IBEC, CIF propose radical cash plan

IBEC and the Construction Industry Federation (CIF) have put forward a radical plan which is aimed at generating £300 million of private sector investment a year in public capital projects.

IBEC and CIF have warned that unless there is substantial investment in the country's infrastructure, congestion will choke economic growth.

According to the two industry organisations, projects which could come under such Public-Private Partnerships (PPP) would include prisons, hospitals, waste disposal and sewerage services, tunnels, road maintenance as well as tourism and environment facilities. The key feature of such partnerships would be the allocation of risk between the sectors.

The private sector has so far played little direct part in infrastructural development, with the investment in the West-Link toll bridge in Dublin one of the few examples where pensions funds and other institutions have invested in infrastructure.

The IBEC/CIF report which was presented to the Minister for Finance late last week, states that despite the growth in the economy, the physical infrastructure of the country is still much less developed than in other EU states. "We believe that Ireland should aspire to have an infrastructure base in line with the top 10 in the competitiveness league by the year 2007," the report states.

The report states that Ireland's infrastructure will need to grow at the same pace as the economy and warns that "a significant economic infrastructure development lag is already evident with congestion clearly a problem in many areas".

EMU restrictions on Government borrowing means that a new approach to the funding of infrastructure will be required while by the year 2004, the country is facing a very sharp shortfall in EU cohesion and structural funds.

The key to successful future Public-Private Partnerships is the allocation of project risks between the public and private sector, according to each party's ability to manage and bear these risks.

Citing an example, the IBEC/ CIF report says that an investor who builds a water treatment facility without any supply agreement with the local authority would demand a higher potential return because of the risk involved compared to a situation where the local authority guaranteed a minimum weekly throughput at a set price for a long period. In this latter situation, "the risk and required return would become much lower".

The report gives various examples where such partnerships have been successful in infrastructural development in Europe, citing the Tagus bridge in Lisbon, the new airport in Athens, 70 kilometres of motorway in Finland and an airport rail link in Stockholm. In the UK, the Private Finance Initiative had concluded deals worth £7.5 billion by October 1997 in infrastructure, health and education services, social welfare payments systems and prison services.

In Ireland, the report states that all public sector projects over a minimum investment level should be subjected to a PPP test. From the year 1999, a target of five projects should be established for financing by means of a PPP. The number of projects should increase each subsequent year, rising to 15 projects annually with a capital value of around £300 million.

"The key issue for Government is to compare the normal cost of build/operation with what is being offered under a PPP," the report states."

IBEC and the CIF have urged the establishment of an advisory panel of independent experts, whose first task would be to carry out a preliminary survey of potential PPP projects ranging over the entire public capital programme.

The ESRI has already forecast that public capital expenditure will rise from £1.49 billion in 1997 to £3.49 billion by 2006.

"Thus a PPP has a clear role to play in part-financing Ireland's investment gap," the report states.