Dáil Éireann Debate, Thursday - 13 April 2017
14. Deputy Bríd Smith asked the Minister for Public Expenditure and Reform the cost to the Exchequer of all planned PPP projects for the coming period; if his attention has been drawn to research that suggests such projects ultimately cost the State more than alternative funding models; and if he will make a statement on the matter. [18712/17]
Amharc ar fhreagraI want to ask the Minister about public private partnerships, PPPs. Specifically, what is the cost to the Exchequer of all planned PPPs for the coming period? Has he given any thought, or paid any attention, to the plethora of research that has been carried out into whether it ultimately costs the State more to fund projects in this way than through other models? Will he, please, make a statement on the matter?
Aggregate information on the future cost of each PPP project is available on my Department's website, but I will take the Deputy through the figures she has requested. My Department is updating the projections for the future cost of these projects, with the assistance of the various sponsoring agencies, as part of the regular annual updating of PPP statistics. However, provisional figures indicate that the aggregate cost to the Exchequer of all outstanding unitary payments for existing PPPs is €6.6 billion. Projects currently in planning or procurement will, of course, add to this figure. Once these projects are finalised, my Department will update the table to include the relevant costs associated with the new projects.
PPPs offer an alternative model for delivering infrastructure that can be effective in particular circumstances. However, the long-term nature of these financial commitments arising from PPPs requires that the use of these arrangements must be carefully planned in order to ensure they meet needs in an affordable manner. It was for this reason that in 2015 the last Government introduced an investment policy framework for PPPs. The purpose of the framework was to set a limit to the extent to which the annual costs of PPPs would pre-commit capital funding available to future Governments for investment purposes in terms of the overall capital allocation projected and made available in any single year. This applies to the future cost of payment charges in respect of both existing and new PPPs, together with the upfront Exchequer costs.
I am aware of the debate to which the Deputy has referred and the different views on PPPs. The way in which I am handling it is to have a specific module which will carefully make a decision on whether PPPs can be of help in the future in the review of the capital plan we have under way. They do offer benefits; however, they also have costs. I am aware of both and it is for this reason that I have required the matter to be reviewed again this year in the light of decisions we might make for next year.
Additional information not given on the floor of the House
The current requirement is that, taken together, such future costs of PPPs should not pre-commit more than 10% of the overall aggregate capital funding projected to be available to future Governments in any individual year.
On the research referred to by the Deputy that suggests PPPs ultimately cost the State more than alternative funding models, I do not know the precise research or the alternative funding models to which she refers, but I would be happy to have any such material reviewed by my Department and the NDFA.
The Minister will probably second-guess my concerns and those of others in the House. We are concerned that, although PPPs may deliver key infrastructure, the State is becoming more and more dependant on them, noticeably in housing provision. For example, we are told that 1,500 housing units will be delivered by PPPs. They will be financed, built and maintained by private operators for 25 years. This is also true of schools, water infrastructure and transport, yet there have been numerous studies carried out, one as recently as 2013 by the University of Limerick, which show that there is no strong evidence to support the idea that PPPs deliver better value for money for the taxpayer.
It is a bit like me as a householder buying my fridge or television on hire purchase rather than paying for it outright or borrowing money from the credit union to pay for it. The State is being forced into a model of PPP that is ultimately much more expensive for the taxpayer without delivering the results we need. We are being forced into it by having to borrow off-balance sheet and because we are being told that we cannot spend over a certain amount on our infrastructure.
I am aware of the debate that the Deputy is referring to and have read literature on the matter. I will be careful in the commitments we make in this area.
The Deputy referred to the 2013 study. What has changed since then is that, in some cases, due to the difference in the rate at which our country can afford to borrow, sourcing projects through public private partnerships so that they do not come onto the State balance sheet has to be looked at.
It is important that the House is aware of the following figures in regard to bullet payments in terms of choices that we will have to make. In 2017, the costs of PPP unitary payments, in other words payments we make to companies that have built public assets, is €224 million. This will increase until 2021, when it is expected to peak at €340 million per year. These are significant commitments.
The other side of the coin, which is very significant, is these payments pay for the maintenance of the asset. If one looks at a school that was delivered via public private partnership, the payments to which I am referring pay for the maintenance of that asset over its lifetime. Not only are we able to build infrastructure in such a way that we can meet demands for current funding, we can use Exchequer funding for projects that the private sector might not want to build because the risk might be too high. That is the space in which PPPs need to be considered. They do have commitments, as I have shared with the Deputy, but they also pay for the maintenance of the asset. When it comes to roads in particular, that is a really significant benefit which has an economic value.
Risk is a factor often given by those advocating public private partnerships as a method of building public infrastructure. That risk factor is a bit of a myth because there is no risk for the private operator in terms of public infrastructure. The risk lies entirely with the public element of it. That is shown by the failure of the project to regenerate St. Michael's estate headed by Bernard McNamara. When he pulled out of the project, it cost Dublin City Council at least €5 million and it cost Mr. McNamara €1.5 million. I see he is back up around the corner, rebuilding again. The State had to fork out €35 million on a PPP that failed to deal properly with odour alleviation at the Poolbeg incinerator. It had to pay that money to shore up mistakes made by the private operator.
There are other risk areas that I could talk about. Most sensible people would look at the question of risk and then say to look at the money made by the privately operated M50 toll bridge. The State built the M50 and then the bridge was built under a PPP. What risk was being taken by the private operator? It was taking no risk. It was on to a good thing and making hundreds of millions out of it for years.
The Government at the time believed the use of that road would not be at a level which would make it viable for the State to build the bridge. That was the risk. The assessment the then Government got did not match up to the level of traffic that materialised on the M50.
The Deputy has pointed to PPPs that have not delivered, but we should also point to the PPPs that have, such as primary care centres, schools and roads. We should particularly point to key roads to the south west of our country. They were built at a time when the State could not afford to build them. The funding model used means the State only has to pay for their maintenance.
I want this matter reviewed in light of where we are now because PPPs have played a valuable role and can do so in the future. However, I am not rushing blindly into this. I am aware of the debate on the issue. I am aware of the attractions of this being done conventionally, that is, by the State directly building when it can, but we cannot always do that. That is why PPPs might well play a role in how we deliver some very big projects in the future.
