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AMA PPP & PFI IN THE REPUBLIC OF IRELAND : 2002

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Executive Summary
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This report covers: Public Finance Inititative,Public Private Partnerships, Republic of Ireland, market evolution, financial commitments, major players, European Union funding, National Development Plan, benefits & drawbacks of PPP schemes, economic & social background, Project Delivery Schemes, National Economic Social Council, NESC, PDS, NDP, Public Private Partnerships, PPP, OJEC,

AMA Research have published the first edition of the 'PPP & PFI in the Republic Of Ireland Market Report 2002'. Incorporating original input and primary research, this new report represents an up to date and informed review of the market and is excellent value for money.

Key areas of coverage in the report will include:

THE MARKET EVOLUTION

Initial stages of PFI - evolution from 1998 overseen by the IAG.

Incorporation of PFI in the National Development Plan.

The Framework for Public Private partnerships, key aspects and major driving factors - from November 2001.

State Authorities Bill November 2001.

FINANCIAL COMMITMENTS

European Union Funding - Common Agricultural Policy and Structural and Cohesion Funds.

The NDP - National Development Plan and Social and Infrastructure Spending Plans.

Examples of Schemes financed including education, roads, employment & human resources etc.

Prospective PPP Programmes By Sector.

Project Delivery Schemes - DB, DBO, DBOF, Concession Agreements etc.

Benefits and Drawbacks of PPP schemes.

THE MAJOR PLAYERS

Major players and key characteristics.

Development of alliances - repeated cooperation on projects.

Major financial and major construction.

ECONOMIC AND SOCIAL INFRASTRUCTURE

Economic and General Background in Ireland.

Construction background - residential and commercial.

Demographic Profile.

Housing Market in the Republic of Ireland.

Future Prospects.

Other Reports in the PPP/PFI Industry:

PPP/PFI in the UK Defence Sector 2002.

PPP/PFI in the UK Health Sector 2002.

PFI Issues in the UK 2001.

PFI Intelligence Bulletin - Ongoing.

PFI and Specification Issues in UK Social Housing 2002.

PFI in the Local Authority Sector 2002.

The report contains around 100 pages of original research and comment offering incisive and thought-provoking views on this issue.

TABLE OF CONTENTS

1	INTRODUCTION	5
2	EXECUTIVE SUMMARY	8
2.1	EVOLUTION	8
2.2	MARKET SIZE	9
2.3	PPP IMPLEMENTATION	10
2.4	MAJOR PLAYERS	10
2.5	FUTURE PROSPECTS	11
3	ECONOMIC & SOCIAL BACKGROUND	12
3.1	GENERAL	12
3.2	ECONOMIC BACKGROUND.	13
3.2.1	GDP and Inflation	13
3.2.2	Unemployment and Working Population	16
3.2.3	Regional Disparities	19
3.3	CONSTRUCTION	19
3.3.1	The Total Construction Market	19
3.3.2	Non-Residential Construction	23
3.3.3	Construction Employment Levels	26
3.4	DEMOGRAPHIC PROFILE	27
3.4.1	Population	27
3.4.2	Population by Area	28
3.5	THE HOUSING MARKET	30
3.5.1	Completions	30
3.5.2	Value Of Housebuilding Output	33
4	THE DEVELOPMENT OF PPP IN IRELAND	35
4.1	INTRODUCTION	35
4.2	DEFINITION	35
4.3	PPP DEVELOPMENT	36
4.4	CURRENT SITUATION	38
4.5	SUMMARY	40
5	FINANCIAL COMMITMENT TO PPPS	41
5.1	EUROPEAN UNION FUNDING	41
5.2	THE NATIONAL DEVELOPMENT PLAN 2000-2006	42
5.3	PPP FINANCED SCHEMES	45
5.3.1	Economic & Social Infrastructure	46
5.3.2	Environmental Services	50
5.3.3	Employment & Human Resources	51
5.4	PROSPECTIVE PPP PROJECTS	52
6	PROJECT DELIVERY SCHEMES	53
6.1	PPP AGREEMENTS	53
6.2	BENEFITS AND DRAWBACKS OF PPP SCHEMES	57
7	PPP WORKS/PROCEDURES	59
7.1	ECONOMIC INFRASTRUCTURE	64
7.1.3	WATER, WASTE WATER AND SOLID WASTE	72
7.1.4	PUBLIC TRANSPORT	74
7.2	EDUCATION	76
8	THE MAJOR PLAYERS	78
8.1	INTRODUCTION	78
8.2	MAJOR CONSTRUCTION PLAYERS	78
8.3	KEY FINANCIAL PLAYERS	86
8.3	COMMENTS	87
9	FUTURE PROSPECTS	89
9.1	BARRIERS TO GROWTH	89
9.2	WHO WILL BENEFIT?	90
9.3	CONCLUSION	91
APPENDIX 1 - PPP PROJECTS	92
APPENDIX 2 - GLOSSARY OF TERMS	100
TABLES & CHARTS
TABLE 1	PPP FINANCE IN THE NDP 2000-2006 (€M)	9
TABLE 2	IRELAND - ANNUAL AVERAGE percent CHANGE IN REAL GDP 1996 - 2003	13
TABLE 3	IRELAND - ANNUAL AVERAGE percent CHANGE IN CONSUMER PRICES 1993 - 2003	15
TABLE 4	IRELAND - UNEMPLOYMENT LEVEL 1993 - 2000 ( percent)	16
TABLE 5	WORKING POPULATION OF THE REPUBLIC OF IRELAND 1990-2000 (1000S)	17
TABLE 6	VALUE OF CONSTRUCTION OUTPUT IN THE REPUBLIC OF IRELAND 1996-2003 AT CURRENT PRICES	20
CHART 7	THE TOTAL CONSTRUCTION MARKET IN THE REPUBLIC OF IRELAND BY SECTOR 2001 BY VALUE (€) AT CURRENT PRICES.	22
TABLE 8	VALUE OF OUTPUT FOR INDUSTRIAL CONSTRUCTION 1996-2001 AT CURRENT PRICES (IR£ MILLION)	23
TABLE 9	VALUE OF COMMERCIAL CONSTRUCTION OUTPUT IN THE REPUBLIC OF IRELAND 1996-2001 AT CURRENT PRICES (IR£)	24
TABLE 10	VALUE OF HEALTH AND EDUCATION CONSTRUCTION OUTPUT IN THE REPUBLIC OF IRELAND 1996-2001 AT CURRENT PRICES (IR£)	25
TABLE 11	NUMBER OF PEOPLE EMPLOYED IN THE CONSTRUCTION INDUSTRY 1996-2001	26
TABLE 12	POPULATION OF THE REPUBLIC OF IRELAND 1990-2000 (MILLIONS)	27
TABLE 13	REPUBLIC OF IRELAND PROVINCE SIZES BY AREA AND POPULATION 1996	28
TABLE 14	PRINCIPAL TOWNS IN THE REPUBLIC OF IRELAND	29
TABLE 15	NEW DWELLINGS COMPLETED 1992-2000 (VOLUME OF UNITS)	30
TABLE 16	VOLUME OF NEW HOUSING COMPLETIONS IN THE REPUBLIC OF IRELAND PER COUNTY IN 2000	32
TABLE 17	VALUE OF HOUSING CONSTRUCTION IN THE REPUBLIC OF IRELAND 1996-2000 AT CURRENT PRICES (IR£)	33
TABLE 18	STRUCTURAL & COHESION FUNDING EU CONTRIBUTIONS 2000-2006 (€M)	42
TABLE 19	NDP ALLOCATED FUNDING 2000-2006 (€BN - 1999 PRICES)	44
CHART 20	SOCIAL & ECONOMIC INFRASTRUCTURE PROGRAMME - percent EXPENDITURE BY SECTOR	45
TABLE 21	PPP FINANCE IN ECONOMIC & SOCIAL INFRASTRUCTURE 2000-2006 (€M)	46
TABLE 22	PPP FINANCE IN ECONOMIC & SOCIAL INFRASTRUCTURE 2000-2006 (€M)	47
TABLE 23	PPP FINANCED ROAD SCHEMES 2001 (NDP 2000-2006) €M	48
TABLE 24	DTO CAPITAL FINANCE 2000-2016 (€M)	49
TABLE 25	PPP FINANCE IN ECONOMIC & SOCIAL INFRASTRUCTURE 2000-2006 (€M)	51
TABLE 26	PROSPECTIVE PPP PROGRAMMES BY SECTOR (€M)	52
CHART 27	TYPICAL STRUCTURE OF THE SPV	55
CHART 28	TYPICAL STRUCTURE OF THE SPV - FINANCIAL INSTITUTION SEPARATE	56
CHART 29	STAGES IN PPP PROJECT DEVELOPMENT AND IMPLEMENTATION	60
CHART 30	PPP ROUTE MAP - WATER, ROADS & WASTE SECTORS	65
TABLE 31	PPP ROAD DEVELOPMENT SCHEMES 2001	69
TABLE 32	PPP WASTE MANAGEMENT SCHEMES 2001	74
TABLE 33	PPP EDUCATION SCHEMES 2001	77

EXECUTIVE SUMMARY

Evolution

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.

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Last updated by Amanda Porteous June 2002