Private sector stake common in Europe

The Government's move to involve the private sector in financing public projects, although relatively new in Ireland, is standard practice elsewhere in Europe.

Various models are used - in some cases the project is a stand-alone, whereby the private sector designs, builds and operates the scheme and then makes a return on its investment by charging tolls.

The West-Link and EastLink bridges are an example, built by the privately-owned National Toll Roads.

Aer Rianta, which is involved in a building project at Dusseldorf airport with German construction firm Hochtief, is a good example of what is known as a facilities manager. This is where the consortium manages as well as builds the project.

As EU funds dry up and Ireland's budgetary spending is constrained by the Stability Pact, the Government will have to seek alternative sources of funding. An attraction for the Government is that it does not have to outlay large capital and the risk is taken by the private sector.

The private investor makes a return on the investment over a period of years through an agreement reached with the Exchequer.

Once identified, the projects will be put out to tender. It is expected that they will generate huge interest. When drawn up the contracts will include specific performance clauses. For example, if the underground section of the Luas project was built and operated by the private sector and had to close for a period for some reason, the investor could be penalised financially. The investor's return could be based on the investment through payments by the Government, based on the traffic using the underground section.

Mr Liam Hennessy, of Farrell Grant Sparks, an author of the report prepared for Government, said the risks in building such a project would also be undertaken by whatever consortium was selected.

For example, he said, suppose the builders ran into problems with water tables while tunnelling, then they would have to bear this risk themselves. Mr Hennessy said a private consortium could bring certain synergies to a project and could often operate more quickly and cheaply.

Several other examples of private sector financing in Ireland already exist. One is the extension to Portlaoise Prison and another is the new EuroPeat station in the midlands which will be built and operated by Finnish group IVO. It will supply electricity to the national grid.