EU statistics agency move could limit government spending

The resources available to the next government may be significantly curtailed because of a European agency move that could put projects developed through public private partnerships on the State books, Minister for Public Expenditure Brendan Howlin has warned.

The move by Eurostat, the EU statistics agency, has caused alarm and is viewed as having the potential to bring a large portion of existing public private partnerships (PPPs) back on to the exchequer balance sheet.

The current value of existing PPPs, used to develop roads, schools, water facilities and other infrastructural projects, that are off balance sheet is over €4 billion. PPPs are generally used to keep capital investment off the State balance sheet.

Mr Howlin has written to the European Commission expressing concern about the Eurostat move, which it is said would be applied retrospectively.

Mr Howlin says it is very possible that existing PPPs could have to be reclassified on the balance sheet – which would have a major budgetary impact.

He said the changes could, over time, result in some of Ireland’s larger PPPs coming back on balance sheet.

The Wexford deputy said this could have significant problems for Ireland, especially as the country seeks to redevelop its infrastructure.

Fiscal space

The European Commission has also been warned that the new interpretation of rules applied to PPPs has the potential to “absorb” a “significant” amount of the so-called fiscal space – the possible future resources available – to the next government. This would severely limit the ability to invest in new projects of strategic importance, it is argued.

PPPs are used by some as a mechanism to speed up infrastructural projects but the Eurostat interpretation is seen as a threat to Irish and European governments which want to complement exchequer funding with private investment to deliver major projects.

The concern is on foot of advice issued by Eurostat in March that lowered the threshold for reviewing PPPs if there are changes to contracts entered into between the State and private companies.

Open to review

Previously, PPPs would only have to be reviewed in the event of “substantial” contract changes but this has been amended by Eurostat.

A review would now be permitted for “non negligible” changes, which the Government argues, in the context of multimillion euro infrastructural projects, would open a significant number of existing contracts to review in the event of even minor changes.

Of particular concern is that it would be applied retrospectively. Sources expressed hope that changes can be made to Eurostat’s latest interpretation of existing rules. Particular emphasis would be placed on ensuring that the new rules would not apply retrospectively.

The Government has also argued against what it sees as another fundamental change in position to PPPs, which would see them come back on balance sheet if the State is entitled to any profit from a development. Previously, a majority of the profits would need to go to the State to classify something as a State asset.

The two new developments would mean that the majority of existing PPPs would have to be reclassified unless the government decided to forgo benefits agreed under existing contracts.