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Throughout the last decade, the Irish government has successfully
managed to promote international trade and industrial development
and as a result of this success, the economy has grown at a
significant rate. However, an infrastructure deficit has developed
and significant improvements are required in order to meet the
demands of a growing economy.
The Irish Government has committed to using PPPs as a core
mechanism in the provision of public infrastructure and services.
The National Economic and Social Council (NESC) have concluded that
PPPs have the potential to play a pivotal role in supporting the
accelerated delivery of strategic national infrastructure, while
ensuring quality public services and long term value for money.
Additional key drivers include the transfer of risk and lower levels
of public borrowing.
Throughout the 1990's, the deployment of PPPs in Ireland remained
limited in comparison to the UK and other European countries and the
contribution by the private sector has tended to be on an informal,
piecemeal basis. Examples include the construction of two toll
bridges in Dublin - The East and West Link, which incorporated
aspects of current PPP delivery schemes.
In 1998, the Government decided to embark on a pilot scheme
approach with the initial concentration on economic infrastructure
projects and in particular, roads. The primary aim of the pilot
schemes was to establish a framework and guidelines for future PPP
projects.
A review was undertaken and in May 2000 and a consortium of
consultants produced a policy framework, which covered a range of
issues relevant to PPP. The framework was designed to provide a
starting point for government departments and agencies responsible
for the programme areas for selecting and developing projects as
potential PPPs.
Subsequently, in November 2001, the 'Framework for Public Private
Partnerships' was launched which incorporates a range of objectives
designed to maximise the use of PPPs and further develop the PPP
programme in Ireland.
Since the launch of the pilot schemes, the Government has
extended PPPs and private finance to a number of sectors and remains
committed to implementing the relevant structures and legislation,
although the development is gradual as Government departments adjust
to a new procurement method.
Market Size
The potential market for PPPs and private finance over the next
five years is set by the Government's National Development Plan (NDP)
2000-2006. The NDP 2000-2006 encompasses a programme of expenditure
designed to both sustain and improve international competitiveness.
In the context of NDP funding, PPP finance refers to investment
in public projects and schemes, which are privately financed. At
present, a total of €2.5 billion PPP financed projects have been
confirmed in the NDP 2000-2006.
This is a minimum target with a significant proportion allocated
towards the Economic and Social Infrastructure programme. Under the
NDP, the Government aims to expand the role of PPPs and private
finance in Ireland. The initial development has taken place through
a series of pilot schemes, which the Government adopted in order to
determine the best practice for particular PPP projects and future
development. As a result, a significant proportion of the €2.5
billion investment has already been allocated to a variety of pilot
schemes involving private finance and the potential for additional
private finance investment under the NDP 2000-2006 is considerable.
PPP Implementation
Under the Framework for Public Private Partnerships, PPP projects
are implemented by the appropriate public body, e.g. Government
departments etc. The PPP development and implementation process
differs from the traditional project development methods. The
process may also differ depending on the service or public facility
that is required although standard elements can be applied to all
sectors, including project identification, option appraisal and the
statutory process etc. It is within these elements of the process
that certain details may vary depending on the project requirement.
Following the publication of the OJEC Notice, pre-qualification
takes place and results in a short list being established. The
Invitation to Tender Negotiations, ITN, then takes place and at this
stage the Output Specifications are discussed. The Output
Specification describes the expected output of the project in terms
of service standards, which generally relate to availability and
performance standards.
These requirements then become the basis on which the Payment
Mechanism is calculated. According to whether the availability and
performance standards are met the unitary charge will vary. In this
manner the service provider is given an incentive to meet the
requirements of the client over the life of the project. These two
elements are critical for the success of a project since they will
determine the amount of risk that the contractors will assume and
the variability of payment as a function of meeting the service
standards.
The focus of PPP procurement and associated payment mechanisms
towards larger scale projects and long-term (25 year plus)
agreements encourages a wider range of solutions as to the way
public services and facilities are supplied. In addition, the risk
of the cost of bidding becoming too high for the potential
profitability of the project is reduced.
Major Players
For the purposes of this study the players involved in PPP
agreements are taken as being the members of the consortia that are
awarded the contracts to carry out the PPP projects. It appears that
in these early stages the financial aspects are dealt with
separately as was originally the case in the UK PFI. Although in the
case of the UK, the financial aspect of the PFI has come to be
recognised by the early inclusion of the financial partner as a
member of the bidding consortium. As more PPP agreements are
developed, it is likely that the facilities management companies
will play a greater role.
Given the nature of the PPP financed progress to date, which
involves a variety of projects in terms of the level of finance, few
projects other than the roads and education sector, have gone beyond
the pre-qualification stage.
Jarvis has agreed a number of education deals to date while other
key companies such as Balfour Beatty, Carillion and NTR are involved
in consortia which has been short-listed for several PPP road
projects. It is noteworthy that a large number foreign owned
companies such as Dragados and Vinci are also included in
short-listed consortia.
One particular aim of the PPP programme was to address
construction constraints in terms of labour capacity through
attracting construction capacity and labour power from abroad. It is
an indication of the international scope of many of the projects
procured via the PPP process.
Future Prospects
PPPs are an integral part of the Government's commitment to the
delivery of improved public services and infrastructure in the NDP
2000-2006 and beyond. While, PPPs remain in the early stages of
development, particularly in comparison to other European countries
and the UK, the role of the private sector in public procurement is
growing.
PPPs and the use of private finance have some way to go in terms
of development across a wide range of public services. The pilot
projects are assisting in the development of standardised
procedures, but adapting to the new methods of procurement and
legislation is a time-consuming process.
The level of commitment by the Government is evident in terms of
ensuring the management structures, guidelines and procurement
procedures are in place to ensure the successful delivery of the
pilot schemes. In the future, it is likely that the emphasis will
shift towards the contract management element of the process and the
techniques required for the delivery of quality public services over
the life of the project.
There are undoubtedly opportunities for the construction and
facilities management and outsourcing industries and their suppliers
through PPPs. Whilst the target for private finance is modest under
the NDP 2000-2006, the long term opportunities outlined by the
Government indicate that PPPs and private finance are an integral
part of Government policy. In these early stages, it is already
clear that there is potential for PPP development and private
finance in major potential markets in roads and education and in the
longer-term, housing, public transport and health.
List
of Companies Mentioned
Balfour Beatty, Carillion, NCC, Jarvis, Hollandsche
Beton Group, Morrison Construction, Halcrow, Groupe Egis, NTR- National
Toll Roads, Ascon, Grupo Dragados, WS Atkins, PJ Hegarty, Vinci Group,
Intertoll, Brown & Root, Strabag, Jon Sisk, Coffey Construdtion,
Lagan Holdings, Roadbridge, Ferovial, Mota-Engil, SGPS SA, Banco Espirito
Santo, Barclays plc, Bank Of Ireland, AIB - Allied Irish, Banks, EIB -
European Investmant Bank. |
