The PPProblem that won’t go away

Minister McGrath's department is looking to expand the type of PPP Ireland uses.

Minister Michael McGrath wears a nice blue suit and smiles at the camera
Credit: Department of Public Expenditure and Reform | Twitter.

The Department of Public Expenditure and Reform has announced a potential expansion of Public Private Partnerships (PPPs) in Ireland.

On Easter Sunday the Department published the Phase 1 Report: Review of the National Development Plan, which sets the scene for the decisions to be made as the National Development Plan (NDP) Review reaches completion. The NDP is a high-level financial and budgetary plan, which sets out the framework and broad direction for investment priorities. 

Commenting on the Phase 1 Report, Minister Michael McGrath said: “The revised NDP will set new five-year rolling Departmental capital allocations and overall ten-year capital ceilings out to 2030 and support economic, social, environmental and cultural development all across the country.”

As part of the NDP Review, the Department undertook a review of PPP policy. The report concludes that the existing situation with regards to PPPs should not change, saying that the framework is robust and PPPs remain an option if they provide the best value for money.

The report, however, also states that the Government will investigate the use of a specific type of PPP – Energy Performance Contracts – if there is an “appetite to include a structured PPP component as part of the revised NDP”. 

Under an Energy Performance Contract, an Energy Service Company takes responsibility for undertaking the energy efficiency upgrade of a building in return for an agreed proportion of the resulting energy bill savings.

While PPPs have been in use in Ireland for two decades, a number of reports in the last number of years have raised concerns about their use.

The Comptroller and Auditor General included an overview of Public Private Partnerships in the 2016 Appropriation Accounts. It warned that PPP projects “are vulnerable to legal challenge which can cause significant delays” and that requested variations to a project after the contract has been agreed “can lead to additional costs to the public sector partner.”

The C&AG pointed to examples of the Department of Education paying an additional €3.7m for variations in the Schools Bundles and TII paying an additional €13.3m.

The IMF in 2017 reported that even though institutional strength ranked as “good”, the effectiveness of PPPs in Ireland was only “medium”. The IMF recommended Ireland should take “decisions on PPPs based on value-for-money (VFM) and affordability” rather than because it’s the only option. They also pointed out that once the PPP process had started, few were screened out for Value For Money.

The Parliamentary Budget Office looked at PPPs the next year and came out saying that they can create private-sector monopolies for decades, provide services of poorer quality than if provided by the State directly, and that it’s hard to assess the Value for Money until it’s too late.

In 2018, the Report of the Inter-departmental / Agency Group on PPPs admitted that the main purpose of PPPs was to get around spending rules during downturns. They listed numerous “challenges”, including higher costs than direct Exchequer investment, that the expected risk transfer can “turn out to be partial or incomplete”, and that being a long-term legally binding contractual commitment means PPP payments can reduce flexibility to plan new infrastructure in the future. The group warned against seeking to launch any new ‘phase’ of PPPs and to look at each project on its merits. 

According to the Department of Public Expenditure and Reform, the 2021 investment in the operational PPP projects will amount to approximately €350 million. The total construction capital costs of the 30 PPP projects in operation/construction amount to €5,425 million.