Infrastructure funds needed sooner rather than later

What is value for money? In grocery shopping, it used to be the price alone you paid for a sliced pan. But if you have to use petrol and time to get that cheapest price, maybe you're better off buying in the "pricey" local convenience store.

People also know instinctively that there is value for money by paying more to have an important service now rather than later. Delays cost time and money. What wouldn't you pay for that taxi to come now, rather than later? At a less dramatic level, this is true also when a business invests in equipment or in hiring a new sales person.

Behind the Government calculations that are applied in the public financing of major investments such as roads, rail, water treatment and sewerage, the same issues of value for money and the trade-offs between now and later apply. At the level of personal spending, each of us makes those choices. At the level of the State, that choice is political.

This is, I believe, a useful way to examine the growing debate over the role that public private partnerships (PPP) might have in the financing, particularly, of public infrastructure in Ireland. The PPP concept, as it is called, has many guises. Some involve the State contracting out the design or build of State assets.

This is quite commonplace. Another aspect is the contracting out of the operation of a service for the State. The last, and most controversial, from a value-for-money viewpoint is the financing of public infrastructure.

It is controversial because a sovereign government can always borrow at a lower rate than any private body in its jurisdiction. So, the argument runs, if the State can borrow cheapest of all, why get private finance involved in public infrastructure projects at all?

It is beyond any doubt that there is a public infrastructure deficit in the State. You don't need to read about the £14 billion estimated as required by Fitzpatrick and Associates in a report for IBEC. Sure, we could live ascetically or stubbornly with dilapidated infrastructure for a few more years. But like that old boat with a hole in the water that you throw money into (as a fisherman said) or that old banger of a car, it is a waste of money.

There is no political or public dispute about the need for infrastructure development. An increase of 27 per cent in spending on infrastructure is provided in

the Estimates for 1999, to bring investment to £2.22 billion, and £4.75 billion, including EU funds, next year.

Is this enough? That is the question that private finance in Public Private Partnerships must, and does, answer. By introducing private finance, it is possible to bring forward projects that simply have to wait their turn to start in 2005, 2007 and so on. It may be that on the purely financing side, the State will end up paying more for the completion of these projects sooner rather than later. But people can recognise that this too, like the price of bread in a local shop, or the quickly available taxi, represents value for money. They will, in my view, accept user charges for badly needed new infrastructure.

It could be argued that it would still be better for the State to accelerate the projects and pay the financing at somewhat cheaper rates. The answer must be that the 27 per cent increase in public infrastructure spending next year must be assumed to be the limit of the State's ability, and willingness, to finance infrastructure. And that is not enough, nor quick enough.

The onus is on those who are sceptical of private finance in public infrastructure to demonstrate that the present state of infrastructure and the pace of its development is optimal for Ireland, represents the best value for money and is the limit of our capacity. Good luck to them.

IBEC has taken the lead on PPPs. The Department of Finance is engaging. The ICTU also has an important role. Just because businesses, such as banks, construction firms and professional advisers (including the firm I work for) might make a profit out of PPP work is no reason to dismiss it.

Private interests and public good can coincide, as public sector union negotiators will emphasise. There is spadework to be done on both public and private sides before and after the granting of political blessings to the process. Here is an opportunity for a public private partnership at the outset, in the design, build, operation and financing of a public policy infrastructure, in preparation for physical infrastructure development.

Oliver O'Connor is an investment-funds specialist.