THE DEPARTMENT of Finance is giving “serious consideration” to a proposal from the construction industry to launch an infrastructure bond that would help fund major capital projects.
The proposal was submitted by the Construction Industry Council (CIC), which represents a wide range of parties in the construction sector here, and includes input from the Irish Association of Investment Managers (IAIM), the umbrella body for pension fund managers.
It is understood that the bond could be structured in such a way that it would effectively be an off-balance sheet investment in relation to the Government’s exchequer finances.
This would prove attractive to the Government as it would not count towards the budget deficit for the purpose of euro zone membership, although it would still be likely to require approval from Brussels. The bond would involve investment from Irish pension funds and the private sector in a bond that would invest in projects with a lifespan of 15 years or more.
These could include new toll roads, rail projects or a package of investments in schools or hospitals, where annual return could be made to investors.
The investment could range from €1 billion to €5 billion and would underpin about 70,000 jobs in the construction sector, one informed source indicated.
The Irish construction industry has been the worst hit by the recession over the past 12 months due to the collapse in the property market. Its representative bodies have been working hard to find alternative proposals to help kick-start activity again.
A spokesman for the Department of Finance declined to comment on whether Minister for Finance Brian Lenihan will include the proposed bond in his budget speech on Tuesday.
Mr Lenihan is expected to decide over the weekend what measures will be included in the supplementary budgets.
Earlier this week, employers’ group Ibec indicated its support for a “national infrastructure bond” as part of its supplementary budget proposals.
It said such a bond “could raise substantial resources to continue an ambitious programme of capital investment”.
Ibec said “off-balance sheet options should be explored in order to maintain the existing volume of infrastructure activity under the public capital investment programme”.
In a statement issued yesterday on the key issues it would like to see addressed in the budget, the Construction Industry Federation said the “use of off-balance sheet funding mechanisms to bring forward additional [building] projects” should be considered.
No comment on the proposal was available from either the CIC or the IAIM.
Irish pension funds manage about €200 billion of clients’ money, of which more than 85 per cent is invested abroad.
Any bond would have to give superior returns to Government-issued gilts.
This would suggest an interest rate of about 5 per cent over the term of the investment, with the capital paid on maturity.
