SPEECH BY MINISTER BRENDAN HOWLIN TD
Government Infrastructure Stimulus
17 July 2012
When I published the €17 billion 5 year Capital Exchequer Framework last November I indicated that this did not represent the summit of the Government’s ambitions. We have worked intensively since then to identify options for improving access to non-Exchequer financing for additional infrastructure investment and to identify realistic and credible projects that can be delivered when financing becomes available.
I am delighted to announce today that the Government intends to progress investment of €2¼ billion in new capital projects. As part of this we will be securing €1.4 billion of non-Exchequer funding for a new PPP programme. We will be investing a further €350 million by the State in supporting the delivery of these PPP projects. We will also provide €500 million for other projects in the area of public infrastructure which will generate employment and an economic return.
Today’s announcement is the culmination of our determined efforts over the past seven months to identify how best to harness new sources of funding to support our economic recovery through infrastructure investment. We have been in a difficult situation over the past few years. This has meant a significant scale back of the Exchequer capital programme. Obviously this has impacted on the rollout of a number of important projects throughout the country.
Despite this difficult backdrop, we have continued to invest to address priority infrastructure deficits and to invest in our future. Detailed negotiations on the funding for two “live” PPPs, a road bundle of the N11 and the Newlands Cross Interchange, and Schools Bundle 3, have very recently been successfully advanced. Contractual negotiations with the PPP companies will now enter the final phase to allow construction to begin towards the end of the year. The European Investment Bank has worked with us to support these projects. I believe that this demonstrates confidence that Ireland is open for business.
The additional €2¼ billion multi-annual plan of infrastructure investment announced today will deliver a new PPP Programme and support further labour intensive capital projects in areas such as schools, transport and primary care centres based on proposals from Ministers.
The global economic crisis has had a significant impact on construction sector employment. Job creation is this Government’s top priority. The stimulus announced today will help to generate significant numbers of jobs in the construction sector: previous analysis of each sector indicates that the investment will generate around 13,000 jobs. It will also create much needed important social and economic infrastructure that will help support our economic recovery.
We need to ensure that we target our scarce resources to get the best return. We have to be realistic and focus on the essential over the desirable. So the projects selected for Phase 1 of the Package are based on meeting key needs and are in line with the priorities identified in the Government’s Investment Framework.
Projects in Phase 1
The PPP projects we have agreed are realistic, credible and deliverable. We have selected projects that are worthwhile in themselves but that will also be spread throughout the country. This will help to maximise the benefits to communities and to meet clearly indentified local needs. Our people and our economy need infrastructure that addresses our needs and supports our future.
Phase 1 will include projects in the Education, Health, Roads and Justice sectors.
In Education, two new PPP schools bundles and stage one of DIT’s Grangegorman Educational Facility will be delivered. The school bundles will each contain about 6 new or replacement schools, most of these at post-primary level.
DIT, currently the largest provider of higher education in the State, is located over 39 sites, some in poor conditions. Through this investment we can begin to consolidate these sites onto one centralized educational facility.
In addition to much needed facilities for DIT, the plan represents an opportunity for substantial development and rejuvenation of an important inner city urban quarter. It will also link in with the new Luas Broombridge line. This project is being progressed as part of our existing exchequer capital plan and will connect the two existing lines and will have a stop at the Facility.
In the Health sector, two bundles of primary care centres, each comprising 10 centres, will be built.
We will invest in national roads in order to remove bottlenecks and complete the motorway network. Phase 1 of our PPP Programme will see delivery of the N17/N18 Gort to Tuam, the M11 Gorey to Enniscorthy and the N25 New Ross Bypass. A further priority transport project for the Government is the Galway city bypass. This is on hold at the moment pending the outcome of legal proceedings. Depending on the outcome of those proceedings it would be hoped to progress it as an additional PPP project.
In the Justice sector, investment in courthouses, including refurbishment, extension works and the building of new facilities will be carried out at several locations across the country. There will also be investment in some Garda Divisional Headquarters in line with the Minister for Justice and Equality’s priorities. The State will also invest in a new State Pathology Laboratory.
Timeframe for Delivery
Based on information supplied by Departments, the projects in our PPP plan will start this year. It is expected that procurement of the Health projects will commence by end 2012 with construction starting in 2014. Procurement will commence on all the Education projects in 2013 on a rolling basis with completion of the schools bundles during 2017 and 2018. It is expected that work will commence on enabling works to facilitate the development of the educational facility at Grangegorman in 2013 with construction of the PPP element of the facility beginning in late 2015 or early 2016. Construction of the Justice projects is due to commence in 2013 and will continue during 2014 and 2015.
In the Roads sector, the N17/N18 Gort to Tuam will commence in 2013 and the M11 Gorey to Enniscorthy and the New Ross bypass are expected to commence by end 2014.
Further phases of the PPP Programme will be developed as the roll out of the Phase 1 projects progresses and in accordance with our investment needs and funding possibilities.
Delivering these projects via PPP will allow us to spread the cost of financing the infrastructure over the lifetime of the asset while still being able to fully utilise that asset. As a consequence of this financial structure the impact of the project on the General Government Balance can be spread over the life of the stream of unitary payments rather than up-front over the immediate construction period.
In order to ensure that Value for Money is secured, PPPs are subject to a series of Value for Money tests including a comparison with the cost of procuring the project traditionally, that is through Exchequer funding.
We must also ensure that these projects are affordable. The State must pay for these projects through an annual unitary payment to the PPP company over an extended period (usually 20-25 years). It is envisaged that annual unitary payments associated with projects identified for delivery in Phase 1 will be around €140 million. However, unitary payments are linked to performance of the asset over its lifetime and the State will only make payments where the asset is delivered in line with the terms of the contract. Projects will be monitored closely to ensure that they meet all requirements as set out in the project contract.
While we have achieved recent success in the advancement of two PPP projects, Schools Bundle 3 and the N11 and the Newlands Cross Interchange, the international financial crisis has made funding PPP projects very difficult over the past number of years. I have been working closely with my colleague Mr Michael Noonan, T.D, Minister for Finance to address this issue. His Department, along with my own Department and the relevant agencies, have been working on solutions to improve access to funding. We are now confident that we will be able to put the correct funding structure in place to ensure delivery of these important projects.
That structure will involve a combination of funding from a number of sources including our domestic banks, the EIB and the National Pension Reserve Fund.
The EIB has been a strong and valuable support and partner in the past, and is supportive of further investment in Ireland. I have had a number of meetings with senior EIB personnel, including President Hoyer. He has confirmed that he is committed to working with us to ensure that we can maximise the resources available to Ireland and Irish investment. I welcome this valuable commitment and support which clearly demonstrates the confidence that EIB has in Ireland.
The NPRF will also be an important investor in this Phase 1 PPP programme and will decide on investment in individual projects in accordance with its commercial investment mandate.
Sale of State Assets
Earlier this year I announced that I had secured an agreement with the Troika that the State retain up to half of the proceeds of the sale of State Assets for re-investment in the economy to ensure growth and employment.
Some of those proceeds will be channeled towards the PPP Programme and will help to leverage the additional investment required. The balance will be available to provide backing for other commercial and employment enhancing projects in the area of public infrastructure. I also intend to use proceeds from the new licencing arrangement for the National Lottery to augment the Exchequer Capital Programme.
I have already indicated that part of the Lottery proceeds will be used to part-fund the construction of the new National Children’s Hospital. Other potential projects under consideration include school refurbishment, energy efficiency improvement in local authority housing and local transport projects.
My Department and the Department of Finance will work closely with the relevant sponsoring Departments, the NRA, the HSE and the NDFA to ensure that projects identified for Phase 1 will be rolled out quickly and smoothly to ensure the social and economic benefits are delivered across the country as soon as possible.