Richard Bruton
Question:143 Mr. R. Bruton asked the Minister for Finance the cost of capital he would regard as acceptable in a private funding package for a public project. [20917/03]
Other Questions. - Public Private Partnership.
Overall value for money in privately financed projects is assessed by comparing Exchequer cash flows under a more traditional procurement with the cash flows arising in the privately financed PPP tender. The private financing is an integral part of this assessment but one which is so significant, it merits separate consideration. I established the National Development Finance Agency for this purpose. One of its functions is to advise on the optimal means of financing public investment projects. The NDFA brings financial expertise to this role and I have provided it with the necessary flexibility to carry out its functions and apply its own professional judgment.
On the one hand, a State authority can contract with the private sector to build a facility while financing this itself at the cost of Government funds, which would currently be about 4.3% for long-term money and that, in general, is the test applied to the financing element of any alternative package. On the other hand, a State authority can seek an all-in package from the private sector that would include the design, construction and maintenance package but also a financing mechanism. In assessing whether such a package is good value for money, many issues arise including the comparative cost of funds, the degree of risk transfer, quality of product, maintenance quality and so on.
I intend that any additional cost associated with private finance will be incurred only where the overall value for money assessment warrants it. The NDFA will assess all proposed private financing packages on a case by case basis. Where non-Exchequer funding is to be utilised and where in the NDFA's opinion the overall cost of the private financing package is excessive, taking into account risk transfer factors, the agency may offer NDFA financing in its place. It will be a matter for the relevant State authority directly concerned with a project to decide which package to accept having reflected on NDFA advice.
While I accept what the Minister has said—
An Leas-Cheann Comhairle
I would remind the Deputy about the one minute time limit on supplementary questions.
I have not gone anywhere near one minute. I hope the Chair will give me injury time.
A very prominent colleague of the Minister has suggested that a metro could be funded with a PPP package at a cost of just €350 million a year for 30 years. I am not an accountant, but I can still calculate the internal rates of interest implied by that, and I calculate it at 14.5% on the cost of that system of funding. How can the Minister say that is a good approach to funding a public project that tallies with the figure of 4.3% he quoted today as the cost of money to the Government? Is there not something radically wrong when Ministers come forward with what seem to be hare-brained public finance projects that do not in any way come close to meeting the criteria the Minister has outlined to us? Is the Minister further aware that bodies like the National Roads Authority are refusing to release to Deputies the comparisons he says are being done? If Ministers and agencies are so confident that they will stand up to scrutiny, why are they not open to scrutiny by Deputies who seek that information?
No decision has been made by the Government regarding a metro project in Dublin.
Some of the Minister's colleagues seem to be floating these ideas.
As the Deputy knows from his own experience in Government, some colleagues are tremendously good at floating ideas.
Señor Brennan and the Spanish are going to build it.
All these matters must be assessed by the Government. No decisions have been made by the Government in that regard. I am sure the Deputy can do the sums as well as anybody else. Matters such as the cost of overall finance will definitely be a consideration in any propositions put forward for consideration by the Government. I emphasise that no decision has been made on the project referred to.
As the Deputy is aware, the development of PPP in Ireland has been patchy, to say the least. It has been my goal to have more PPP projects, and a number have come to fruition. We apply fairly strict criteria to those. One of the reasons for setting up the NDFA was to get the expertise of all bodies regarding financing in one quarter. That has been done now under the NDFA and all State authority projects costing more than €20 million must be assessed. It will then be up to the relevant State authority to make its own decision on whether to go ahead. To give an example, in the recent past the Kilcock-Kinnegad by-pass project was announced, but the financial terms were so onerous that a number of financial institutions in the State and in the European Union turned it down. Consequently, the overall winners will have to go further afield to finance that project. In all of these matters, it is a question of striking a balance. If a PPP project is too unattractive, it will not be taken up. If it is made too generous, the State loses. It is a question of achieving a balance, and we have detailed procedures in place.
Would the Minister not agree that the critical issue is that this should be transparent, that value for money should be clearly established and that everyone can see it is a good choice? Why are agencies which are involved in this refusing to reveal any information regarding comparisons they and the Minister claim they are making? Surely the tax-paying public deserves to see these comparisons and satisfy itself that cheap public funding is not being replaced with very expensive private funding. There is a danger that that will happen, and it has happened in other jurisdictions.
I gave an example regarding that.
Why should they not be accountable? Why not tell us?
That is one example where there have been difficulties in putting the funding mechanism in place. The people looking at the financing mechanisms the winner could enjoy think they are too onerous.
The NDFA is the body which I put in place to assess financing packages. Regarding the metro project the Deputy mentioned earlier, I assure him—
Why the secrecy?
I am sure the bodies that are negotiating with the various applicants and tenderers do not want to reveal their hand. I assure the Deputy that the overall financing mechanism of some of the larger projects, including the one to which he has referred, will be examined closely when propositions are brought before the Government.
An Leas-Cheann Comhairle
I will allow a brief supplementary question from Deputies Burton and Boyle.
Is it not true that the cost of finance to the State is far less than the cost of any PPP that has been identified to date? I join Deputy Richard Bruton in asking the Minister to publish detailed information in order that real comparisons can be made between certain economic decisions.
An Leas-Cheann Comhairle
We are way over the time.
Many of us on this side fear that the agenda for PPPs is driven by two things. Is it driven by ideology? Does it relate to the Government's catastrophic management failures in respect of development projects over the past six years? Such failures mean, for example, that O'Connell Street looks more like Beirut than the centre of the capital of an advanced nation.
An Leas-Cheann Comhairle
I call Deputy Boyle.
I would like to ask a further brief supplementary question.
An Leas-Cheann Comhairle
Deputy—
Why is the State investing money at a loss throughout the world by means of the national pensions reserve fund? Why are we unable to invest our pension funds in public projects with guaranteed rates of return?
Is the Government still in dispute with EUROSTAT about whether certain PPP projects are seen as direct borrowing and whether they should be taken into account in a given annual accounting period? The dispute is holding up projects such as the Cork School of Music.
In response to Deputy Burton, I wish to state that PPP projects are not related to ideology. They are being pursued to get the best value for money for the State and to complete certain projects as efficiently and as quickly as possible.
State finance is much cheaper.
An Leas-Cheann Comhairle
Order, please. We must conclude.
Many European countries, led by Governments of different political persuasions, have pursued the PPP idea, although they may have given it different names. PPP projects are valuable for management, financial and other reasons. I accept Deputy Burton's point that no organisation can borrow as cheaply as the State. No bank in Ireland and no bank that may come here can borrow as cheaply as the State and that will always remain the position. Other matters have to be considered when one is pursuing certain projects. Deputy Burton will note that a reply to a later question states that the national pensions reserve fund is in credit as we speak.
Deputy Boyle asked about EUROSTAT, which makes decisions about what counts as general government borrowing. It does not generally give advance warnings of what will or will not be included. I have cited the example of what happened in Portugal in the recent past. Many projects were pursued by the Portuguese Government in the belief that they would not be included under the general government accounting mechanism, but EUROSTAT ruled some years later that they should be included. That continues to be the position in respect of individual projects. If the risk is to be entirely transferred as far as possible from the State – if a project is to be totally financed by charges, for example, and there is no recourse to the State – one can take it that it will remain outside the Government deficit. If the State is giving a guarantee, however, one can take it that it will be counted against the general government balance. There is something of a grey area between the two extremes.