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6 October 2020
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A €14bn PPP ripe for picking

David Keniry considers why Ireland could be the Apple of investors’ eyes
A €14bn PPP ripe for picking

For most jurisdictions, the case for immediate and extensive infrastructure investment has been settled, the conversation has now switched to funding. Ireland has a wildcard which is at the fingertips of millions, and it is ripe.

There are very encouraging signs of a consensus in Ireland between stakeholders of what needs to be done in terms of infrastructure and housing investment to withstand economic headwinds. With Budget 2021 approaching, recommendations by regional and business groups such as Cork Chamber and infrastructure delivery sector representatives such as the Construction Industry Federation (CIF) have all been largely echoed by government ministers and civil servants.  

Business group Ibec’s chief economist, Gerard Brady, said recently: “The government has already made the right decisions by committing to make this the first crisis in modern history where we prioritise ongoing investment in key infrastructure. Next week’s Budget must see the government continue to take the right decisions.”

With the prospect of a new national lockdown looming, that consensus will be tested, but the case for infrastructure investment will remain. There are now real concerns from all sectors and politics about whether the Irish economy can withstand another lockdown. Like every country, Ireland’s public purse, piggy bank, and change that fell down the couch are furiously being counted as the financial cost of Covid-19 continues to mount. 

Those holding the purse strings, such as Minister for Finance Paschal Donohoe, have been at pains to emphasise that the state’s resources are finite, and finance costs money. It would be formulaic for me to extoll the virtues of PPP at this point, but most stakeholders in Ireland already agree there is a role for PPP, and it will remain a part of the National Development Plan (NDP). The issue is funding.

As Cork Chamber’s director of public affairs, Thomas McHugh, explains, there is no objection from the business community to PPP for the proposed M20 Cork – Limerick motorway, and all funding options need to be on the table for the €1bn project.

“The important thing now is that there is a very solid consultation phase and that that is very robust and all the different stakeholders are on that journey and have the opportunity to feed in,” he says. “So, we can get it to a point that we can have a meaningful discussion about funding.”

McHugh adds: “From a business perspective the main thing is to get that connectivity in place. The M20 is a logistical supply route, it is not just about commuting, safety and journey times, it is about capacity. All those elements combined create the case.”

One such business that will likely benefit from this logistical supply route is Cork’s largest employer, Apple. Ireland’s biggest and the world’s most valuable company, Apple has its European headquarters adjacent to the N20 in Cork City. The US technology behemoth’s successful relationship with Ireland was forged with the establishment of that plant on Hollyhill in 1980, predating even its storied relationship with U2. 

That relationship is once again under scrutiny following the European Commission’s decision to appeal the General Court's judgment of July 2020 on the Apple State Aid case in Ireland, which annulled the Commission's decision of August 2016 finding that Ireland granted illegal State Aid to Apple through selective tax breaks.

Established as a result of the Commission’s 2016 decision, the Ireland Apple Escrow Fund held by the Minister of Finance and Apple has been the fodder of radio chat shows, columnists, and electioneering since Apple transferred €14.3bn into the fund in September 2018. The investment and management of the fund is jointly overseen by the Minister and Apple. The minister delegated functions in that regard to the National Treasury Management Agency (NTMA).

The escrow fund was highlighted last week by the Comptroller and Auditor General in his Report on the Public Services. The value of the fund has continued to decline, and it also has cost €4m to administer it, excluding the legal costs.

Amundi, Blackrock and Goldman Sachs are the investment managers responsible for the management of investments in accordance with an investment manager mandate to preserve the fund’s capital to the greatest extent possible in light of prevailing market conditions. The agreed risk appetite in respect of the escrow fund is ‘low’, with investments permitted only in securities that have a low degree of inherent risk, such as highly-rated fixed-income securities of short to medium-term duration.

The escrow fund will remain in place until all European legal proceedings are completed, which legal experts have said is not likely to be for another four years. The Commission’s appeal is now going before the European Court of Justice.

Various half-baked proposals for its use have been met with disdain by government ministers who are perhaps wisely looking at the bigger picture, as are the Commission. So proceeding with caution, and on the assumption that all are acting on behalf of Ireland’s economic interest, can I ask whether there is a more productive use of the fund that all parties can benefit from?

Cork harbours its prized orchard

At the Financing Irish Infrastructure 2016 conference Donal Murphy from the Ireland Strategic Investment Fund (ISIF) provided an anecdote that was both timely and prudent when he quipped: 

“When the likes of Apple come to the likes of Cork and say we are not putting any more people in here until the housing stock is significantly enhanced…then as a country we need to take a step back.” 

ISIF is another multi-billion euro fund managed by the NTMA and staffed with project finance experts, led by Murphy who is responsible for the implementation of ISIF’s Regional Development strategy and leads the team responsible for ‘Enabling Investments’. ISIF’s investments include infrastructure, housing, energy, telecoms and initiatives that support Ireland’s technology industry and relationship with Silicon Valley.

Alongside ISIF and the escrow fund’s colleagues in the National Development Finance Agency, it is clear there is a wealth of world class project delivery expertise at the government’s disposal. Add in a competitive procurement of proven advisors, contractors and investors backed by a wall of equity and debt finance and a perfect storm emerges that spells opportunity.

Whatever the financial and engineering challenges may be, it is well within the capacity of the Irish and international infrastructure delivery sector to deliver the M20, the Cork Luas light rail line, affordable and commercial accommodation, telecommunications and data centre infrastructure, regeneration, and the education and health infrastructure planned for Cork under the NDP. 

In fact, there is plenty of evidence they could be completed on time, on budget and at least recoup the capital required. Ireland’s secondary PPP market is evidence of that. 

As these are projects already considered necessary and in many cases are already at the planning stages, the value for money assessment holds up also.

It is worth pointing out that the parliament record shows that it was Fianna Fáil Cork TD Michael McGrath, while in opposition, who quizzed Donohoe on several occasions about the status of the fund and how losses would be recouped. Now as Minister for Public Expenditure and Reform, McGrath is preparing for Budget 2021 alongside Dublin’s Donohoe, and fellow Cork TD Taoiseach Micheál Martin.

So before Martin, McGrath and Donohoe deliver Budget 2021 on 13 October I hope they fit in some ‘facetime’ with Apple's Vice-President of European Operations (and Cork native) Cathy Kearney and find a PPP-solution for Apple, Ireland, and Cork. 

In the words of another Cork-native last week, Pat Lucey, CIF president, the case for increased public investment accompanied by swifter decision-making is compelling, and building the next normal will require letting go of the way it was always done.

Central to the successful delivery of the NDP and Project Ireland 2040 is for the Cork region to fulfil the potential of its strategic location, with Apple at its core.

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David Keniry considers why Ireland could be the Apple of investors’ eyes

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