Ladies and Gentlemen,
First of all, I thank the California Foundation on the Environment and Economy for the invitation, and for the warm welcome that I have received.
The work of organisations like the Foundation, bringing together government, industry, trade union, environmental representatives and independent experts to share perspectives on key issues, provides an ideal opportunity for identifying an approach to Public-Private Partnerships suited to your circumstances.
It very much reflects the approach we adopted in Ireland following the Government decision to pursue a PPP approach. That decision was taken in the context of our social partnership arrangements which sees Government, trade unions, employers, community and voluntary NGO’s coming together to agree the broad parameters of tax, social and economic policies for a 3 to 5 year period.
A key building block was an agreement in 2001 by the relevant social partners – Government, employers, the construction industry and trade unions – on a Framework for PPPs in Ireland.
Given the complexity of the processes involved and the many issues that can arise in projects, a shared understanding of the process at the outset is fundamental to creating the right expectations and a robust approach.
The key principles included a focus on value for money, recognising the importance of long-term affordability and the balance between economic and social benefits and costs.
That dialogue also defined the range of projects that would be classified as PPP. These extended to projects that did not include private finance – for example the Design Build and Operate model (DBO), which we have used extensively in the water services area.
In developing an approach to PPPs from 1999 onwards, we too in Ireland looked to the experience of other countries, both within Europe and elsewhere.
While it is fair to say that the challenges associated with using PPPs are similar across the world we learned that solutions must be tailored to the specific context in which PPPs are used.
The Irish approach to adopting PPPs had to be consistent with the ways in which Irish public administration works, and our own institutional and legal context.
The legal context includes a combination of common-law courts and a constitution which incorporates individual rights, like the US. We also have to work within the framework of EU law, which governs public procurement, environmental and other standards.
For example, it was considered necessary to enact specific legislation to clarify that authorities had the vires, or powers, to enter into PPP arrangements.
We also established an expert agency - the National Development Finance Agency or NDFA - in 2003.
The NDFA advises public authorities on the optimal means of financing the cost of public investment projects in order to achieve value for money and on all aspects of financing, refinancing and insurance of projects.
We found in each jurisdiction we looked at different motivations for adopting PPP’s. Some jurisdictions were simply seeking to move projects off-balance sheet.
From our political perspective the main motivating factors for us were the potential for achieving value for money and accelerating delivery of projects.
From the outset we set out to avail of private sector skills and capacity as well as funds, to help ensure quality public services.
We found it useful to select, in 1999, pilot projects across different sectors because we felt different approaches would suit different sectors and projects. This allowed us to “learn by doing” and provided the basis for developing policy guidance and institutional responses.
We use toll-road concessions in the highways area – similar to “Build-Own-Operate-Transfer” or BOOT projects because legislation already provided for tolls. Having selected three toll roads projects as pilots, the National Roads Authority was able to build outwards to a programme of 10 projects.
In the water services area, we generally use “Design-Build-Operate” or DBO projects, where the capital cost is paid upfront, as in traditional procurement, but the contract as a whole covers operation and maintenance for, say, 15 years.
These different approaches reflected the particular policy, operational and financial nature of these sectors. In the case of water services, it is Government policy that domestic users do not pay for water – although commercial users do so.
Funding from the EU was available for the larger water projects but the rules and requirements of such funds do not work well with private finance.
However, we wanted to avail of private sector management and innovation in the delivery and operation of water and wastewater services infrastructure. So DBO was an appropriate way forward.
In addition, user charges can contribute to more efficient use of infrastructure over its life-cycle - as well as remunerating private finance and helping to transfer demand risk to private operators of infrastructure.
Given the broader impact of tolls on traffic movement, operators are not completely free to set tolls - the maximum toll is set by the National Roads Authority.
One other area where we tried, successfully in my view, the PPP process was in education. Four schools were included in the initial 1999 tranche of PPP projects. The contract for these schools was a Design Build Operate and Maintain model. The contract was for a 25 year period.
One of the conditions of the contract was, at the end of the 25 year period, the school would be handed back to the authorities in pristine condition. The Schools were delivered on time and within budget to a very high specification.
As a former educator I believe the PPP process has an added advantage.
Because the contractor has responsibility for the upkeep and maintenance of the school over the 25 year period it means that the principal and staff can concentrate their energies and skills on developing the curriculum and educational programmes rather than worrying about repairs, upkeep and maintenance of the school and grounds.
In 2005, we reviewed progress in the various sectors. Both the water services sector and the roads area made good progress after the initial pilot phase.
However, progress was not as good as hoped in the area of privately-financed PPPs paid for by a stream of regular payments direct from Government Departments or central agencies.
There were a variety of reasons identified for this but in particular one was the need for skills and capacity to manage the process in the relevant public sector organisations.
In contrast, in the successful sectors, specialised agencies for highways and mass transit had put in place the right kind of skills and management for the process. The technical skill-base of local authorities, with the back-up of advisers in the relevant Government Department, provided expertise to support PPP procurement in that area.
Drawing on those lessons, the Government decided to set up a Centre of Expertise for PPP Procurement for privately-financed PPPs paid for by unitary payments from Departments and agencies. This is being established in the NDFA.
Furthermore, the importance of having clear policy positions before procurement begins was reaffirmed.
Our overall conclusion is that the PPP approach, particularly where private finance was to be involved, made most progress where
• the policy lines are clear,
• the appropriate skills and capacity to manage the demands of the process is in place
• there is a programme of projects rather than a dispersed approach.
More detailed lessons learnt in procuring projects have been incorporated in guidance, available at www.ppp.gov.ie.
From a legislators point of view, the PPP system as we experienced it has many advantages.
It expedited the provision of very necessary infrastructure and did so in a manner which gave value for money and delivery on time. Prior to the introduction of PPPs on road projects our projects in that area were often months behind schedule and cost exceeded estimates by substantial amounts. In the current road building programme, 20 of the 21 projects are ahead of time and within budget.
Another advantage of the PPP approach for us was that it meant we could go for much larger projects and attract more competition for the contracts. All of our major contracts now have an involvement from major European firms. This has brought new expertise into the sector and has led to much more competitive pricing.
Most attractive of all from a political perspective is the fact that projects are being completed now that might, under normal circumstances, not see the light of day for five, ten or fifteen years into the future.
In addition, the unitary payment system means that each generation can pay for the benefits of the infrastructure as they use it rather than the system where, in many circumstances, the current generation ends up paying for the “sins” (neglect) of the past and the comforts of future generations through heavy taxes.
In conclusion, then, I would say PPP is ultimately only a means to an end – it is not a panacea.
In our view it is a procurement option that has benefits when applied to projects of the right scale, risk and operational profile.
It is a complex part of the procurement toolkit, and it should not be the only option. If you are to make the best use of it, you should make sure the users have the necessary skills – and that you are very clear why and how you want to use it.
Thank you for again for this opportunity to share our experiences with you. I hope that those experiences will be of benefit to you in your deliberations today and into the future. I wish all of you an enjoyable and enlightening conference.
ENDS