The new rules for state borrowing approved by Eurostat, the EU statistical agency, bring some clarity to a previously confused area. They should make it easier for the Government to plan a programme of public private partnerships (PPPs) to help to deliver the badly needed improvements in the State's infrastructure.
However, whatever the rules are that govern the calculation of the deficit for EU purposes, the need to ensure value for money in all investment projects remains paramount.
The changes announced by Eurostat are complex, but come down to one main point. This is that they make it easier for the Government to plan PPP projects. State commitments of funds to such projects will in future be kept "off balance sheet" for EU purposes, provided a reasonable amount of the risk is transferred to the private sector. This means that the funding that comes from the Government is only counted against borrowing for EU purposes as it is made over the lifetime of the project, rather than having to be counted up front as is currently the case.
In practical terms, this will make it possible, for example, to come up with a financing programme for the Dublin metro which does not threaten to push our borrowing above the EU limit of 3 per cent of Gross Domestic Product in any particular year. It should also give a boost to the roads programme, by allowing some projects which do not involve tolls to be kept "off balance sheet." And it opens up the prospect of a wider use of PPP funding in areas such as schools, hospitals, prisons and waste facilities. The new rules should also allow the Government to make a quick decision on the Cork School of Music; there is more than a suspicion that it has been hiding behind the uncertainty about the EU rules to cover its indecision about what to do with this project.
However, it is important to sound a note of caution. Whatever the EU rules for the projects involved, it is vital that rigorous cost-benefit analysis and project planning remains in place. The projects will still involve a substantial contribution of Exchequer finance and so must involve a commensurate economic or social return. This is particularly important in terms of a major project such as the proposed Dublin metro. It is essential that if substantial funds are to be committed to such a project, that a compelling case be made in terms of the long-term benefits to transport in Dublin.
A realistic view also needs to be taken of the involvement of the private sector. The advantage of such involvement is that it can lead to more efficient delivery of projects and - at times - provide experience in operating them. However this comes at a price, as the private sector investment has to be remunerated with a commercial return. In some cases such projects can make sense for both sides, but in others it may be cheaper and more efficient for the Government to raise the finance and plan the projects itself. The new rules will help, but value for money must remain the priority.