What are your priorities for the National Development Finance Agency (NDFA)?
Our first priority for the NDFA is to continue to maximise value for money to the Exchequer in delivering our mandates. Over the years the mandate for the NDFA has evolved, driven by the demands of our clients in the public sector. The NDFA is currently managing/procuring projects of around €1bn and advising on infrastructure projects of over €3bn. This includes advising local authorities on housing developments, advising government departments on off-balance sheet structures, providing contract management services on the operational phase of PPPs and specialist financial and project management services in PPP delivery.
My focus is to allow our services to evolve in line with the needs of our clients, as is appropriate within our statutory mandate. Specifically, in terms of PPP delivery, the NDFA has built up a significant depth of experience in project delivery. We have a reputation in the market place as a competent procuring authority.
We endeavour to maintain both a robust but lean procurement process that delivers for our clients and is attractive to private investors. I would consider it a priority to maintain this standard of delivery for our clients and also to continue to provide a transparent and competent procuring authority for investors.
How do you feel the recent PPP programme in Ireland has progressed and what can the industry expect the model to offer in the future?
The 2012 PPP programme has progressed with nearly all projects in construction or completed. The state has closed six PPPs and one concession project over the last two to three years. The DIT Grangegorman is expected to reach financial close by the end of this year.
The Social Housing PPP programme is a new sector for us in Ireland. The NDFA launched PPP Housing bundle 1 in May 2017 with prequalification assessment underway. A second bundle is in pre-procurement and a third bundle will follow in due course.
The third PPP programme includes €500m of investment in PPPs in the justice, health and education sectors. The Department of Education and Skills has announced the selection of 11 new higher education buildings in Institutes of Technology around the country, providing over 8,000 new student places. Investment in the justice and health sectors will focus on courts/Garda projects and community nursing home developments. Pre-procurement work is also ongoing for a €150m concession project expected to involve the provision of student accommodation at the DIT Grangegorman campus.
PPPs are an integral and competitive part of government policy in developing Irish infrastructure in the future, particularly in light of the keen funding available and the decreasing trend in Irish PPP debt funding costs.
What do the recent Mid-Term Review of the Capital Plan and the Budget announcements show about the capital investment opportunities in Ireland?
According to the Exchequer Capital Envelopes 2018-21: Outcome of Mid-Term Review of the Capital Plan report published by the Department of Public Expenditure and Reform, Budget 2018 will see gross voted capital expenditure reach 3.5% of gross national income by 2021, which will see public capital investment in Ireland moving from relatively low levels to among the highest in the EU.
The total allocation of increased resources for public capital investment over and above what was included in the 2016-21 capital plan is €8.6bn, an increase of over 30%.
Given the projected increases to our population and economy, this increased expenditure is essential to ensure Ireland remains a competitive and attractive destination internationally for investment.
Furthermore the recently published draft National Planning Framework, which will underpin the 10 Year Capital Plan (due to be published in December), aligns national spatial planning with investment decisions and together the two plans will provide a clear architecture for the future of capital investment in Ireland.
What has the appetite been like from investors?
There has been a strong appetite from investors, particularly in the more recent PPP projects. During the financial crisis Ireland struggled to attract PPP investment. Compare this to our more recent funding competitions where the number of potential funders ranged from 20-25.
We also have had investment from the European Investment Bank on a number of our recent PPP projects. It is certainly a competitive market, which coupled with the prevailing low interest rates, is ideal for securing long-term finance at historically low rates. It is clear that Ireland is seen as an attractive investment.
For our Social Housing PPP Programme, we are returning to the committed funding route.
Tenderers will be required to present their funding solutions as part of their submission. We believe that this will offer the best value for money to the state in the current climate, allowing the tenderer to leverage its position with relationship banks.
A recent Moody’s report suggested the default rate among demand risk PPP projects was far greater than in availability based schemes. How does this affect your thinking on the future use of the model?
According to the Moody’s report published in October 2017, availability based PPP projects have a 2.1% 10-year cumulative default rate while non-availability based PPP projects have a 13.7% cumulative default rate.
Both models have a place in the future delivery of PPPs, however it is important to be cognisant of the differing risk profiles of each. Default is more likely during the operational phase of the contract for demand risk PPPs; the risk of default during construction is similar for availability based PPPs. However, a default does not necessarily mean a termination of the contract as the structure of the PPP contract has protections in place in this scenario.
Transferring demand risk must be carefully evaluated given that demand/pricing may depend on a variety of economic factors. However if there are affordability constraints at government level, which may impact availability based PPPs, then demand risk/concession PPPs may be considered. Key to the success of the PPP model is selecting projects that are suitable for PPP delivery. There is a robust body of due diligence that takes place before a project is identified as a PPP in considering whether the PPP model is the appropriate delivery method.
What have you learned from the recent PPP projects and how might things be done differently as a result?
In practice, we always look back on our projects from a ‘lessons learnt’ perspective with a view to continually improving on our delivery, both in terms of the service we provide to our clients in the public sector and our engagement on behalf of our clients with the private sector.
In terms of the future of PPPs, there is a general trend towards more transparency and improving the public understanding of how the PPP model delivers value for money. The Comptroller and Auditor General office recently published a chapter on PPPs in its annual report in which it recommends the publication of post-project reviews, which are carried out by the relevant departments. While this is something for the relevant departments to consider, such a requirement will be included in a revision of the Public Spending Code currently underway and in the revised PPP Guidelines, to be issued in the near future.
How might Brexit affect the Irish infrastructure investment market?
Brexit creates uncertainty but we do not think it will have a material effect on Ireland’s ability to attract private sector investment in infrastructure.
Dublin has been particularly proactive in tendering projects itself – is this something you would like to see more of from other local authorities in Ireland?
Dublin City Council and other local authorities have procured and are in the process of procuring a number of significant capital investment projects. They are not PPP projects, ie they are not availability based schemes with a unitary charge payment. We act as financial adviser on a number of these.
In the event a local authority opts for PPPs, the NDFA will generally be involved in the procurement of the PPP. We are currently working with Dublin City Council, Cork County Council and the Department of Housing, Planning and Local Government on the delivery of the Social Housing PPP Programme.