Enda Kenny
Question:5 Mr. Kenny asked the Taoiseach when the cross-departmental team on infrastructure and public private partnerships last met; and if he will make a statement on the matter. [22138/02]
Ceisteanna – Questions. - Public Private Partnerships.
Trevor Sargent
Question:6 Mr. Sargent asked the Taoiseach when the last meeting of the cross-departmental team on infrastructure and public private partnerships was held; the agenda of that meeting; the next planned meeting of the group; and if he will make a statement on the matter. [23544/02]
Caoimhghín Ó Caoláin
Question:7 Caoimhghín Ó Caoláin asked the Taoiseach if the cross-departmental team on infrastructure and public private partnerships has met in 2002; and if a Cabinet sub-committee on this issue has been established; and if he will make a statement on the matter. [23547/02]
Joe Higgins
Question:8 Mr. J. Higgins asked the Taoiseach if he will report on the recent work of the cross-departmental team on infrastructure and public private partnerships. [23554/02]
I propose to take Questions Nos. 5 to 8, inclusive, together.
The cross-departmental team on housing, infrastructure and public private partnerships, which provides support to a Cabinet committee, continues to meet on a monthly basis, with the most recent meeting having taken place on 13 November.
A particular focus of the team's work currently is on financing of infrastructure priorities over the remaining lifetime of the NDP. Obviously, that work involves consideration of the provisions in the Estimates, the main areas for action identified by the social partners in the negotiations on a successor to the PPF and the ongoing process of framing options and proposals for budget 2003.
It is the overall aim of the Government to continue in a sustainable way the very good progress and delivery momentum that has been achieved so far under the NDP. In that regard, particular account needs to be taken of the scale and nature of accumulated infrastructural deficits that the plan was designed to tackle and the many other priorities – especially social protection provision – that must be addressed in the current circumstances.
This is absolutely critical for the future development of the country. Goodbody consultants did a report on the inadequacy of infrastructure recently. The report points out that the infrastructure deficit is of the order of €80 billion. It further points out that the PPP system is effectively stalled and will not be able to continue to any great extent unless serious changes are made. It further identifies that there are now 28 major infrastructural projects in the pipeline that are effectively suspended. Will the Taoiseach initiate an immediate audit of the priority projects that can be concluded within the lifetime of the current national development programme and have such audit published within three months and get on with the job? On the one hand it is false economy to suspend and stifle this kind of work, but given that the Government is talking about special strategies, decentralisation, outreach education programmes for the balanced and proper development of provincial Ireland and given that these major projects are stalled on the other hand it creates mayhem in the public mind. Does the Taoiseach intend to review the ineffectiveness of the PPP system as it stands and when might he announce changes to make it more attractive for the private sector to become involved in this kind of activity?
The Deputy has asked a number of questions. It is important to note that excellent progress has been made given the scale and the nature of what Deputy Kenny rightly said are accumulated infrastructural deficits in the NDP and that it is designed to tackle many of the priority projects and projects that have been there from ten to 40 years for understandable reasons as there were no resources. The figure on the national development plan up to the 2002 period is several hundred million euro. I cannot recall the figure off the top of my head but certainly it is a long way ahead of what the figure was for that period. The reasons for that, which I mentioned before, were untimely and inadequate release of funds for projects, diminished unit of output per euro for investment relative to the original plans, constraints on Exchequer funding, planning delays and other issues. Construction price inflation was the most significant reason. This year overall capital expenditure is down by 6% but, at €5.3 billion, is still 170% of what we were spending just a few years ago. Comparing that to international levels of spending, we are spending 4.5% of GDP on capital investments, whereas the EU average is 2.3%.
Having said that, Deputy Kenny is right about the large number of major infrastructural problems with which we must deal. Some of them can be dealt with by State agencies within their own environs. Some will have to be dealt with under the national development plan. It is clear now that it will be impossible to deal with all of them within the expected timeframe. I have admitted that a number of times in the course of the past 12 months. However, in regard to health infrastructure, investments in school buildings, water, sewerage, public transport and other areas, it will be easier to do what Deputy Kenny suggests after the budget. The Cabinet Committee on Infrastructure is engaged in an ongoing trawl across all areas. It knows what work is outstanding for the next decade, what large projects there are, NRA, ESB, CIE infrastructure and so on. The information is available as the Cabinet committee published a document last year. It may not have been a complete one, but I will raise the issue again – there should be no difficulty in doing this.
On the question of public private partnerships, some countries took off with enormous steam but have now practically stopped. Others have been slow to embrace the concept. We do not have many projects here. Some have been successful. It is no secret that the Department of Finance had mixed feelings about public private partnership and it has given its views to committees of the House. The Department believes that an excessive amount of money must be paid to the financial institutions as part of the system, that while there is a period during which no money is paid, in the end the bill of the financial institutions is excessive and that the best way to implement projects is still through the State with Exchequer funds.
The Department believes that public private partnerships result in an enormous pent-up amount of money that eventually must be paid. It is an argument I have heard in unsolicited correspondence and from individuals I have met who are involved in public private partnerships here and in other countries. They believe there are other ways of doing it. The Minister for Finance has been engaged in discussions to see whether there is a way of simplifying matters. I know from Chancellor Gordon Brown and other Ministers in the British Government that the UK embarked on public private partnerships but has now back-tracked and changed its view substantially. The Portuguese were probably the leaders in this area. They did an enormous amount of work, but in a way that might be unacceptable here – they tolled all existing roads and used the tolls to fund PPPs in other areas. However, they are experiencing major problems with the EU because they have broken every rule in the book. On the other hand, they got the work done.
Deputy Kenny asked me two questions. The first was whether we would see what infrastructural projects are outstanding. I will ask the people involved to do that. The second question was whether we would examine public private partnerships to find out whether they could be more efficient. An examination is under way to see whether the legitimate concerns of the Department of Finance can be dealt with. At the same time, we cannot spend our lives not doing things if there is a way to get them done.
Will the Taoiseach agree that the public private partnership model is a way of borrowing without using the "B" word, that it is an expensive form of hire purchase which, in the final analysis, costs the taxpayer more than would infrastructural borrowing at the outset? In looking at other countries, has the Taoiseach taken note of the unfortunate experiences in the UK, where it was reported in The Guardian newspaper that hospitals in Cumberland, Dartford and Gravesham, which purport to be state-of-the-art hospitals, have cut beds and jobs to generate income and profit, and that the ceilings have collapsed in Cumberland because cheap plastic-joint sewerage systems could not cope and operating theatres were flooded? It indicates a sorry state of affairs and a bad report on the working of PPP.
Will the Taoiseach also agree that in Ireland PPP has not been very successful in relation to education? Is he aware, for example, that in Ballincollig Community School, the building company involved, which happens to be the company that messed up very badly in rail safety in England, has been employed to knock down a gymnasium to build another under a PPP and try to profit from that? Will he agree that this kind of PPP will do immense damage not just to the infrastructure of the country but also to the taxpayer in providing a very costly alternative to what would otherwise be straightforward borrowing?
Deputy Sargent has given us the other side of the argument. His views are in line with those of the Department of Finance.
He will be the next Minister for Finance.
The Department would be proud of the Deputy's contribution. It is precisely as it would put the case.
Let me, perhaps, give the other side of the argument. Five primary schools were built very efficiently. I recently saw the Tubbercurry school which is built to a high standard. It carries the maintenance, the quality is better and, in spite of my good friends in the Department of Finance, the speed of work has been much quicker because it was not necessary to have five design teams, five architects, five engineers and five quantity surveyors. If five schools are being built in five different counties, each for 500 pupils, we know the country is fairly static, the people are the same, the curriculum is centralised and so on. It is, therefore, possible to have one design team to build the five schools. They will not have the same drainage system and so on, but it should be possible to cut down on the cost and carry out the work more efficiently, and that is the advantage of PPPs.
However, the Deputy is correct in saying that there is a large added cost at the end which makes it more expensive. However, given Deputy Kenny's estimate, whether it is right, of the extent of our infrastructural deficit, and even though we are spending almost twice as much of our GDP on capital projects as other European countries, if we took the view that there should be no PPPs and that we should only follow the capital programme, we would not, in our lifetime or in that of the next generation, get to the end of this. I would like to think we could use the capital programme. However, we should consider public private partnerships where they make it possible to carry out projects. There are ways of making PPP work efficiently, provided the companies coming in do not do so to profiteer excessively. That is the issue. I have often heard it said that public private partnership is a mechanism whereby one does not have to pay up front. The Deputy is right in saying that it is borrowing by another name and the evil day comes, as it does for all of us in our domestic lives, when the bill arrives and must be paid.
The Department of Finance does not like it for that reason and because there is a higher bill.
We are not sure of that yet.
There is an even higher bill.
I have had the same argument about that with people inside and outside the system. The question is "Is it really higher?" A project today might cost €1 million and be done for that. That adds €1 million to the debt. If it is not done now but in 15 years' time it might cost €20 million then. We tend to do that, but who has saved?
Roads projects on which we are now working had CPOs made on them in the 1950s and 1960s. They, and the land around them, remained dormant. Because growth in the country has doubled in a decade it is possible with some greenfield projects that we can ignore these other projects. There is a case for looking at PPPs. With regard to schools the PPPs will cost about €14 million less over the life of the project than with conventional building. An examination of the savings over the present school projects has shown that.
There are arguments for both sides. We are not using PPPs to a great extent but we are using them in some instances and are looking at their use for other projects and trying to see if there is a cheaper way of doing them. PPPs are a relatively new system. They are less than ten years in use. Every country that has engaged in them or declined them has changed its position over the years. They are a changing mechanism. I do not believe we should go into them on a large scale but I believe we could use the system for some projects if we could get better value. However, conventional capital is clearly the cheapest way.
Knocking down a gym is not good value.
We are running out of time and Deputy Ó Caoláin has a question.
With regard to the same issue and the contracts for the building of the five schools, is the Taoiseach aware that we will actually pay €214 million over the next 25 years to the company concerned? It is an English based company called Jarvis. Is the Taoiseach aware that the same company is responsible for significant sections of the main British rail network, including its maintenance? Its responsibility includes the section at Potters Bar where some time ago there was a tragic accident resulting in the loss of seven lives and multiple injuries.
Please be brief.
I hope I will be allowed the same time as everybody else. During the summer recess a non-executive director of the company resigned over corruption charges. Is the Taoiseach not concerned that this is the type of company working in Ireland in public private partnerships constructing schools and extracting exorbitant profits from our economy? Public private partnership is an expensive form of borrowing. What is the Taoiseach's view of the Government's ongoing push towards privatisation of waste management where we are handing over control of waste management and all it entails to the private sector? Will the Taoiseach respond to these questions?
My colleague has just given me information on the Ballincollig school. There were four reasons none of the bidders suggested that the existing sports hall should be kept as part of the design. The existing roof covering is made of asbestos, there was sinkage of the upright pillars, there was dampness in sections of the building and the cost of renovation of the existing dressing rooms and shower area is too high. These seem good reasons.
In reply to Deputy Ó Caoláin, if I take the view that the private sector should not be involved, many projects would never be undertaken. I hope the Deputy understands that reality. It is easy to knock the private sector but if there is no private or State involvement the projects just go on and on and future generations will still have questions about them. Every other country has moved forward on this. The Soviet block is now a world leader in public private partnerships and investment capital. They have all given up the old rhetoric of not having any money.
Does the Taoiseach have any idea why—
Please allow the Taoiseach to continue. We are running out of time and Deputy Stagg has a question.
I do not have a difficulty with partnerships where they make sense. Where they do not make sense it is just a rip-off. It is a rip-off when private sector companies want a PPP where the State can afford it but in areas where there is a backlog they are useful. If it was the case that we could have a meaningful public private partnership that was not a rip-off of the State and that was not excessive, would the Deputy like to see it done? I know the answer is that the Deputy would rather see it done. We cannot do it if the prices are excessive.
I trust the judgment of the Department of Finance on this. It believes that many of the projects put forward to us are excessive. It is prepared to look at areas where we can negotiate and find better ways of doing things. That is a reasonable approach.
Is the Taoiseach not concerned about the details I shared regarding the company in this case?
Sorry, Deputy Ó Caoláin we must allow Deputy Stagg speak.
It is important.
Of course it is important but the time for Taoiseach's questions is limited and there are other Deputies in the House.
I welcome the tone of the Taoiseach's responses but surely he is not suggesting to the House that the Russian mafia, which controls most of the contract systems in the former Soviet Union, is a good example for us. Does he agree that PPPs give guaranteed returns for minimal or—
They were the old party leaders of this country.
I am not insulting anybody.
I saw the list recently.
Will the Taoiseach agree that PPPs give guaranteed return for minimal or no risk to the private sector for minor involvement in public projects? Studies elsewhere have shown that they are neither efficient nor cost effective. Will he agree that the reason they are more expensive is that the profits taken by the private sector are an additional cost in all cases? Does he also agree that the State can borrow money more efficiently and effectively than the private sector? Does he agree that the private sector people who want to be involved are not ragged trousered philanthropists but are in it for the money?
I have already answered that in my replies to Deputies Sargent and Kenny. The view is that if we can afford to do it from our own capital programme it is cheaper than any other way. Deputy Stagg is right on that. People who involve themselves in PPP projects cannot do so unless there is some profit in it. The experience here and elsewhere is that in some cases an acceptable deal can be negotiated. That has happened in the case with some schools. In other cases it has been felt that the conditions being put forward do not give a good deal. The Minister for Finance has been looking to see if there are ways or means to improve on the system as in other countries. If that is not done I cannot see a future for PPPs in this country.
My point about what was happening in eastern European countries was that they had an enormous infrastructural deficit and that, in what was a total turn-around for them, they were looking at ways of involving the private sector to get the best deal. There is nothing wrong with that. There are people in the private sector here who believe that they can give good value for money by doing projects quickly and efficiently. They believe that over the longer term that will prove cheaper for the State. They have a valid point and it is worth looking at for a limited number of cases.
The Goodbody consultancy report calculates that traffic jams will cost the economy more than €600 million this year. Has the Government considered using the National Pensions Reserve Fund for part-contribution to PPP for infrastructural projects, in view of the necessity of freeing up the economy?
The Taoiseach gave a commitment that Ministers would supply information on the revised costings of the NDP relevant to their Departments. Deputies on this side have tabled questions on this matter and no information has been forthcoming. Will the Taoiseach instruct his Ministers that such relevant information should be given to Deputies?
I will tell Ministers what the Deputy wants. The National Pensions Reserve Fund is totally independent. It is entitled to, and I hope it will involve itself in some of the major projects. If the economies of scale are big enough, its view is that the projects would be more attractive – as is the case with construction companies internationally. There are benefits in going for large rather than small projects, particularly if one wants competitive tendering. We made provision for that some years ago in the planning of the projects. We should try to go for larger blocks in that manner so we get more private involvement, possibly including the National Pensions Reserve Fund but that is a matter for itself ultimately.