complementing the process. I ask the Minister to look at how the Piltown-Fiddown bypass was delivered. There is no reason an answer cannot be delivered to this House or the Minister cannot intervene to support a motion which was carried unanimously by the local county council to ensure greater safety on that road. We are in this together. This is our country, economy, local authority and Government. We are partners within it and there should be some way of ensuring we can get answers, whether on safety, construction or how the project is delivered. Having looked at many reports of accidents on roads throughout the country, while continuing to construct roadways by way of public private partnership in the context of this Bill, road safety, the construction of the road, the safety of local communities, including the safety aspect in regard to the Piltown-Fiddown by-pass, which is 11 kilometres long and has 13 right hand turns, should be relevant. Members should be able to raise these issues on behalf of the community. There should be some structure in the House to raise these issues.
I welcome the Bill. I also welcome the fact that there is a unit within the Department of Finance which can co-ordinate and move this concept forward. I hope, in the context of the health strategy and development of better local government that those involved will embrace this new concept and allow the various projects mentioned in the national development plan to be identified and delivered on in the context of public private partnership. It serves our constituents and the public well and I believe it will speed up the development of the economy in the future.
Fine Gael believes the main thrust of the Bill is timely. There are many matters which must be teased out but I do not have sufficient time at my disposal.
There should be a number of clear objectives in regard to public private partnerships. This should include the delivery of an efficient service which otherwise might not be delivered and at a cost that is appropriate to that service. The Minister of State will be aware that private enterprise will not become involved in projects unless there is money in it. The main problem with any public private partnership is to try to strike a happy medium. The project should be enhanced as a result of the involvement of private enterprise and there should be some type of State or local authority control to ensure there will not be profiteering or that standards will not be maintained.
I gather from the Minister of State's speech that maintaining standards will be very important. If standards are not maintained – I will come back to this issue on the next occasion – obviously public private partnerships will be of little use. This will depend on the level of standards we set out and what we expect to get out of it. There are a whole variety of services into which the private sector could have an input. As was stated earlier, there could be public private partnerships in relation to many services which would benefit everyone concerned. However, the down turn in the world economy may create a difficulty in this regard in the next five or ten years.
Debate adjourned.
