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Strategic Investment Fund Management

Dáil Éireann Debate, Tuesday - 2 July 2013

Tuesday, 2 July 2013

Ceisteanna (67)

Dara Calleary

Ceist:

67. Deputy Dara Calleary asked the Minister for Finance the process that will be in place to maximise the economic and employment return from the Ireland Strategic Investment Fund; the investment horizon that will be taken by the fund; and if he will make a statement on the matter. [31901/13]

Amharc ar fhreagra

Freagraí ó Béal (7 píosaí cainte)

As recently announced, the Government has decided to establish the Ireland strategic investment fund, ISIF, which will absorb National Pensions Reserve Fund, NPRF. The discretionary fund of the NPRF of approximately €6.4 billion will be channelled towards productive investment on commercial terms in the Irish economy. Officials of my Department are currently preparing the necessary legislation, which I hope to see enacted this year.

Using the Ireland strategic investment fund, we will maximise our resources to enhance growth in the economy and improve key infrastructure to maintain Ireland's attractiveness as a place to do business and to create jobs. My Department is working alongside the National Treasury Management Agency, NTMA, to develop the broad parameters for the investment strategy for the ISIF in parallel with developing the legislation, and it is envisaged that the work will align with that being done by my Department and the Department of Public Expenditure and Reform on a medium-term economic plan.

It is envisaged that the ISIF will seek to leverage and maximise its resources by attracting private sector co-investment. I am conscious that it is important that a level of independence is maintained to attract that private sector co-investment. To do this, the fund will need to demonstrate clearly that it acts on a commercial basis in order that the very fact that it is prepared to finance a proposal will reassure other potential investors that the project is sound. Any income, capital or other benefit received in respect of ISIF investments will be repaid into the fund and held or reinvested for the benefit of the fund. Whereas the need for the State to provide for social welfare and public service pensions obligations has not abated, fostering economic activity and employment is currently a greater priority and this will in turn put the State in a better position to meet its pension obligations in the longer term.

This is potentially a very positive development and I have a few questions on it. I assume the principle of retaining the NPRF remains and the Government will continue to have non-discretionary portfolios consisting of shareholdings in banks, for example. When the Minister refers to any returns from these commercial investments going back into the fund, is he talking about the strategic investment fund or the NPRF? It would be helpful to clarify that.

Will the Minister give us a sense of the governance arrangements that will apply to the Ireland strategic investment fund? Who will make the investment decisions? Will the Minister or the Government have a role in that or will it be adjudicated upon by an independent board under the aegis of the NTMA? For example, if the Government was convinced of the merits of a motorway between Cork and Limerick, and there was co-investment by the private sector, could it be ensured that it would happen? Will the decisions be political or will they come from the NTMA?

If we were to build a road between Cork and Limerick, the Department of Public Expenditure and Reform would have to put it down as a proposal. The NPRF would assess it on commercial grounds and if it were commercially viable, it could make the cut. If it were not, it would not make the cut. The initiation might be on the political policy side but the decision would be on commercial grounds, and the project would have to stand up to commercial analysis.

Within the existing statutory investment policy and in line with the ISIF announcement, the NPRF has undertaken a number of investments and initiatives under which NPRF capital would be invested on a commercial basis. There is a commitment to invest approximately €250 million in infrastructure, €118 million in public private partnership projects and finance of €500 million will be provided for the small and medium enterprise sector. It has entered into a collaborative relationship with Silicon Valley Bank on small and medium enterprise equity start-ups for the information technology industry. Additionally, the fund has been working closely with NewERA in respect of investment opportunities related to the commercial semi-State sector, and the NPRF is also in discussion with Irish Water with regard to the provision of a financing facility. This provides a flavour of the lead-in work, and when it is put on the statutory basis, the process will be more secure in its capacity to fund and leverage.

Will the Minister clarify my first question? Will the NPRF be retained into the future and is the principle of providing for the long-term pension liabilities of the State still being subscribed to? Are returns from commercial investments drawn from the NPRF money to be returned to the NPRF?

The Minister says that the ISIF will decide on which projects can proceed on a commercial basis but, in practice, who will that be? Will there be a separate board of the ISIF sitting within the NTMA? At what point does the Minister expect that the first commercial investments of the fund can proceed? He hopes to have the legislation enacted by the end of this year so I presume it would the first half of next year before investments could begin.

Will the new fund have ethical guidelines along the lines of the ethical investment Bill I introduced in the House that would prevent the fund from investing in companies that participate in certain activities, for example, nuclear weapon development, cluster munitions development and other types of weapons?

We have been on record as arguing for the NPRF to be used as a stimulus so I welcome the fact that the Minister is finally moving in this direction. Next month, it will be two years since the Minister announced this legislation. He says he is hopeful it can be enacted by the end of the year. Deputy Michael McGrath raised other issues in respect of governance. We know there is a commitment in terms of the water metering project, with which I disagree. There is €6.4 billion in this discretionary portfolio fund. When will we see a sizeable amount of that money invested in the economy? Tens of thousands of people who left these shores in the two years or so since the Minister announced this fund have given up. How much longer can we tell them to hang on, that this money will be made available, that it will be injected and that they will see at least half of it invested? Will it be next year or the year after? When will we see real investment and can directional orders still be given? The Minister gave directional orders to the NPRF to invest in AIB and Bank of Ireland. Is that still an option or will it be completely commercial?

The NPRF is already investing so there is no question of it being delayed along the lines suggested by the Deputy. However, it is investing on the basis of a kind of letter of comfort that I issued to it to allow it to get ahead of the legislation. That must be a temporary arrangement and it needs to be put on a statutory basis. The legislation has gone through the Government at heads stage but it is being drafted in the normal way so it is not possible to give the exact details of what may end up in it. The existing legislation has such a section so I do not see why it should be dropped in the new legislation.

It is proposed that an ISIF investment committee will be established to decide on the investment of the strategic investment fund and within the parameters of the strategy, which will be set by the new board of the NTMA. The NTMA does not have a board at present. It has an advisory board so the whole family of companies within the NTMA will be, from a governance point of view, subject to a new overarching board that will be a statutory board under the new Act. It is proposed that the NTMA will be responsible for the management of the ISIF and will establish an investment committee that will have discretion to make investment and disposal decisions. As with the NPRF commission, the members of the investment committee will have discretion to make investment decisions in line with the ISIF's investment strategy. There is no question of the thing being some kind of political slush fund. The fund's investment strategy will be consistent with the Government's policy objective. The NTMA will be responsible for the management and the investment and disposal decisions will be made on a commercial basis.

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