A Public Private Partnership Revival?

Gail Sheppard and Matthias Beck ask whether Public Private Partnership (PPP) is once again 'open for business' in the UK and Ireland.

When the Conservative Party stood for election in May 2010 it promised to either abandon or radically reform the UK model of public private partnerships known as the ‘Private Finance Initiative’ or ‘PFI’.

This undertaking reflected concerns over costs and value for money expressed by a number of academics and politicians, including the Tory backbencher Sir Edward Leigh who had consistently criticised the policy throughout his ten year chairmanship of the Public Accounts Committee.

The coalition government eventually announced a new policy in December 2012 under the banner of PF2, stating that the new approach would build on existing foundations while learning from past mistakes.   At its core PF2 envisages government participation in future projects as minority equity co-investor.  What is more, such equity investment is to be managed by a central unit located in the Treasury and separate from the procuring authority.

Some observers see the latter measure as a welcome attempt to create some oversight of PPP procurement. However, it is not clear whether this could have been established without costly co-investment, causing some to argue that this measure was largely informed by efforts to re-inject life into the stagnant UK PPP market.  In any case there is now evidence of renewed interested in PPP among UK local authorities where it is seen as a means of working around the constraints of austerity.

Similar consideration appears to mark PPP policy in the Republic of Ireland where the Minster for Public Expenditure and Reform, Mr. Brendan Howlin TD, announced an additional €2.25 billion domestic infrastructure stimulus on 17 July 2012. This investment is in addition to the €17 billion ‘Infrastructure and Capital Investment Framework’. Funding for this additional expenditure is to come from a combination of the National Pensions Reserve Fund, the European Investment Bank/Council of Europe Bank, domestic banks and private investment sources.

The additional expenditure will be used to deliver phase 1 of the PPP programme and to support further labour intensive capital projects. Further details were announced on 5 June 2013 regarding phase 1 of the PPP programme which makes up the larger part of the stimulus programme, with €1.4 billon of investment delivered through PPP. Project details are as follows:

• Education: €280 million investment which will consist of two new PPP bundles including six new or replacement schools and the development of the Dublin Institute of Technology Grangegorman campus.

• Health: €115 million investment consisting of two bundles of primary care centres each comprising up to ten centres.

• Transport: €850 million to upgrade motorway and primary route networks. Projects include the N17/N18 Gort to Tuam, the M11 Gorey to Enniscorthy, the N25 New Ross Bypass and the N6 Galway City Bypass (pending legal proceedings).

• Justice: €190 million consisting of justice bundles for courthouses, Garda divisional headquarters and a new State Pathology Laboratory.

Minister Howlin also announced the intention to roll out a new PPP pipeline worth €250 million as a continuation of the Phase 1 programme. Separate from the Phase 1 PPP programme, the then Minister for Transport, Tourism and Sport – Leo Varadkar – signed contracts in February 2014 for the N7 Newlands Cross upgrade and the N11 Arklow to Rathnew dual carriageway. These are the first PPP road contracts to be signed since 2007. Funding of more than €150 million was provided under a PPP including major funding by the European Investment Bank, Bank of Ireland and a standby credit facility from the National Pensions Reserve Fund.

Overall it seems that both in the UK and the Republic of Ireland, the ‘PPP market is again open for business’.  Indeed there is every possibility that the current climate of austerity will encourage Local Authorities in particular to base future infrastructure procurement on PPP/PFI.  Given the long term cost implications of past PFI projects and the resulting issue of affordability gaps faced by some public sector entities, it is to be hoped that such a process will be accompanied by greater financial prudence than has often been the case in the past.

Gail Sheppard is a doctoral student and Matthias Beck is Professor of Public Sector Management in the Management School at Queen’s University Belfast.

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