Ireland's General Government Surplus
Legal and other Constraints
PPP Project Unit
On June 1 of this year the Minister for Finance announced the list of projects earmarked by the government to pilot the public private partnerships (PPP) approach in Ireland. The total capital spend is estimated to be in the order of I£600,000,000. The list includes the following:
- a new Western River Crossing in Limerick on the N7;
- the Waterford By-Pass, including a new bridge over the river Suir, on the N25;
- the Second West Link Bridge on the M50; and
- key elements of the Dublin Light Rail (LUAS) Project.
The government has also announced its intention to actively explore the possibilities for a PPP in connection with the development of the Kilcock- Kinegad section of the N4. Finally, the government has agreed to include, in the pilot programme, projects in the education, solid waste management, and water supply sectors. It is intended that specific projects will be earmarked in these areas following further consultation. The minister's announcement came almost one year after he had announced that the government had agreed to his proposal to endorse the PPP approach, on a pilot basis. The announcement makes it clear that PPP will be an important element in the next National Development Plan with the scale and scope of PPP investment being considered in the context of the National Development Plan as a whole.
It is no surprise that the government selected pilot projects within the infrastructure sector as it had previously announced its intention to do so. The minister's move towards the PPP approach would seem to have the clear backing of the Irish Business and Employers Confederation (IBEC) and the Construction Industry Federation (CIF) and other market players. Major Irish banks have already participated in a number of UK Private Finance Initiative (PFI) projects.
Examples of projects which have to date adopted one or more elements of the PPP approach include:
- Ringsend Sewage Treatment Waste Facility;
- Dublin's East and West Link Toll Roads;
- Extension to Portlaoise Prison;
- Construction of a high capacity Internet Link into Ireland.
There has been much debate over the past 18 months about the government's commitment to the PPP approach. The minister's latest announcement goes some way towards reassuring industry that the government is at least willing to test the waters with a number of pilot projects.
Ireland's General Government Surplus
The need for infrastructural development in Ireland is unquestionable. How the government proposes to fund that development is not, however, unresolved. To date, the government has been able to rely on the cohesion and structural funding which it has received from the European Union. The general government surplus means any government could, if it decided to do so, fund a considerable amount of infrastructural development itself. If the government were to adopt this approach then the future for PPP in Ireland (at least in the short term) would be questionable. However, there may be good reasons why the government may not wish to fund (at least entirely), infrastructural development itself. The government may, for example, wish to employ an element of the surpluses in the repayment of part of the national debt and it may also wish to build up reserves for a future down turn in the economy. Labour unrest amongst public sector workers and related demands for higher pay may also place a strain on the surplus. European Monetary Union (EMU) restrictions on the manner in which the government can raise finance also means that the government needs to look at alternative means of financing public infrastructure. The Minister for Finance's announcement is a clear signal that the private sector does potentially have a role to play in the design, building, financing and operation of roads, bridges and so on. Quite how significant that role will be is difficult to predict at this stage.
Although there are a number of legal obstacles to a successful roll-out of the PPP approach none of them could be categorized as being insurmountable. This of course assumes that the government is wholeheartedly committed to the PPP process. The following issues do, however, need to be considered:
- Although there is no constitutional impediment to the government embarking upon on a PPP programme, existing legislation does not (for the most part) facilitate such a programme. The statutory bodies currently entrusted with municipal and state functions do not have the requisite power and authority to participate in PPP structured arrangements. Before embarking on such projects, the government will need to conduct a legal audit of all such statutory bodies in order to determine whether they have the requisition authority to enter into PPP arrangements. Legislation will undoubtedly be required to address this general lack of power. One exception is the Roads Act, 1993. Pursuant to this legislation the government established the National Roads Authority as the governing authority for all national roads in the country. The legislation gives the authority power to enter into arrangements with private sector bodies to procure the design, construction and operation of roads services. It also empowered the authority to introduce tolling for roads, either directly or through third parties on its behalf.
- The Roads Act 1993 further facilitates PPP by providing that the authority does not need to obtain planning permission. However, the minister with the authority to approve a road scheme must arrange a public local enquiry into the scheme prior to its approval and the National Roads Authority must submit an environmental impact study. A similar approach was adopted in the Transport (Dublin Light Rail) Act 1996. The exclusion of the light rail project and the road projects from the planning process is an attempt to avoid long delays. But the exclusion has attracted criticism and the desired objective of elimination of delays may not be deliverable. Given the potential for long-term local disruption and the potentially adverse environmental consequences of the projects, the number of objections is likely to be significant. As a result, the public enquiries may take considerably longer than envisaged.
Where sensitive projects do not benefit from the disapplication of the planning requirements then the impact of having to follow the planning procedures will be considerably more pronounced. This will have knock-on effects when it comes to stimulating interest from contractors, banks and the like in the projects. Historically, obtaining planning approval has proven to be a difficult and protracted matter. One would therefore anticipate that the government will encounter strong resistance to any efforts to pass planning risk to the private sector.
- There is a considerable degree of uncertainty surrounding the applicability of the European Union (EU) public procurement rules to PPP. This has arisen because the relevant EU directives were not drafted with PPP in mind. The European Commission has acknowledged this uncertainty. The impact of the Irish Competition Acts will also need to be considered in the context of each project.
- Lack of standard documentation is often cited as an impediment to the successful implementation of a cost effective PPP programme. To date there is no standard documentation in Ireland although this is to be expected bearing in mind that PPP is still in its infancy in this jurisdiction. It is unlikely that any standard documentation will be produced prior to the test projects. In the UK the Treasury PFI Task Force have introduced a task force guidance on project agreements.
- Careful consideration will need to be given to the issues surrounding the transfer of employees from the public to private sectors. It is likely that trade unions will have significant difficulty with any PPP project which may result in loss of jobs. Employees and trade unions may be able to take some comfort from the protections afforded by the EU Directive on the Transfer of Undertakings, Protection of Employment (TUPE) (Council Directive 99/187/EEC of 14/2/1977). While the primary purpose of the directive is to safeguard the rights of employees in the event of a change of employer, the directive does not prevent dismissals which occur as a consequence of economic, technical or organizational reasons entailing changes in the work force. It is worth noting that TUPE requires the transferor and transferee entities to inform and enter into consultation with the representatives of trade unions or employees affected by a transfer of business. Recognition of trade unions by successful consortia will be an important pre-requisite to the successful implementation of any project involving the transfer of public sector employees.
Earlier in 1999 a PPP Unit was established within the Department of Environment and Local Government (the 'Department'). The purpose of the unit (which is headed by Eddie Lewis), is not to take forward individual PPP projects but to identify and progress PPP projects in general. The unit will develop sectoral models, provide information and assistance to interested parties including public sector bodies such as local authorities and private sector bodies. The unit will formulate policy on issues such as documentation and risk and this will be directed to local authorities. The sectors which are within the responsibility of the Department include water and waste water, roads, solid waste and housing.
There appears to be clear political support for a PPP programme in Ireland. The minister's recent announcement is clear evidence of this. However, this political enthusiasm is somewhat difficult to reconcile with the fact that the Exchequer is currently sitting on a significant cash surplus. All the indications are, though, that the government is on the brink of embarking on a number of pilot projects.
For further information on this topic please contact Michael O'Connor at Matheson Ormsby Prentice by telephone (+353 1 619 9000) or by fax (+353 1 619 9010) or by e-mail ([email protected])
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