Ireland has risen from the ashes of the financial crisis with a number of successful PPP projects, an improved credit rating and a fresh new pipeline of projects. Given the distinct lack of opportunities in the rest of Europe, it is no surprise that Ireland has become the “go to” destination for private players.
The country successfully identified priority areas to invest a €2.25 billion stimulus package announced in 2012 to improve the country’s infrastructure, create jobs and stimulate the economy. Fast-forward to 2016, Ireland still requires further investment and the government is keen to keep momentum going with a number of planned projects in the pipeline.
Brendan Howlin T.D, the Minister for Public Expenditure and Reform, having seen how much was accomplished by the first PPP programme, announced the second phase of the current PPP plan in Budget 2015. At that time, it was anticipated that up to €300 million would be invested in social housing for the development of up to 1,500 housing units.
And it appears the Irish government is keen to move swiftly on this, having announced a second bundle of the Social Housing PPP Programme – to be located on 8 sites – in July of this year.
A success story
During the GFC, many international and domestic players were badly burned when projects were cancelled so it was understandable that early stimulus package projects failed to entice the lending community.
There was certainly a sea change for later projects such as the Schools Bundle 5 project which reached financial close on 22 July 2016. It was financed by bank debt from Japan and Germany with equity from companies based in England and the Netherlands. Such projects attracted wide interest from the funding market, both commercial bank lenders and institutional lenders, such as pension funds and insurance companies.
Another positive outcome of the stimulus package was the creation of jobs in the short term – one of the key objectives of the investment plan.
For instance, Transport Infrastructure Ireland estimates that the M11 Gorey to Enniscorthy PPP road project alone will create 250 to 300 jobs during the construction phase which commenced in 2016. It was awarded to BAM PGGM Iridium consortium on 14 October 2015, an excellent example of foreign firms keen to bid on projects in Ireland.
It is not just the international firms that have benefitted from bidding for a strong pipeline of projects in Ireland. Domestic firms have also been able to partner with international firms to build strong teams; for example, Balfour Beatty teaming up with JJ Rhatigan and Carillion teaming up with Sammon.
David Rose, Head of Advisory at Operis, believes that, in the longer term, improvements to the country’s infrastructure will also help to boost the competitiveness of the economy. The advisory firm supported a successful bidder either as financial advisor or as model auditor on 7 of the 8 PPP projects that reached financial close. This included projects in the transport, education, healthcare and justice sectors:
• Irish Courts Bundle
• M11 Gorey to Enniscorthy
• N11 Arklow to Rathnew
• N17/N18 Gort to Tuam
• N25 New Ross Bypass
• Primary Care Centres
• Schools Bundle V
And the impact of Brexit? So far, there has been little impact on the infrastructure market in Ireland aside from the fall in interest rates (euro as well as sterling) after the Bank of England slashed rates for the first time in more than seven years.
Capital Spending Plan
Ireland’s Capital Plan which was announced in September 2015 presented a new €42 billion framework for infrastructure investment from 2016-2021. As public finances have improved, so has the capacity of the government to spend on capital projects over the next six years. The plan envisages spending on the following sectors through direct exchequer provision and PPPs:
• €4 billion in Education
• €4 billion in Environment
• €3 billion in Health
• €3 billion in Enterprise
• €1.25 billion in Agriculture and
• €1 billion in Justice
The new plan is expected to create more than 45,000 construction-related jobs and investments are expected in key sectors such as transport, education, housing and healthcare, as well as high speed broadband under the National Broadband Plan.
Other potential PPP projects include:
• a new National Forensic Mental Health Services facility in Portrane that will be replacing the Central Mental Hospital
• a number of new Garda stations and facilities across Ireland
• DART Underground PPP
• up to 80 primary care facilities proposed using PPP, government investment and operational leases
• construction/redevelopment of 7 courthouses
• development of a new, purpose built Family Law and Children’s Courts complex
With the announcement of the Capital spending Plan in 2015, there have also been a few points that will accompany the next phase of the PPP programme. In the past, projects valued at €250 million required specific government approval before entering into contracts; the threshold has now been changed to €100 million.
The Irish government is also expected to publish a PPP Investment Policy Framework to guarantee a sustainable programme of PPP procurement in the long term.
PPP projects have existed in Ireland since the 1990s though the sector has gone through some good and bad periods. Despite this, over €6 billion of PPP projects have been successfully implemented, particularly in Ireland’s inter-urban motorway network and new primary and secondary schools.
While the financial crisis and fiscal and economic woes saw the Irish PPP market grind to halt, the country managed to redeem itself through a number of successful projects. Now it has established itself as bankable and steady PPP market able to attract both domestic and international players.
The decision to use PPP to procure projects has and always will be based on the best value for money solution.