Enda Kenny
Ceist:1 Mr. Kenny asked the Taoiseach if he will report on the November 2003 meeting of the cross-departmental team on infrastructure and public private partnerships; and if he will make a statement on the matter. [28822/03]
Ceisteanna – Questions. - Public Private Partnerships.
Trevor Sargent
Ceist:2 Mr. Sargent asked the Taoiseach if he will report on the most recent meeting of the cross-departmental team on infrastructure and public private partnerships; and if he will make a statement on the matter. [29724/03]
Caoimhghín Ó Caoláin
Ceist:3 Caoimhghín Ó Caoláin asked the Taoiseach if he will report on the last meeting of the cross-departmental team on infrastructure and public private partnerships. [29729/03]
Pat Rabbitte
Ceist:4 Mr. Rabbitte asked the Taoiseach when the last meeting of the cross-departmental team on infrastructure and public private partnership was held; when the next meeting will be held; the number of meetings held during 2003; if he will report on the work of the team; and if he will make a statement on the matter. [31077/03]
I propose to take Questions Nos. 1 to 4, inclusive, together.
At the November meeting of the cross-departmental team on housing, infrastructure and public private partnerships, the Central Statistics Office gave an informative presentation on the principal demographic, spatial and infrastructure-related findings from the Census of Population 2002. Covering such themes as household formation, housing characteristics, transport modes and journey times, the presentation brought into sharp focus the pace and scale of change that has occurred in Ireland, especially since 1996. I have asked the Central Statistics Office to give a similar presentation on the societal findings from the census to the senior officials group on social inclusion. The necessary arrangements are being put in place at present.
The other agenda item of the November meeting of the cross-departmental team was energy. A key aim in this complex area is to ensure that all relevant issues in the competitiveness, environmental and security of supply areas will be factored into the development of long-range policy. An important step in that regard will be the upcoming publication by the Minister for Communications, Marine and Natural Resources of a public consultation document on energy policy. I understand the consultation document will be published in early 2004.
The eleventh and most recent meeting this year of the cross-departmental team took place last Wednesday. The main items on the agenda were the national spatial strategy and Gaeltacht and islands infrastructure. As Deputies are aware, it is just over a year since the national spatial strategy was launched and good progress has been made in advancing its aims. In particular, the introduction of five-year multi-annual financial envelopes for capital programmes will be crucial to future investment supporting the strategy over the years ahead.
The presentation on Gaeltacht and islands infrastructure to the cross-departmental team provided a helpful summary of the progress made so far under the national development plan, as well as an overview of plans to the end of 2006. The next meeting will be held on 14 January 2004.
I thank the Taoiseach for his reply. Does he agree there are major problems associated with the public private partnership concept as it currently operates? Is he aware of a study carried out among IBEC members which indicated that approximately 94% considered that progress through the PPP system was either poor or very poor? That highlights a range of problems. In that context, very little else was achieved apart from a few major road proposals, unlike in Britain where the PFI system generated £20 billion in private investment.
Has the interdepartmental committee and his cross-departmental team on infrastructure discussed the question raised by the Minister for Finance in his budget speech whereby he proposes to end the system of employing consultants on major contracts, a matter referred to earlier by Deputy Rabbitte? How is that to be done? In respect of the announcement made by the Minister in the past two days, how much private money will go into the new Cork road development and how will that be repaid in tolls? Has the infrastructure committee dealt with that sort of issue?
Detailed questions might be more appropriate to the Minister responsible, but I call the Taoiseach to reply to the general questions.
The Taoiseach is well able to answer those questions. He is a man of considerable intellectual acumen and linguistic ability.
That may be the case, but to keep to precedent, Ministers who have responsibility for line Departments should answer detailed questions relating to them.
Sometimes they do not answer them either.
The Minister, Deputy Brennan, has already informed the Taoiseach of the answer.
I will give the Deputy the short answer rather than the long one. In the next five years, approximately €8 billion will be spent on roads, €2 billion of which will be in the form of PPPs.
I wish to comment on the general point concerning PPPs raised by the Deputy. When the PPP process was launched and when we launched a national development plan in 1999, there was a general perception in the financial sector that as soon as we gave them the projects, they would provide the resources. I never believed that, but that was what those in the private sector were saying. In so far as those in the private sector came into the process at all – their level of participation was not that high, unlike the position prevailing in some other countries – their proposals were to the effect that if taxpayers took all the risk, if they were guaranteed the contracts and if they received good extensions on a number of basic points for borrowing, they would be interested in considering a cherry picked list of projects. That was amazingly helpful and, needless to say, the Department of Finance was not too enthusiastic about that. If one looks back over that four-year period, one will note that not many companies here were genuinely interested in PPPs on the basis that they work elsewhere. That is a fact. Three or four major companies based on the Continent – whose representatives I am sure the Deputy would have met – which are in this business, employ Irish staff and engage Irish consultants, would say that people here are not prepared to carry the kind of risk level people have to carry elsewhere. It is regrettable that people here are not prepared to do that.
The other side of the question is that the Department of Finance and the National Treasury Management Agency have a belief, and it is a correct one, that the State can fund a project more cheaply. The idea of mortgaging out a project over a period does not represent good value to the taxpayer and we are better off managing it by way of statutory borrowing. That is the reason the process has not moved forward here. There are times when Ministers would like to do more in this area, but the deals available elsewhere are not as available here. We went to check the Portuguese position and I spoke here at length about what happened in Spain and in other places. There are considerable resources in the five-year envelopes published with the budget for PPPs. The Department of Finance has laid down the rules. I do not know if it has published those new rules but they will be published in a multiannual review.
On the Deputy's general question regarding the Minister, Deputy Brennan, he has tightened up the rules considerably in that contractors have to complete projects on time and in accordance with the terms of the contract. They have to submit fixed priced contracts, which hopefully should eliminate all the overruns and other issues that arose in the past. The Minister, Deputy Brennan, brought in that measure recently.
That aspect of the Taoiseach's reply is critical. The Minister, Deputy Brennan, is to be commended on bringing in a system of fixed priced contacts because many of them were grossly over-inflated once people got on the tender ladder.
In respect of PPPs as they currently operate, is there still a difficulty with the business of EUROSTAT, which has been put forward as an obstacle to the Government getting further projects up and running under the PPP system? The Department of Finance seemed to indicate this was a problem in respect of, for example, the Cork School of Music. Is the infrastructural committee attempting to create a greater understanding between the public and private sectors of the potential that exists in PPPs to bring about further major infrastructural projects over the next ten, 15 or 20 years?
We are making progress on both those questions. This country challenged EUROSTAT's understanding of the rules. That effectively meant that if one was going to carry out a project now, the full cost of it would be put on one's balance sheet for this year, even though the work would be spread over a number of years. That made it a hopeless exercise to try to spread contracts over a period. A new examination of this process was done, in which the CSO fully participated. New guidelines on this will be issued in the new year. We have not seen them yet, but we are more hopeful that the view and case we put forward is a more realistic and simple one. Currently, there are too many interpretations, guidelines and indents on the existing rules that are used. What happens in almost any case is that the case goes to arbitration and those concerned seem to change things around. It might be unfair to say that but that is how the position is perceived. I understand the report on this matter will be clear and that it will be far easier to see what is in, what is out and how it will be managed from an accountancy perspective. That should be available in early 2004, perhaps in January.
On the Deputy's second question, a number of seminars on the PPP process have been held and I thank those who were involved. In respect of work that has commenced on some of the large PPP contracts such as the Dundalk western bypass, the Kilcock-Kinnegad bypass and the Waterford bypass, the Minister, Deputy Brennan, advises me that work on most of those projects is ahead of schedule.
I wish the Taoiseach a happy Christmas, as I am not sure he will be around after these questions. I wish him well in his talks with the British Prime Minister.
There are many issues to discuss. It is interesting to note that the Comptroller and Auditor General found in a case study of the Cork School of Music that a PPP would involve a total cost of €200 million, yet the original figure proposed for the project was €12 million. There seems to be a need to compare straightforwardly the prices a PPP would involve compared to capital funding from public funds. Does the Taoiseach agree that the Construction Industry Federation has a point when it stated that PPPs are largely being used to boost funding to give the impression that there is considerable public funding when that may not be the case?
The Taoiseach talked about the risk being shared between the private and public sectors, can he give an example of where the private sector did not do well from a PPP? That would be useful to know. We regularly hear of risks, yet we see National Toll Roads doing quite well, along with Jarvis, Oxigen and Indaver. Companies are lining up for PPP contracts. They are obviously not doing so for the good of their health or for charitable reasons. Is the risk factor overplayed? In the final analysis there does not seem to be a great deal of risk.
The metro may provide an example. Is the metro to go ahead by means of a public private partnership? The Minister for Transport, Deputy Brennan, may be able to whisper in the Taoiseach's ear the answer to that question. I understand that the Department of Finance has reservations on the metro funding mechanisms planned by the Department of Transport. Is the metro an area where we may see some final progress by means of a PPP if progress is not to be made in any other way?
As with the point I made about Deputy Kenny's question, those details are more specifically a matter for the Minister responsible rather than for the Taoiseach.
I will not go into detail about the metro, but an RPA report to the Minister for Transport is due shortly.
Some of the points made by Deputy Sargent on the PPPs are factual. There is a limit to the capacity of the private sector to take up PPPs. Currently, over 80% of infrastructure is paid for by the taxpayer. One has to derive an income from the private sector element of it, so one can not toll every road in the country, nor has the Government any intention of doing so. There must be an income stream from any PPP project. With projects such as the large Dublin Bay sewerage project, for example, suitable PPP contracts can be established. Some contracts have been quite ingeniously negotiated in order to move ahead on large infrastructural projects that otherwise would not be possible perhaps for a number of years. There is a price and a cost. No one will invest in a project where there is no return.
Initially, a number of international English-based companies sought PPP involvement. As I said in response to Deputy Kenny, some of them have gone away because of the lack of private sector involvement. Some of them remain. We attempted some PPP projects in the educational system. They worked well and fast, but a cost was involved. To invoke the Cork School of Music in this regard is not comparing like with like and I will not discuss that. The project initially costed at €10 million is not the project that was finally envisaged. There is no doubt that there was a huge escalation of costs.
There has been no progress.
No. There is no doubt that an infrastructural deficit existed and still exists in this country. Ireland is not Austria or Germany, countries which have had infrastructural programmes for 50 or 60 years. We have however brought spending in the area to about 5% of GDP, which is providing a much higher level of infrastructure for the economy than in any other country, almost twice the European average. There are currently some 46 major contracts in operation. We have had substantial railroad investment. The Luas project continues. We have airport extensions. Work continues in many other areas of infrastructure, including water and sewerage. One of the biggest sewerage programmes in Europe is taking place in this country.
Maintaining this level of investment is part of the multi-annual programme, and if we can continue in this manner we will catch up in a relatively short time. There is much work to be done. Maintaining this investment level provides the best value for the taxpayer. Let us by all means use PPPs, but also keep the Exchequer funding element at 5%. That is part of the Government plan. We have worked hard over the last six or seven years to bring the figure to that level and we have sustained it even in the more difficult economic climate of the last three years. The figure this year is €6 billion, a very high resource level. The cash figure is not as relevant as the GDP percentage level. If we can keep it at current levels we can deal with our infrastructural deficit.
I agree with the Taoiseach that in the case of the Cork School of Music, one is not comparing like with like. What began as a refurbishment programme budgeted at €14 million is one thing, while to build a school of music is another. There is, however, a lesson to be learned from a simple project to provide a building for a school of music in Cork that according to the Comptroller and Auditor General will now, by means of a PPP, cost €200 million over 25 years. Part of this involves the cost of raising money. PPPs come in at around 14% in commercial banks whereas the State can raise money at between 3% and 5% through the National Treasury Management Agency. The issue is efficiency, but is that not a huge premium? Managed and delivered under a PPP, a project is carried out more efficiently than the examples we have seen, without instancing any of them. The premium is very substantial. Are the appropriate State agencies any closer to devising a template that might be applied in this area? Are some 40 projects awaiting the go-ahead?
In respect of a contemplated PPP project in the Department of Health, which would assist in the provision of step-down beds, how is it that nursing home owners in Dublin complain of over-supply arising from the tax breaks introduced, while at the same time the price of having one's relative accommodated in such private nursing homes is not falling? The Taoiseach sometimes visits such homes and talks to the people involved. If there is an over-supply of nursing homes, why are prices not falling? Why are we contemplating a PPP to supply more step-down beds? More step-down beds are needed, but why are private nursing home charges not falling?
Regarding the Cork School of Music or any other such projects, the basic argument of the Department of Finance and the NTMA is that the cheapest way of borrowing money is through the State. The State cannot be beaten in this regard. Where there are infrastructural deficits in this or any other country, using PPPs brings in outside finance. In this country, in Portugal, Britain and elsewhere, when one gets the private sector consortium to design, build and manage, everything is done more quickly, though it is a pity to have to say so. In the case of roads, incidentally, such management has been taking place for 30 years in Ireland. The management of PPP projects is also more effective, though to say that is not to criticise other people.
One will never borrow money cheaper than through the State, but in opting for PPPs there are advantages other than financial ones. The State's resources are limited each year, so PPPs have their attractions, and when an income stream such as a road toll can be generated, they can work well. There are income streams for Dublin Corporation from the Dublin Bay sewerage project and from others. PPPs however have a limited role. The Minister for Transport, Deputy Brennan, has made that point in the House many times regarding infrastructural projects. One cannot provide for every project by means of PPPs.
We have a fairly conservative view on this matter in Ireland, although companies would argue with the Government that our template is quite strictly controlled. The NTMA is involved through the National Development Agency and advises the Department of Finance. When projects are proposed, the Government approaches the NTMA and considers how best to finance them. By and large, though not always, the cheapest and best way, the method preferred by the NTMA, is State funding. I agree with that view. It is a tightly-controlled process at times, but generally advisable for the State.
Deputy Rabbitte also asked about nursing homes. I am not an expert but I am informed there is not an oversupply of nursing home places in the country overall. Deputy Rabbitte is correct on the matter of pricing because, like me, he is engaged in trying to help constituents and families.
The step-down bed is a slightly different case. The problem is that in all the general hospitals there is a very high proportion of people with serious long-stay illnesses who in most cases are probably not suitable for the ordinary nursing home, such as those in the North Circular Road or Clonliffe Road in my area of the city. They require a certain level of medical and nursing care. To use that terrible phrase, they are "clogging up" the general hospitals but they are not capable of moving out. The costs of nursing home care are far too high. I have heard the argument of those who say we should stop the incentives. The law of supply and demand, as written by the economist, Mr. Hansen, has not been reached in the greater Dublin area, not to mind anywhere else.
Does the Taoiseach not regard it as remarkable that they have empty beds and yet the price has not come down? I agree with the Taoiseach but that is what they will argue.
I think the question would be more appropriate to the Minister for Health and Children.
I wish the Taoiseach well in his talks with the British Government this afternoon and next year for the Irish Presidency. In case I will not have the opportunity to speak in the House before Christmas, I wish you, a Cheann Comhairle, and all the Members a very happy Christmas.
I thank the Taoiseach for his reply. Has the cross-departmental team examined the issue of transport and in particular the need to expand the rail network? There is a growing campaign in the west of Ireland for a western rail corridor. Is the cross-departmental team examining that proposal? Speaking of railroads, will the team consider the promised national infrastructure Bill which is designed to railroad projects through the planning process while at the same time overriding the democratic accountability of these institutions?
Has the team discussed the issue of waste management and the consequences of the proposed network of incinerators across the State? Options such as reduce, reuse and recycle which other—
General questions to the Taoiseach are appropriate. Detailed questions should be directed to the Minister with responsibility.
This is cross-departmental and significant because—
It is in order to ask a question about whether the committee has considered waste management, but a detailed question should be directed to the Minister responsible.
The Department of Enterprise, Trade and Employment has a significant role in driving this type of specific project.
That is a question for the Tánaiste and Minister for Enterprise, Trade and Employment.
This team needs to deal with and co-ordinate the project. I await the Taoiseach's reply.
Issues to do with waste management are constantly being discussed. Much of the progress made has been as a result of the discussions of the cross-departmental team. In reply to the Deputy's question on legislation, the Minister for the Environment, Heritage and Local Government will bring forward proposals to find a means of fast-tracking some of the major infrastructural problems. It is not a measure which will overrule democratic accountability in any way. Where large infrastructural projects are concerned, it is important to make progress and to find the mechanism whereby those projects can be examined and given priority so that they can be undertaken as speedily as possible. As far as conditionality or environmental or ecological reports are concerned, they will all still apply.
There has been significant investment in the rail system. The Minister will supply Deputy Morgan with those details. I thank the Deputy for his remarks.
On the rail issue, the one area in the country with no railroad is the Cavan-Monaghan-Donegal region.
As I pointed out to Deputy Morgan, detailed questions should be directed to the Minister responsible.
In that context I ask the Taoiseach to examine the situation of the railroad through Navan and on to Kingscourt.
The Taoiseach recently paid a welcome visit to the Holy Family school in Cootehill. In the context of schools, will the Taoiseach state if there is any intention of using a public private partnership to build schools such as the Largy College in Clones? Will a PPP be used to fund that very deserving case in Cootehill?
I agree with the Deputy that it is an excellent and deserving project. The multi-annual programme has allowed considerable resources for PPPs in the education sector. The previous model will be updated to ensure better value in the long term. It is intended to continue using a certain percentage of the budget, not a very large one, for PPPs. I am pleased to inform the Deputy there has been a significant increase in the available resources for primary, secondary and special schools. The excellent school mentioned by the Deputy comes under the category of special education.
I wish to speak on the issue of the cost of PPPs. I agree with the Taoiseach that the cost of State funding is under 5% compared with the PPP cost of 14.5%. It seems to be an appalling comment both on Ministers and on public servants that their lack of capacity to deliver projects on time should lead to a significant differential cost between a PPP and the traditional public contract of design, build and manage. In terms of the strategic management initiative, has the Taoiseach an ambition for the public service and Ministers to improve their efficiency in the delivery of public projects?
In his reply to Deputy Rabbitte's question, the Taoiseach stated that the element of the PPP was the transfer of risk to the private sector. Experience in the UK has reiterated that if a public good such as a school, a hospital or a stretch of road is built and if the private company involved in the PPP collapses, the public school, hospital or road cannot be closed and therefore the notion of risk transfer is highly theoretical.
On his journey to England today, the Taoiseach may have time to read Graham Greene's Our Man in Havana. In that novel, a diagram of what was thought to be a secret weapon, a WMD, turned out to be a diagram of a vacuum cleaner. I do not know if the Taoiseach has seen the diagram that has been produced by the PPP unit in the Department of Finance showing the operation of a PPP. I used to be an accountant and so was the Taoiseach. I believe the diagram would tax both of us collectively.
I would imagine that was the purpose.
I have attended several conferences on PPPs. I have the impression that the structure being developed is so top-loaded with legal and accounting consultancy and process steps that it is no wonder the Cork School of Music or any other project will cost an unbelievable amount of money. Under the current procedures, could that diagram ever go to Cabinet? The Taoiseach and a few others might be able to whittle the 24 steps that I found down to eight or nine.
I have already answered that question. The Department of Finance and the NTMA are not overly positive or constructive about the PPP process, unless they can rigorously examine it to determine if it will give value for money, where there is a transfer risk, or where the design, build and maintenance costs add up over a prolonged period. That is where they stand on the matter.
Some of my former colleagues left the country in the 1970s to work in the British local authority system, many of whose services have been privatised. They would argue strongly that the British system works extremely well. From what I have already said, the Deputy knows my views on this matter. In Britain, people would argue that pension fund resources are often used to finance PPP schemes, so they will not collapse. For example, if a company such as Unilever, which has €5 billion a year in pension fund resources, puts its money into PPP schemes, as it has done in Britain, there is no chance of it collapsing, unless the entire British economy was to fail. Therefore, they see it as a very solid basis. They do not have an answer to the point made here because the British Chancellor of the Exchequer and the governor of the Bank of England would be able to borrow far more cheaply. They believe that the idea of being able to take a stretch of motorway and remove maintenance and other costs, including staffing costs, from their balance sheet has a long-term benefit. They look at that aspect far more than we do. We tend not to do so.
The Portuguese socialist Government of Mr. Antonio Guterres, proceeded to instigate PPPs over half of the country. Driving through Portugal on holiday, one can see the results, which are impressive. It has been very costly, however, and the Portuguese Government has been in trouble with the Commission over it ever since. The job gets done but I take a conservative view because the cost is long-term and is not just the cost on this year's balance sheet. That is why I take a more limited view of it. People should be allowed to put together projects as part of an imaginative planning process and I do not disagree with the Deputy's point that the process should be simpler than it is. However, I would not allow Departments to race off looking for PPPs around every corner, which is part of the concept that existed four or five years ago.
Under the existing arrangements, there is now a big move within local authorities to go for major water and sewerage schemes under the PPP system. Traditionally, such schemes were designed by local authorities themselves with the approval of the Department. Where breakdowns occurred, people knew who to call to remedy defects. Under the new PPP system, however, the designer might be in Alaska when he or she should be available here. More importantly, under the PPP system, is there any constraint on the charges to be imposed on consumers and customers subsequent to a design going through? For instance, if a sewerage system is done under the PPP system in a major town at a cost of €60 million, once it is in operation are there any restrictions on the cost that can be charged to the local authority manager and, through him, to consumers and customers, or, having acquired the scheme, are they likely to be subject to exorbitant levies or other charges? Is there a concern in that regard or is there a lever which will prevent that happening as it is in everybody's interest that it should not happen?
I do not claim to be an expert in these matters but I have seen the PPP sewerage project that was done in Dublin Bay, which is a model that is used extensively elsewhere and over which tight financial control is exercised. The Department was involved in it together with the local authorities and there were strict and extensive controls. Taking this example, one can see the benefits. Under the old system, one could have hundreds or thousands of applications for water and sewerage schemes. Using the PPP model, however, one can put in a central control mechanism using modern technology, which can group a region together. In the control room at Ringsend, which covers an enormous area of Dublin Bay and the adjacent lands, one person using modern technology can identify where a fault is. In that way, one service team can repair the fault effectively and efficiently. That PPP scheme is a 25-year one. One can imagine that if we attempted to achieve such a project under the old piecemeal system, we would be a long time getting it finished. Therefore, there are advantages to the PPP system in particular areas but it is tightly controlled. When the PPP model is used, the scheme is effective.