Ireland: The Public-Private Partnership Law Review, 2nd Ed., Ireland Chapter

Last Updated: 21 November 2016
Article by Mary Dunne

I OVERVIEW

PPPs are the most widely used model of project finance in Ireland. The Irish government set up the National Development Finance Agency (NDFA) in 2003 to procure PPP projects as well as other infrastructure projects with a capital value in excess of €30 million, having first carried out several pilot projects in the schools and roads sector and determined what model was most suitable for use in Ireland.

The NDFA procures PPP projects other than in the transport, local authority and water and waste water sectors. Road and light rail projects are procured by Transport Infrastructure Ireland (TII). TII is the result of a statutory merger in 2015 of the National Roads Authority (NRA) and the Railway Procurement Agency. Heavy rail projects are procured by Iarnród Éireann. Local authority projects are carried out directly by local authorities.

Project finance is also widely used in the energy sector, particularly on renewable energy projects such as wind farms. This is not the PPP model, but is a very typical structure where finance is secured by way of a power purchase agreement.

The most successful sectors in Ireland in terms of PPPs have been the roads and education sectors. There has been a rolling programme of motorway and school projects since the early 1990s.

II THE YEAR IN REVIEW

Ireland went through a deep recession between 2008 and 2014 and saw the number of PPP transactions diminish very significantly during this period. Banks were not lending and the Irish government cut back its capital spending as part of the austerity package agreed with the Imtenational Monetery Fund and European Central Bank. Indeed, as part of the government's deficit-reduction programme of 2009–2013, a number of PPPs were no longer affordable and were stopped, including:

  1. the National Concert Hall;
  2. the Government Office Decentralisation Programme;
  3. the Third-Level Institutions PPP programme;
  4. Dublin's large-scale mass-transport projects; and
  5. Thornton Hall prison.

However, Ireland has returned to growth and there has been an increase in the number of projects coming onto the market in the past 12-24 months as well as a corresponding increase in interest from international bidders.

Projects currently under procurement by the NDFA are as follows:

  1. Schools PPP Bundle 5 consisting of five new schools and an Institute of Further Education. The preferred bidder is Inspired Spaces and financial close is expected in Q2 2016.
  2. DIT Campus at Grangegorman, a third-level education facility. The preferred bidder is the Eriugena consortium. Financial close is expected in Q1 2016.
  3. The Primary Care Bundle PPP project consisting of 14 primary care centres. The preferred bidder is the Prime-Balfour Beatty consortium. Financial Close is expected in Q1 2016.
  4. The Courts Bundle PPP Project consisting of seven courthouses. The contract was awarded to the BAM PPP PGGM consortium in December 2015.
  5. The Charlemont Street Social Housing PPP also reached financial close in December 2015. Alcove Properties will develop up to 162 new apartments as part of the scheme.

TII projects

The N25 New Ross Bypass PPP Project was awarded to the BAM PGGM Iridium consortium and reached financial close on 26 January 2016 becoming the first Irish project to avail of the European Investment Bank's (EIB) project bond credit enhancement programme.

The Motorway Services Areas – Tranche 2 PPP project. Topaz Energy Group Limited was appointed as preferred Bidder in 2015. However, the procurement process has been challenged and is currently the subject of judicial review proceedings.

While the government has made various ambitious announcements about infrastructure spend and PPPs, in particular in the past 24 months, there will be a general election in Ireland in February 2016 and it is therefore difficult to say with any certainty what projects may and may not come to the market in 2016.

III GENERAL FRAMEWORK

The NDFA developed the Template PPP Project Agreement in 2006 following extensive consultation with stakeholders in the private and public sectors. In addition, it published a User Guide, which has a clause-by-clause commentary on the Template Project Agreement. These are available on the NDFA website at www.ndfa.ie/Publications/stdDocumentation.htm.

The Irish Template PPP Project Agreement is based largely on the UK PFI model adapted to suit the Irish landscape. In summary, the contracts tend to be 25-to-30-year design–build–finance–operate or design–build–finance–maintain contracts. In most cases, the authority retains ownership of the asset and grants the PPP company a licence to occupy and operate the land and asset for the term of the project. At the end of this period the licence terminates at the same time as the project agreement, and the asset remains in the ownership of the authority.

The operation aspect of most accommodation PPP contracts in Ireland tends to be confined to 'soft services' such as catering, cleaning and maintenance. This has avoided any real resistance from unions in Ireland as employment-protection issues have been minimised.

In contrast, full operation and maintenance of motorway PPP projects has been successfully included in the PPP contracts that have been entered into by the NRA (now TII).

The earlier motorway PPP projects in Ireland were done on the basis of a user-pays model, with or without subvention from the government. However, as the recent recession took hold, banks refused to finance on this basis and the motorway PPP projects were then executed on the basis of availability payments, in the same way as the financing of accommodation projects.

i The authorities

The NDFA procures PPP projects in Ireland as well as other infrastructure projects with a capital value in excess of €30 million other than:

  1. the road and light rail sectors, which are procured by TII;
  2. the heavy rail sector which are procured by Iarnród Éireann;
  3. the local government sector which are procured by local authorities directly; and
  4. in the water and waste-water projects, which are procured by Irish Water.

While the NDFA advertises the PPP project, runs the procurement process and negotiates all project documentation, it does so on behalf of the public authority and it is the public authority that actually signs the contract. For example, in the case of a schools PPP project, the NDFA will run the entire procurement process and stay involved at contract management stage. However, the PPP Project Agreement will be signed by the Department of Education and Skills and the monthly unitary payments payable to PPP Co. will be made by the Department of Education and Skills.

The Central PPP Unit in the Department of Public Expenditure and Reform aims to facilitate PPPs by developing the policy framework for PPPs and issuing relevant guidance to departments and other authorities.

ii General requirements for PPP contracts

To be classified as a PPP contract, a contract must be for a minimum of five years. per limit on the length of a contract. In practice the longest contracts tend to be for 30 years and the term is dictated by the length of time needed to pay off the capital investment by the private sector and to allow the private parties to make a profit. EU law does not permit outsourcing of public contracts for longer than five years unless there are exceptional circumstances such as the need to pay off a capital investment. Therefore, much longer contracts for upwards of 90 years that can be found in East European countries, are not a feature of the Irish PPP market.

There are no statutory constraints on particular sectors preventing the use of PPPs. However, in practice, the operations side of accommodation projects is confined to 'soft services' such as cleaning and catering and there has been no attempt to outsource services in, for example, the health, education and prison sectors.

Before a procurement process for a proposed project can begin, a rigorous pre-procurement appraisal process must be followed, which is summarised below.

The sponsoring agency (usually the line ministry or the body that will be responsible for the day to day administration of the project), carries out a preliminary appraisal which includes an option appraisal, a cost benefit analysis and a preferred option.

Having completed the preliminary appraisal and received approval to undertake a detailed appraisal from the sanctioning authority, the sponsoring agency must seek the advice of the NDFA, which is the statutorily appointed financial adviser to the state for projects in excess of €30 million.

The sanctioning authority may be the line ministry or the government in the case of large projects (usually in excess of €100 million). It depends on the nature of the sponsoring agency and the size of the project.

The detailed appraisal will include a reasonable estimate of the overall budget required to procure the project. If the detailed appraisal results in the preferred option being a PPP, a PPP procurement assessment should be carried out. The NDFA provides financial, insurance and risk-analysis advice to state authorities to help them decide which is the most appropriate procurement mechanism.

The sanctioning authority will give its approval subject to a project budget. Once it receives this approval, the sponsoring agency either proceeds to procurement or hands the project to the NDFA for procurement on its behalf.


To read this Chapter in full, please click here.


This article was first published in The Public-Private Partnership Law Review – Edition 2 by Law Business Research Ltd.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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