I move: "That the Bill be now read a Second Time."
I have great pleasure in presenting the National Development Finance Agency Bill, 2002. The Bill is an integral element in the Government's determination to ensure that all available sources of funding are utilised for infrastructural projects, including private finance.
The purpose of the Bill is to establish a national development finance agency, the NDFA, under the aegis of the National Treasury Management Agency to assist in providing cost effective finance for public investment projects. The agency will be staffed by experts with relevant experience, for example, in corporate finance and risk assessment. The NDFA will help to maximise value for money for the Exchequer in a number of ways, including the identification of the best financing packages and the application of commercial standards in terms of evaluating financial risks and costs for each project.
In addition to maximising value for money for the Exchequer, the functions of the NDFA will include: providing advice to State authorities, including Government Departments, to assist them in evaluating financial risks and costs of infrastructure projects and facilitating them in availing of the best financing package for each project; assessing optimal financing for major infrastructure projects set out in the national development plan and other infrastructure priorities; and, in some circumstances, raising finance for projects including certain design, build, operate and finance public private partnerships where this would be more cost effective than private funding and, in respect of conventionally procured capital projects, where there are clear benefits offsetting any increased cost of agency funding over Exchequer funding.
In relation to the provision of advice, PPP projects are complex, requiring expert technical, legal and financial advice. A centrally resourced expert advisory service to all State authorities would be more economic than employing experts in each of these areas in every procuring authority, including the local authorities. This role can be filled by the NDFA in respect of financial advice. In this way significant cost savings could be achieved over time.
The NDFA will help to maximise value for money for the Exchequer by identifying the best financing packages and by applying commercial standards in terms of evaluating financial risks and costs for each project. In order to assess the optimal means of financing projects, the NDFA will acquire the expertise to assess the relative merits of different project structures such as traditional procurement, design, build and operate – DBO – PPPs and privately financed PPPs. It will be a part of the NDFA's role to advise procuring Departments and agencies as to the appropriate financial structure and to evaluate proposals submitted by the private sector. This will assist procuring authorities by applying commercial standards in terms of evaluating risks and costs associated with projects. Prospectuses and invitations to tender will make it clear that the NDFA will be involved in assessing and advising on proposals and where appropriate will reserve the light to accept or reject any particular financing package and instead to utilise funds provided by the NDFA. The objective will be to ensure overall best value for money and encouraging the maximum private sector involvement in financing projects.
The legislation provides that State authorities will be obliged to seek NDFA advice. However, an important consideration is that they are not obliged to take it. The final decision on the structure and financing of a project remains a matter for the appropriate Minister, or where there is delegated sanction, the appropriate accounting officer or equivalent. The legislation also provides that after consultation with other Ministers, I will issue guidance on the circumstances in which NDFA advice should be sought – taking account of the type of project or programme of projects, stage of development of a project and any other relevant factors, and the need to comply with procurement rules and avoid conflict of interest. This guidance will be drafted with input from a cross-departmental team which will include a representative of the Office of the Attorney General in an advisory rather than executive capacity. The NDFA will also be consulted.
It is expected that the benefits of NDFA will include maximising value for money by: identifying the best financing packages; applying commercial standards in terms of evaluating financial risks and costs for each project; in instances where private sector finance is unsuitable, raising finance itself or via SPCs; and centralising commercial expertise, thereby reducing dependence on external consultants with consequent cost savings.
Where the NDFA is able to borrow at better rates than the private sector, less State subvention may be required for capital projects underpinning the PPP approach to the delivery of infrastructure. It is intended that NDFA financing will be backed by Government guarantee.
The general Government balance or GGB is an EU measure of state finance which includes any non-Exchequer financing which the state, or state organisations, discharge. It is the critical measure of what can be accommodated within our obligations under the Stability and Growth Pact in the context of the Maastricht treaty. The impact of NDFA financing on the GGB would depend on the nature of the projects being financed and ultimately on rulings by EUROSTAT.
Section 5 of the Bill will provide powers to enable the establishment of special purpose companies or SPCs to give the NDFA additional options in raising moneys on the most beneficial terms for relevant projects. Section 5 provides that the NDFA may itself form an SPC or cause it to be formed; that SPCs are for financing purposes only; that the consent of the Minister for Finance must be obtained in writing before each company is formed; that SPCs will not have a Government guarantee; and that there will be no recourse to the Exchequer or to any State authority.
The possible use of SPCs offers the following benefits: the optimal financing structure can be put in place to raise the money to invest in a project such as a bridge, tunnel, etc., with hard tolls where private sector financing packages are not sufficiently attractive; and key concerns of investors – for example, the debt repayment capacity of the borrower and the risk that the cash flows may be diverted to another party – can be addressed. Where the cash flows are sufficient to service the debt the best way to insulate them and give maximum protection to investors-lenders is to form an SPC as the financing vehicle for the project. This SPC would raise the moneys for the project and have priority rights to the cash flows, e.g. tolls. Such an SPC would not get involved in any other projects. Therefore, investors would have more confidence that their investment would be repaid. In return, the SPC should be able to raise the moneys on better terms – that is, a lower cost of borrowing.
The proposed legislation imposes rigorous corporate governance requirements regarding areas such as disclosure of interests and disclosure of confidential information. The Bill also provides that the chief executive officer and the chairperson of the NDFA shall, whenever required by the Committee of Public Accounts, give evidence to that committee.
It is a stated aim of the Government that the NDFA should have a critical role in developing the best means of financing a wide range of public sector investment projects in a manner that is flexible and responsive to the needs of our economy. The projects will include infrastructure projects and programmes under the NDP.
Of particular importance will be the role of the NDFA in underpinning the development of PPPs. There are already in excess of 40 PPP projects at various stages of procurement and, where the key objectives of value for money and deliverability are met, these numbers may expand over the next few years. Again it is important to remember that under the Government's approach, and in contrast to the PFI in the UK, PPPs in Ireland include design, build and operate projects where there has never been any prospect of private finance. Accordingly, it is wholly realistic to envisage a substantial level of NDFA activity in relation to the future development of PPPs even before other types of projects are addressed. I see the NDFA having a pivotal role in applying lessons learned from the initial pilot PPP projects to the financing of future projects. Achieving value for money for the Exchequer is one of the central aims of the PPP programme and the application of the best available financing arrangements to PPP projects is an essential element in delivering economy, efficiency and effectiveness.
While the Bill will be discussed in detail by members on Committee Stage I will describe some of its important specific provisions. Section 1 is a standard interpretation section containing definitions of certain words and phrases used throughout the Bill. Section 2 provides for the establishment of the agency as a body corporate on a day to be appointed by order by the Minister for Finance. Achieving value for money for the Exchequer is one of the central aims of the PPP programme and the application of the best available financing arrangements to PPP projects is an essential element in delivering economy, efficiency and effectiveness.
While the Bill will be discussed in detail by members on Committee Stage I will describe some of its important specific provisions. Section 1 is a standard section containing definitions of certain words and phrases used throughout the Bill. Section 2 provides for the establishment of the agency as a body corporate on a day to be appointed by order by the Minister for Finance.
Section 3 is the key section which sets out in precise form the functions of the agency. The section provides that the functions of the agency will be to advise any State authority on the optimal means of financing major public investment projects, including PPP arrangements, in order to achieve value for money; to advance repayable loans, including equity, and enter into other financial arrangements regarding projects approved by any State authority; to provide advice to State authorities on all aspects of the financing, including refinancing and insurance, of major PPP projects; and form companies subject to section 5 for the purpose of securing finance for public investment projects.
Section 4 provides that, in the provision of advice, the agency must take into account any policy directions regarding financing of major public investment projects or detailed policy guidance in relation to the process, procedures and regulation generally of PPPs issued by the Minister for Finance to State authorities. Any advice given under the Act shall be independent of any potential benefits to the agency or the NTMA.
Section 5 provides that the agency may form special purpose companies – SPCs – in order to provide finance where it is the opinion of the agency that this is necessary or expedient in order to discharge its functions under the legislation. The formation of such companies must have the prior written consent of the Minister for Finance in respect of each project. SPCs set up under this section can borrow money. The section provides that no guarantee, loan or subvention will be given to any company established under this section by the Minister, the agency, the National Treasury Management Agency or any State authority or other State body. No liability shall attach to the State in respect of any act done by a company established under this section or in the winding up of such a company.
Section 6 authorises the agency to borrow moneys in any currency subject to the consent of the Minister for Finance and stipulates that the aggregate of the sums borrowed, guaranteed and outstanding by the agency cannot exceed €5 billion. The agency will have the power to effect contracts in order to fix, eliminate or reduce the risk of loss from changes in interest rates, currency exchange rates or the cost of borrowing or other transactions carried out in the course of that business. In addition, the agency can open and maintain bank accounts.
Section 7 provides that the Minister for Finance may guarantee the due repayment by the agency of the principal of any moneys and-or the payment of interest on such moneys borrowed by the agency. The Minister for Finance must give the Houses of the Oireachtas an annual statement with respect to each guarantee setting out certain specified particulars. Any moneys paid by the Minister for Finance under a guarantee must be repaid, to the Minister within two years. If not repaid, these will be paid out of moneys provided by the Oireachtas. Any payment by the Minister under this section will be a charge on the Central Fund.
Section 8 sets out that State authorities, in accordance with any guidelines issued by the Minister for Finance, must seek the advice of the agency on the financing of public investment projects. Section 9 specifies that the agency shall perform its functions through the National Treasury Management Agency and accordingly provides for the appropriate amendment to the National Treasury Management Act 1990.
Section 10 provides that the board of the agency, which will consist of a chairperson – who will be the chief executive officer of the National Treasury Management Agency – and four ordinary members, shall ensure that the functions of the agency are being performed effectively, set the objectives and targets to be met by the agency and ensure they are carried out. The Minister for Finance will appoint the ordinary members for a term of office of five years. Other matters relating to board members such as remuneration and allowances for expenses, terms relating to holding office and the disqualification, resignation or removal from membership of the board are also dealt with in this section.
Section 11 deals with the appointment by the board of the chief executive officer of the agency. Section 12 provides for the holding of meetings by the board, the first of which will be on the establishment day of the agency. It also specifies details such as the quorum, who should chair meetings, voting rules, and the procedure and business of meetings. Section 13 provides that the agency shall have a seal and sets out who may authenticate the seal. Judicial notice will be taken of the seal. It also lists those who may enter into and execute any contract or instrument not requiring to be under seal.
Section 14 stipulates that a member of the board cannot be a member of either House of the Oireachtas, the European Parliament or a local authority, vocational educational committee, health board, or the Eastern Regional Health Authority.
Section 15 provides that a member of the board or staff of the agency or a consultant, adviser or other person engaged by the agency must disclose any interest in any matter, in advance of any consideration of that matter by the board or the agency and cannot influence a decision or take part in consideration of that matter. Any such disclosure is to be recorded in the minutes of the meeting of the board or otherwise recorded by the chief executive officer. The section also sets out in what situations a person can and cannot be regarded as having a beneficial interest. If a member of the board contravenes these disclosure provisions the Minister for Finance will decide the appropriate action to be taken, including removal from office. If a member of staff of the agency or a consultant, adviser or other person engaged by the agency contravenes the disclosure provisions the chairperson will decide the appropriate action to be taken. The section also provides that the agency shall issue and publish guidelines as to what constitutes an interest.
Section 16 provides for a prohibition on unauthorised disclosure of confidential information and a person who contravenes this shall be guilty of an offence and shall be liable to a fine or imprisonment or both.
Section 17 provides for a prohibition on communications for the purpose of improper influence with a person guilty of an offence under this section being liable to a fine or imprisonment or both.
Section 18 requires the agency to keep accounts in such form as may be determined by the Minister for Finance and specifies certain details in relation to borrowing and fundraising by the agency and its transfer to individual projects, which must be included in the accounts. The audited accounts must be copied to the Minister and laid before each House of the Oireachtas and must note a record of expenses incurred by the agency. The section also provides for an amend ment to the National Treasury Management Act 1990 to the effect that the audited accounts of the National Treasury Management Agency shall note a record of expenses incurred by that agency in the exercise of its functions under this Bill. The chief executive officer and the chairperson must, when required, give evidence to the Committee of Public Accounts on specified matters.
Section 19 provides for the making of a report by the agency to the Minister for Finance not later than six months after the end of each financial year in relation to its activities during that year. Section 20 provides for the amendment of the Schedule to the Act. Section 21 is a standard provision to the effect that expenses incurred by the Minister in the administration of the Act shall be paid out of moneys provided by the Oireachtas.
Section 22 provides that administrative expenses of the agency will be charged on the Central Fund, that expenses incurred in the performance of its financing functions will be recovered by repayments on loans advanced by the agency and that expenses incurred in relation to advisory functions will be recovered by a charge on the Vote of the appropriate Department. Section 23 provides for the Short Title to the Bill. The Schedule lists the State authorities covered by the Bill.
I reiterate the Government's aim to establish this new agency which will have a critical role in developing the best means of financing public investment. The NDFA will advise sponsoring agencies such as Departments, local authorities or statutory bodies on the optimal means of financing major infrastructure projects; it will provide ongoing financial advice as projects are procured and in certain circumstances the NDFA will raise finance for projects. The purpose of the agency is to deliver value for money for the Exchequer by facilitating the best financial arrangements for projects. This, in turn, will assist in the delivery of key elements of the NDP and other infrastructure priorities. My aim is to have NDFA operational by 1 January 2003.
I commend this Bill to the House.