I am delighted to have the opportunity to present the National Development Finance Agency Bill, 2002 to the Seanad today.
The proposed National Development Finance Agency, NDFA, will assist in providing cost effective finance for priority infrastructure projects. It is a clear indication of the Government's commitment to the ongoing development of this country that the establishment of NDFA has been afforded top priority and that the legislation to give it statutory effect has been developed accordingly.
I will begin by sketching out the background to the establishment of the agency. In January this year I wrote to all Ministers asking them to bring forward public private partnership, PPP, projects as a matter of priority, to tackle our infrastructure deficit in a way that offers value for money for the taxpayer. At the same time, I approached the chief executive of the National Treasury Management Agency to ask what contribution that body could make to the PPP programme, given its acknowledged expertise in the financial markets. A third development at that time was the clear lesson emerging from the early pilot PPP projects concerning the need for specific financial expertise and advice to assist State authorities to obtain the best financing packages for infrastructure projects. This need applies not just for PPPs but for all major public investment projects.
The proposed National Development Finance Agency will meet this need. It will help to maximise value for money for the taxpayer, through the identification of the best financing packages and the application of commercial standards in terms of evaluating financial risks and costs for each project. NDFA will work through the NTMA. That agency will assign experts with relevant experience, for example in corporate finance and risk assessment, to carryout the necessary tasks.
In relation to the provision of advice, PPP projects and major infrastructure projects are complex, requiring expert technical, legal and financial advice. A centrally resourced expert advisory service to all State authorities will be more economic than employing experts in each of these areas in every procuring authority, including the local authorities. This role will be filled by NDFA in respect of financial advice. In this way, significant cost savings may be achieved over time.
The proposed agency will provide advice to State authorities in order to assist them in evaluating all available financial options for infrastructure projects. It will be part of the NDFA's role to advise State authorities, such as Government Departments and agencies, as to the appropriate financing structure and to evaluate proposals submitted by the private sector. As well as providing centralised expertise on financial proposals, NDFA will assist in identifying optimal financing arrangements for major infrastructural priorities. In certain circumstances NDFA will be able to raise finance for PPP projects where this would be more cost effective than private funding. NDFA may also raise finance for conventionally procured capital projects where there are clear benefits offsetting any increased cost of agency funding over Exchequer funding.
Where 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. In addition, the NDFA will be able to form special purpose companies under this legislation and will be able to receive funding and guarantees from the Minister. I am satisfied that this measure offers NDFA the necessary flexibility in discharging its functions. It is not envisaged that funding and guarantees will necessarily be given to all SPCs.
The Minister for Finance will have powers to make advances from the central fund to the new agency or a special purpose company. In addition, NDFA may advance money to an SPC. State authorities will also have powers to convey, assign or transfer land or other property, not including equity holdings, to a special purpose company formed by NDFA. The purpose of these powers is to ensure that there is sufficient latitude in the arrangements to allow NDFA as wide a range of financing options as possible, including the option of exploiting the potential of land and other State assets to generate resources to finance priority infrastructural projects.
In order to assess the optimal means of financing projects, NDFA will acquire the expertise to assess the relative merits of different project structures. Prospectuses and invitations to tender will make it clear that NDFA will be involved in assessing and advising on proposals and where appropriate will reserve the right of the relevant State authority to accept or reject any particular financing package or perhaps instead to utilise funds provided by NDFA. The objective will be to ensure overall best value for money and to encourage the maximum private sector involvement in financing projects. Continued private sector involvement will be a measure of success for NDFA.
Private sector involvement has been crucial to the development of the public private partnership programme. Working with the private and public sectors, my Department has developed the market from a point only two years ago where there were no projects under way to the position now where there are more than 40 projects at various stages of procurement in a wide range of areas, such as roads, environmental services – waste and waste water – education, health and transport. These areas of infrastructure are vital to underpinning our economic development.
A major achievement of the central PPP unit of my Department, working with the sectoral PPP units of other Departments, is the negotiation of refinancing clauses in PPP contracts. These clauses provide that where a private financing package is renegotiated after the contract has been signed, and savings achieved on the cost of finance, the savings will be shared with the public sector. When we first sought such provision in contracts, this was very unusual. Now other countries are trying to emulate the success of my Department in negotiating such facilities which I am sure will bring savings in years to come.
I am confident that NDFA will in future be able to deliver on the opportunities for cost savings that these innovative arrangements present. The development of PPPs in Ireland is not happening in isolation. This is a growing trend across developed market economies. PPPs represent the coming together of public services and private business. 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.
In Ireland, we have not had State monopolies 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 longstanding practices.
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, they can deliver improved efficiency in the adoption of whole life costing of services and innovation in the design, building and operation of assets, and they can also provide better quality services through increased competition, incentives to higher standards and performance and an enhanced focus on the customer.
At the same time, 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. A better utilisation of assets can be achieved 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 on day-to-day service provision.
While all international experience points to these benefits of increased value for money, 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. Effective risk identification, assessment and allocation are crucial to achieving increased value for money for the Exchequer and taxpayers. For the private sector, risk will be commensurate with reward. The PPP programme will be developed to achieve the optimum balance of risk and reward and, drawing on the expertise of the NDFA, optimal financing packages for all projects, including PPPs.
The legislation provides that State authorities will be obliged to seek NDFA advice. However, it is most important to note that 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 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 an executive, capacity. The NDFA will also be consulted.
While the Bill will be discussed in detail by Members on Committee Stage, I will now outline its main provisions.
Section 1 is a standard provision which sets out the way in which the Bill and the terms used in it are to be interpreted.
Section 2 provides for the establishment of the National Development Finance Agency – which is referred to in the Bill as "the Agency"– as a body corporate on a day to be appointed by order by the Minister for Finance.
Section 3 sets out the functions of the agency which are to advise State authorities on the optimal means of financing major public investment projects in order to achieve value for money; to advance money 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 public investment projects; and to form companies, subject to section 5 of the Act, for the purpose of securing finance for public investment projects. It also provides that the agency will have any other powers necessary for the performance of its functions, including the power to engage consultants, advisers or other service providers. When carrying out its functions, the agency must comply with any guidelines or instructions the Minister for Finance may issue to it.
Section 4 provides that the advice of the agency must take into account any policy directions issued by the Minister for Finance to State authorities regarding financing of public investment projects as well as any detailed policy guidance in relation to the process, procedures and regulation generally of PPPs. The Minister must send a copy of every policy direction and policy guidance to the agency. Advice given by the agency may include advice about consultancy services across the range of technical expertise required to undertake such projects. The agency and the NTMA must at all times exercise due care, skill, prudence and diligence and act in the utmost good faith in the discharge of functions under the Act.
Section 5 provides that the agency can form special purpose companies, SPCs, in order to provide finance where this is necessary or expedient in order to discharge the agency's functions under the Act. The formation of any SPCs must have the prior written consent of the Minister in respect of each individual project.
Section 6 provides that the agency can borrow money in any currency subject to the consent of the Minister for Finance. The combined net aggregate of the principal of money raised and outstanding by the agency and any companies formed under section 5, and/or guaranteed by the Minister for Finance, cannot exceed €5 billion. The section also provides that the agency can engage in transactions of a normal banking nature with the Minister and any other persons in order to perform any of its functions.
Section 7 provides that the Minister for Finance may guarantee the due repayment, by the agency or any companies formed under section 5, of the principal of any money raised and/or the payment of interest on such money by the agency. The combined net aggregate of the principal of all money guaranteed and outstanding cannot exceed €5 billion. The Minister for Finance must give the Houses of the Oireachtas an annual statement with respect to each guarantee setting out particulars of the guarantee, payments made by him under the guarantee, the amount, if any, repaid to him on foot of such payments and the amount of the guarantee outstanding at the end of the year in question. Any money paid by the Minister for Finance under a guarantee must be repaid to the Minister by the agency or any company within two years from the date the money is advanced from the Central Fund.
Section 8 provides that State authorities, in accordance with any guidelines issued by the Minister for Finance, either under this section or section 3(3), shall seek the advice of the agency as soon as is practicable before undertaking any public investment projects. The guidelines to be issued under this section can include issues relating to the type of project, the size of the project, the stage of development of the project, and other relevant factors which might determine whether the agency's advice should be sought on a project.
Section 9 provides that a State authority can, subject to the consent of the Minister and the appropriate Minister, either for a consideration or not, transfer, convey or assign its interest in property owned or held by the State authority to a company formed under section 5. The purpose of this power is to allow the company to carry out its financing functions in relation to public investment projects. A State authority can attach terms and conditions as it considers appropriate to any such transfer, conveyance or assignment.
Section 10 provides that the Minister can advance money from the Central Fund to the agency or a company formed under section 5, subject to such terms and conditions as the Minister may determine. The aggregate of advances outstanding at any time cannot exceed €250 million. The agency can advance money to a company formed under section 5 subject to such terms and conditions as it may determine. The money advanced either by the agency or the Minister can be used to make an equity investment in such a company.
Section 11 provides that the agency shall perform its functions through the National Treasury Management Agency and that the National Treasury Management Act, 1990, be amended accordingly.
Section 12 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. Ordinary members will be appointed by the Minister for Finance for a term of office of five years. The remuneration and allowances for expenses and terms relating to holding of office for members of the board will be determined by the Minister for Finance at the time of the member's appointment.
The section also provides for the disqualification from becoming or continuing as a member of the board under certain specified circumstances and for the resignation or the removal from membership of the board in particular circumstances of an ordinary member of the board. It sets out how vacancies may be filled and allows for the re-appointment of an ordinary member of the board, subject to a maximum of two terms, if their membership expires by the passage of time. The Minister for Finance shall endeavour to ensure an equitable balance between men and women in the composition of the board where this is practicable and having regard to relevant experience.
Section 13 provides for the appointment by the board of the chief executive officer of the agency.
Section 14 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 15 provides that the agency should provide itself with a seal and sets out who may authenticate the seal. Judicial notice will be taken of the seal. It also lists who may enter into and execute any contract or instrument not requiring to be under seal.
Section 16 provides that a member of the board cannot be a a Member of either House of the Oireachtas or the European Parliament or a member of a local authority, vocational educational committee, health board, or the Eastern Regional Health Authority.
Section 17 provides that a member of the board, staff of the National Treasury Management Agency, 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 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.
Section 18 provides for a prohibition on unauthorised disclosure of confidential information. A person who contravenes these provisions shall be guilty of an offence and shall be liable to a fine or imprisonment or both.
Section 19 provides for a prohibition on unauthorised disclosure of confidential information and a person who contravenes this shall be guilty of an offence and liable to a fine or imprisonment or both.
Section 20 requires the agency to keep accounts in such form as may be determined by the Minister for Finance and specifies certain details in regard to borrowing and fundraising by the agency and its transfer to individual projects which must be included in the accounts. The accounts must be signed by the chief executive officer and the chairperson and be adopted by the board. They must be submitted to the Comptroller and Auditor General for audit no later than four months after the end of the financial year to which they relate. 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 amendment to the National Treasury Management Act, 1990, to the effect that the audited accounts of the NTMA shall note a record of expenses incurred by it in the exercise of its functions under the Bill. The chief executive officer and the chairperson must, when required, give evidence to the Committee of Public Accounts on specified matters. In the giving of evidence or the production or sending of documents to a committee, the chief executive officer and the chairperson cannot question or express an opinion on the merits or objectives of any policy of the board.
Section 21 provides that the agency will report to the Minister for Finance, not later than six months after the end of the financial year, in relation to its activities during the year. It is open to the Minister to make directions on the form of these reports and the matters to be included in them.
Section 22 provides for the amendment of the Schedule to the Act.
Section 23 provides for the amendment of section 54 of the Finance Act, 1970, to allow the Minister for Finance to engage in transactions of a normal banking nature with the NDFA and others, in connection with the performance by the NDFA of its borrowing functions, and for the better management of the indebtedness of the NDFA.
Section 24 provides for the amendment of the First Schedule to the National Treasury Management Agency Act, 1990. The amendment relates to section 5 of the 1990 Act, which provides that the Government may delegate to the NTMA, by order, functions specified in the First Schedule to that Act. The amendment provides for the delegation from the Minister for Finance to the NTMA of the power to enter into swaps, foreign exchange contracts, etc., for the purposes of managing the NDFA debt.
Section 25 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 26 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 or out of any surplus accruing to 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 27 provides for the Short Title to the Bill.
I want to emphasise that the new agency will have a critical role in developing the best means of financing public investment. The NDFA will provide a top level source of financial advice for sponsoring agencies such as Departments, local authorities or statutory bodies on the optimal means of financing major infrastructure projects. The agency will also provide ongoing financial advice as projects are procured and, in certain circumstances, will raise finance for projects. Our aim is to create a means of ensuring the delivery of value for money for the Exchequer by facilitating the best financial arrangements for projects, which, in turn, will assist in the delivery of key elements of the national development plan and other infrastructure priorities.
I commend the Bill to the House.