BUSINESS OPINION: The first item on the list of legislation that the Department of Finance submitted to the Chief Whip's office for drafting over the summer was the National Development Finance Agency Bill. Now that the Dáil is returned we can expect the Bill to be published and promptly moved through the Oireachtas in order to meet the deadline of the end of the year that has been set for having the new agency up and running, writes John McManus.
For those who don't remember - or chose to forget - the National Defence Finance Agency (NDFA) was the Minister for Finance's big election idea. The agency was to raise some €2 billion a year for infrastructure projects. The bonus was that much of the money would be raised from the private sector and around half of it would be done in such a way that it had no impact on the overall exchequer position as monitored by Brussels, known as the general government balance (GGB). It looked like a stroke of genius as keeping the GGB at - or close to - balance while funding the National Development Plan was one of the major challenges facing the new administration.
It looks as though the NDFA is one election pledge the Government actually plans to keep and it is pressing ahead with the plan. If so that means there is only a limited window in which to pause and take stock of whether or not the idea is worth persevering with.
There are two very good reasons for abandoning this project, which is a prime candidate for white elephant status. The first one is that since the election its has emerged that - not surprisingly - Brussels is not very enamoured of the idea. With hindsight, it is hard to see how the European Commission could have been impressed with the idea of a Government agency set up with the objective of circumventing its budgetary rules.
Brussels has adopted a rather dim view of a similar scheme operated by Portugal and every project undertaken by the NDFA will now be examined with a fine tooth comb to see whether or not it counts as Government borrowing or not. The deciding factor will be the extent to which the State underwrites the financial risk involved in the project.
One end of the spectrum are projects such as a new schools, where the users pay no charges and the State takes all the risk. At the other end are things like toll roads, where the users pay economic charges. In between there are various shades of grey that the NDFA hoped to get Brussels to accept did not constitute Government borrowing.
This is looking more and more unlikely. But what of the other raison d'etre for the NDFA? The Minister for Finance had argued, with some success, that the fractured approach to public-private partnership (PPP) adopted by the Government to date was inefficient and expensive. At present various Government departments, State agencies and local government bodies are all exploring ways of using private finance to fund projects. Millions are being spent on advisers' fees and much of the work is being duplicated.
The NDFA was promoted by Mr McCreevy as "one-stop shop" for the various arms of Government. They would get cost-effective advice and when it made sense the NDFA would raise the money itself by issuing its own bonds.
There was a lot of merit to this element of the proposal, but in effect it was duplicating jobs that could be done by two existing State bodies. The Department of Finance already has a PPP unit that is charged with co-ordinating the private finance requirements of the various arms of the Government. There seems to be little to be gained from duplicating this unit and in the process going out and hiring a battery of new lawyers, economists and financiers. A much simpler and cheaper option would be to beef up the resources of this unit as necessary. In addition it would avoid the teething problems that will be inevitable as the new agency finds its feet.
Meanwhile the National Treasury Management Agency has been issuing bonds to fund infrastructure development since its inception in the 1980s. There is no need for a new agency to do this.
It seems pretty clear that now that its primary function - fiddling the books for Europe - is no longer really a runner, the concept of the NDFA is much less viable. It is no surprise then that the Government's big election idea has now been watered down significantly.
What was to be a new agency established "under the auspices of the NTMA" is now being characterised in Government circles as just another a subsidiary of the NTMA. What this seems to imply is that all the NDFA will be is a flag of convenience for the NTMA when is raises money for infrastructure projects.
If this is the case, then all the NDFA will be is a fig leaf to disguise the fact that the Government's big election idea is a bust. It will, however, be an expensive fig leaf if the charade is carried through to the point of hiring staff and giving them offices, headed notepaper and all the other trimmings of a fully-fledged Government agency.
Given the brazen way in which the Government has backed away from other election promises, it is hard to see why they can't just quietly drop the NDFA project. Such a course of action would have the merit of actually being the right thing to do.
But the Government can be expected to persevere with the NDFA and not just to save the Minister for Finance's blushes. The reason they will not put the NDFA out of its misery is that any money that the NTMA borrows wearing its NDFA hat will not count technically as exchequer borrowing under current Government accounting rules.
As a consequence, the borrowing will not be taken into consideration when the the exchequer balance is calculated and hence the Government's financial position will appear better than it actually is. It might even allow the Government to run an exchequer surplus, even though the real position - as measured by the general government balance - is badly in the red.
A new "agency" that allows you do that is far too valuable to let little things like common sense and respect for the electorate's intelligence stand in its way.
jmcmanus@irish-times.ie
