Whats the point in using PPPs for road building

DubTony

We've constantly had it rammed down our necks that Public Private Partnerships are the way forward for infrastructural projects.

WHY?

The West Link farce has shown us over the years that this sort of deal is just bad business for everyone concerned except the organisation that takes the "risk". I recently heard on the radio a story about tolls being lifted on a road in Louisiana (they literally lifted the toll booths from the carraigeway). Apparently this toll road had an electronic screen over the toll booths that informed the public how much was owed on the road. As tolls were paid the counter clicked down and down so the public could clearly see that tolling on that road would come to an end soon. As the last car paid it's toll, traffic was diverted as the toll booths were taken away. Brilliant. Now why couldn't the Irish do that?

Here's a suggestion for the people in power that will score political brownie points for years. Now that McCreevy has been pensioned off to Europe, we can use common sense and borrow for major projects. After all, does the government believe that companies like NTR have hundreds of millions sitting there waiting to build another bridge somewhere? If NTR can borrow it, why on earth can't the state?

Consider that the repayments on a 20 year €100,000,000 loan at todays rates would be less than €700,000 a month and then consider WestLink. Less than €70,000,000 was spent on the bridge in total, yet every week it generates revenue that exceeds the aforementioned monthly repayment.

Isn't it time that the government sent its financial guys out to borrow a few quid? After all, we are among the wealthiest countries in the world, so a bit of credit shouldn't be a problem. Borrow to build and pay it back with toll revenue. Hire a company or companies to run the tolling operations for a flat annual fee. All cash goes to state coffers and operators are paid the agreed fee. There's little variance in operating costs in running a toll road and with open road tolling, these costs will be easier to predict and budget for. Remove the tolls at the end of the period and give the road back to the people who paid for it. At least that way, the voters and tollpayers will see that paying for their journey actually benefits everybody and not just a company like NTR. Future projects can be built in the same way without having to bleed the public dry for years without an end in sight.

Unfortunately the political will in this country is more in tune with the bank accounts of major companies than it is with the needs and wants of the people. Case in point ... East Link.

MrPudding

Yeah, I think that makes entirely too much sense to even be considered. Plus, it leave no room for dodgy deals between bent polititians and businessmen.

MrP

BrianD

You know all those people who congregate in the marquee belonging to a major political party at a well known race meeting in the west of Ireland? That's why PPS projects exist. Jobs and money for the boys.

Even in the bad old days we could afford to build roads and now we can't?

D'Peoples Voice

DubTony wrote:

We've constantly had it rammed down our necks that Public Private Partnerships are the way forward for infrastructural projects.

WHY?
Consider that the repayments on a 20 year €100,000,000 loan at todays rates would be less than €700,000 a month and then consider WestLink.

I say our European Counterparts might say if it looks like a duck, sounds like a duck,walks like a duck, it's a duck. By that I'm of course referring to Government borrowing.

Unless I'm wrong, all government borrowing must be grouped together, and then estimated to ensure we don't exceed 3% of GDP(I know France and Germany exceeded this, but they had to, their economies are hardly growing. They need some boast to their economies.)

Could you imagine our finance minister going to Europe, saying how we have economic growth of almost 5 times the european average, but we STILL want to have an expansionary fiscal policy in addition to an already expansionary monetary policy provided by low interest rates! He'd be lynched!

Therefore if Ireland wants to remain competitive, the Government must watch it's spending/borrowing. Too much and inflation will take off again. It's no coincidence that when Charlie McGreevy kept running budget surpluses, our inflaiton rate fell from being twice the european average to being close to the european average, despite a higher economic growth than the average.
Therefore the government need to adjust it's existing spending/borrowing, not increase it, if we want to build more roads! IF we can't do this, then WE HAVE TO ENCOURAGE PRIVATE INDUSTRY TO FILL THE GAP!

Budget 2005(current and capital spending)
Social and Family Affairs €12.2 bn
Health and Children €11.1 bn
Education and Science €6.6 bn
Environment, Heritage, local Government €2.5 bn
Transport €2.1 bn

gjim

Therefore the government need to adjust it's existing spending/borrowing, not increase it, if we want to build more roads! IF we can't do this, then WE HAVE TO ENCOURAGE PRIVATE INDUSTRY TO FILL THE GAP!

This is the sort of "reasoning" to justify PPP but it's flawed at so many levels, it's hard to know where to start. First of all, there's a fundamental difference between borrowing for capital investment and borrowing for expenditure. It's like the difference between getting a mortgage for your house versus raking up tens of thousands on your credit card by going on holidays, eating out and buying fancy clothes. Not differentiating between both types of spending and using the "we need to control government spending" angle is disengenious. It's nonsense to say that the government shouldn't be increasing it's capital spending given the state of the country.

Secondly debt is debt no matter what sort of spin you try to put on it. Anytime you exchange a future stream of revenue or payments (whether income from toll booths or bond coupon payments) you are issuing debt. And the bottom line is that PPP is by far the most expensive way for the government to issue debt. Especially over long time periods, the difference is stark. For example over thirty years, the government would receive almost TWICE the loan by directly issuing debt than it would by raising the money via a private company. This means that if you build a Luas via PPP, you could have built TWO LUASES if the government borrowed money for the SAME money. Apply that to every infrastructure project around (motorways, public transport, schools, hospitals, etc.) and think of the significance; we would only get HALF as much/many of these things if they are built using PPP.

Some of the reasons that they persist with PPP that are immediately obvious:

• At a macro level, government spending is effectively done with no accounting system - aka "cash accounting" or basically just keep a running total of the cheques and cash going out and in. Although some departments and local authorities use proper accounting, many do not so it's impossible to produce proper accounts for the whole of the government. Therefore all sorts of spending both capital and expenditure is mixed up in the one headline figure. Because of this retarded type of accounting, debt issued via PPP (in contrast to cheaper debt issued directly) doesn't appear anywhere and appears as "free" money instead of on a balance sheet.
• I have to believe that the finance minister isn't stupid and understands the cost of finance issue with PPPs. There is no escaping the fact that certain private interests have made fortunes by getting PPP contracts. Read what you will into these two facts.
• Raising finance via PPP allows the government to spend future revenue in advance because it doesn't appear on any balance sheet. The attraction is obvious; FF and the PDs get the political benefit of spending what should be a future government's income. It's like getting a flash car on hire purchase - no money up front and you can impress your neighbours straight away but you'll be paying through the nose for it for years.
• The government can pretend it's the evil europeans who are making us do it even though the 3% of GDP borrowing guideline has effectively been thrown in the bin.
• They can appeal to the economically liberal of us with the idea that because it's a private company, it must be more efficient. However borrowing is the ONE thing that a government can do many times more efficiently than a private company.
• They can appeal to the naive/stupid of us with the argument that we are getting something for "free" - "we're not paying for it - a private company is!".

D'Peoples Voice

gjim wrote:

This is the sort of "reasoning" to justify PPP but it's flawed at so many levels, it's hard to know where to start. First of all, there's a fundamental difference between borrowing for capital investment and borrowing for expenditure. It's like the difference between getting a mortgage for your house versus raking up tens of thousands on your credit card by going on holidays, eating out and buying fancy clothes. Not differentiating between both types of spending and using the "we need to control government spending" angle is disengenious. It's nonsense to say that the government shouldn't be increasing it's capital spending given the state of the country.

Bloody hell, I know the difference between capital and current expenditure. I stated that the expenditure figures included both capital and current expenditure, because this is the total we spend. Knowing the total in the top five or six departments, allows us to look at the way we could improve on how we spend our money, not on the amount of our spending! We can't say, lets borrow more for capital purposes, because it gives a return unlike current expnditure, because the size of our overall borrowing is capped. Well we could increase taxes!

gjim wrote:

Secondly debt is debt no matter what sort of spin you try to put on it. Anytime you exchange a future stream of revenue or payments (whether income from toll booths or bond coupon payments) you are issuing debt. And the bottom line is that PPP is by far the most expensive way for the government to issue debt.

Yes that is the case, but again it comes back to my point, debt is debt, and the government cannot borrow all this debt at once! So it comes down to two choices,build it now with PPP, or the Gov build it when their debt ratio allows them, which could mean that vital projects are delayed longer than they are at the minute :mad:

gjim wrote:

[*] They can appeal to the economically liberal of us with the idea that because it's a private company, it must be more efficient. However borrowing is the ONE thing that a government can do many times more efficiently than a private company.

Like the government did in the seventies and eighties, borrowing efficiently is not something I'd say this Government has a proud history of, the NTMA has bailed them out in recent years.(One only has to look at one government bond maturing in October of this year, has a coupon rate of 12.75%, issued in the eighties(prior to NTMA) at a time of high interest rates, but not not that bloody high, we paid well over the odds)

gjim wrote:

[*] They can appeal to the naive/stupid of us with the argument that we are getting something for "free" - "we're not paying for it - a private company is!".

It's not we who pay, it's the users who pay.This is the only reason that I ever support a tolled road. Why should someone in Donegal, that has been devoid of investment, pay for better roads in Dublin to make our life more comfortable! We might argue that it's in their interests because if Dublin grows, the economy and the rest of the country grows, but that's a very simplistic way to look at it.

ishmael whale

D'Peoples Voice wrote:

Why should someone in Donegal, that has been devoid of investment, pay for better roads in Dublin to make our life more comfortable! We might argue that it's in their interests because if Dublin grows, the economy and the rest of the country grows, but that's a very simplistic way to look at it.

http://www.cso.ie/releasespublications/documents/economy/current/regincome.pdf

Just to be clear, Donegal taxpayers don’t subsidise the Eastern region. The truth is quite the opposite. Page 13 of the publication linked above illustrates this. In 2002 Donegal households paid €386 million in tax but received €495 million in social transfers. Donegal households are, on balance, net recipients of state resources to the tune of €109 million.

By contrast, Dublin households pay €5,474 million in tax and receive €3,939 million in transfers, yielding a net €1,535 million. Mid East Region households (Kildare, Meath, Wicklow) pay €1,759 million in tax and get €1,143 million transfers, yielding a net €616 million.

Overall Irish households pay €15,047 million in tax and receive €13,174 million in social transfers. The surplus of €1,873 million can be largely attributed to the Dublin and Mid East regions combined net contribution of €2,151 million.

It’s a simple – but not simplistic – fact that Dublin and the Mid East region is an income generator for the country. That’s one of the reasons why the East’s massive infrastructure deficit is a matter of national concern.

That’s not to say that road tolling is or isn’t a good idea (although I really can’t see why it’s ever a good idea to hand toll collection over to a private operator.) But I think it’s important to put the issue in its proper context.

D'Peoples Voice

ishmael whale wrote:

http://www.cso.ie/releasespublications/documents/economy/current/regincome.pdf
It’s a simple – but not simplistic – fact that Dublin and the Mid East region is an income generator for the country. That’s one of the reasons why the East’s massive infrastructure deficit is a matter of national concern.

That’s not to say that road tolling is or isn’t a good idea (although I really can’t see why it’s ever a good idea to hand toll collection over to a private operator.) But I think it’s important to put the issue in its proper context.

Ishmael,
I don't disagree with your point, that Dublin gets bad value for money,
but the reason why I said it may be a simplistic way to look at it,
is that some may argue that had previous Government administrations spread the wealth more evenly years ago, cities like Galway,Cork and Limerick may be far more economically advanced than where they are now. Therefore the fact that they are not contributing as much as Dublin, may be a vicious circle. Anyway, I merely want to clarify what I meant above, so hopefully no-one will continue this variant of this thread, and will stay on topic. Although, you could argue that the Government are moving a lot of their investment on transport to the BMW region in preference to Dublin, so perhaps it is on topic!

murphaph

ishmael whale wrote:

http://www.cso.ie/releasespublications/documents/economy/current/regincome.pdf

Just to be clear, Donegal taxpayers don’t subsidise the Eastern region. The truth is quite the opposite. Page 13 of the publication linked above illustrates this. In 2002 Donegal households paid €386 million in tax but received €495 million in social transfers. Donegal households are, on balance, net recipients of state resources to the tune of €109 million.

By contrast, Dublin households pay €5,474 million in tax and receive €3,939 million in transfers, yielding a net €1,535 million. Mid East Region households (Kildare, Meath, Wicklow) pay €1,759 million in tax and get €1,143 million transfers, yielding a net €616 million.

Overall Irish households pay €15,047 million in tax and receive €13,174 million in social transfers. The surplus of €1,873 million can be largely attributed to the Dublin and Mid East regions combined net contribution of €2,151 million.

It’s a simple – but not simplistic – fact that Dublin and the Mid East region is an income generator for the country. That’s one of the reasons why the East’s massive infrastructure deficit is a matter of national concern.

That’s not to say that road tolling is or isn’t a good idea (although I really can’t see why it’s ever a good idea to hand toll collection over to a private operator.) But I think it’s important to put the issue in its proper context.

Excellent post ishmael. We in the East have known for decades that we are ripped off. It's all down to the way we are 'represented' in the Dail. By rights, the Greater Dublin Region should have over one third of all deputies in the Dail, but we don't-the Dail is horrendously biased to favour a rural Ireland which no longer exists as it did at the foundation of the state-back then place like Crumlin and Raheny were fcukin rural! This contrives against other urban centres like metropolitan Cork, which is also screwed by this system.

I'm all for developing national infrastructure but it's quite clear that politicians are afraid to be seen to spend 'too much on Dublin' for fear the largely rural electorate (they have the power because of the bias in representation) booting them out come next election.

I've said it beforeand I'll say it again. Dublin needs a directly elected mayor and the GDR needs to raise taxes itself or else the Dail needs to be reformed to reflect the reality of urban Ireland.

gjim

D'Peoples Voice wrote:

...because the size of our overall borrowing is capped.

See reason 5 in my previous post. This claim is not true; the 3% limit has been de facto dropped and was widely recongised as being a stupid idea to start with.

Yes that is the case, but again it comes back to my point, debt is debt, and the government cannot borrow all this debt at once!

This is untrue and you're just repeating yourself. The government can borrow whatever it wants. Even within the 3% limit there's billions of slack available.

So it comes down to two choices,build it now with PPP, or the Gov build it when their debt ratio allows them, which could mean that vital projects are delayed longer than they are at the minute :mad:

If you assume something false (i.e. that the government cannot issue debt) then you're going to come up with false conclusions.

Like the government did in the seventies and eighties, borrowing efficiently is not something I'd say this Government has a proud history of, the NTMA has bailed them out in recent years.(One only has to look at one government bond maturing in October of this year, has a coupon rate of 12.75%, issued in the eighties(prior to NTMA) at a time of high interest rates, but not not that bloody high, we paid well over the odds)

Thanks for the history lesson (actually interest rates did reach those levels in the eighties). What's the relevence? The government can currently borrow at rates lower than 3%. Raise the same money using PPP and it will cost 8-10%. Why the f*ck would you want to pay TWICE as much money for the same piece of capital infrastructure?

It's not we who pay, it's the users who pay.This is the only reason that I ever support a tolled road.

Another completely irrelevent tack. I'm in favour of tolling roads. The user pays principle has nothing to do with PPP but it seems par for the course for PPP proponents to try to muddy the waters since PPP is indefensible from any sort of financial analysis.

Just to make things clear; your sole argument is that the government cannot borrow and so the only way capital projects in the country can be financed is through PPP? You're prepared to accept this flimsy argument and as a result you think it's o.k. that we as a country will end up paying TWICE as much for our basic infrastructure? Given the option of buying a car using a bank loan at 8% and hire purchase at 18%, you'd go for the hire purchase ('cause you don't want to increase your level of "debt") right?

Like the westlink bridge, with PPP we'll end up with HALF arsed infrastructure. We can afford WORLD CLASS infrastructure and we deserve it. If we waste this chance and end up just lining the pockets of private companies like NTR and bank share-holders it'll be a sickening missed opportunity.

One reason I think PPP suck so much is because I was involved in preparing estimates for a PPP-type deal in another country and I couldn't believe how much extra the organisation were willing to pay in order to avoid asking central government for direct funding. The attraction is based on an accounting trick and nothing more.

Victor

murphaph wrote:

Excellent post ishmael. We in the East have known for decades that we are ripped off. It's all down to the way we are 'represented' in the Dail. By rights, the Greater Dublin Region should have over one third of all deputies in the Dail, but we don't-the Dail is horrendously biased to favour a rural Ireland which no longer exists as it did at the foundation of the state-back then place like Crumlin and Raheny were fcukin rural!

Whatever about Cork, there is little difference in representation between constituencies.

Aidan1

The constituency boundaries were redrawn recently, on the basis of population changes. Its still not wholly representative, but its not as far off the mark as people seem to believe.

you could argue that the Government are moving a lot of their investment on transport to the BMW region in preference to Dublin

Dublin still receives the vast majority of the states spending on transport, particularly public transport. This is as it should be, for the most part, given that at least 40% of the states population live in the GDA. One of the continual whinges coming from the Council for the West/BMW Regional Assembly is the low rate of spend on all NDP projects in the BMW region. They seem to be missing the point that a lot of the time, the money is there to be spent, local authorities, and some state agencies just can't spend it fast enough.

Sorry, off topic question on the CSO document posted by Ishmael.

On page 13, it shows that Limerick runs a slight deficit on tax vs social returns (at 642m vs 662m, it consumes 20m more than it delivers in tax), yet on page 1 it notes that Limerick is one of the few counties with disposable income per head above the state average. Moreover, when it comes to GVA per head, the Mid West falls far behind the South West (at 82.6 vs 131.3% of national average at 2002 prices). Are there transfers going on here that don't show up in the figures that explain this?

ishmael whale

Victor wrote:

Whatever about Cork, there is little difference in representation between constituencies.

Indeed, I’ve a feeling the Constitution prevents constituencies from getting too out of line with population. However the essential point remains. The East’s infrastructure needs are traditionally underprioritised.

The ‘Lookwest.ie’ website states that average commute time in the West is about 20 minutes, and contrasts this to 1 in 7 people in the Dublin area commuting for over an hour.

It notes the West has the highest rate of third level education participation. Apparently 56% of 17-18 year olds in Galway and 55% in Mayo/Sligo go to college compared with 44% nationally. It confirms that average pupil-teacher ratios in Western primary schools are considerably lower than in Dublin/Mid East e.g. an average of about 17 pupils per teacher in Mayo compared with 22 pupils in Kildare.

[ The relevant URLs are:
http://www.lookwest.ie/lookwest/Home/WestLiving/tabid/105/Default.aspx#_Your_Child’s_Education
http://www.lookwest.ie/lookwest/Home/WestLiving/tabid/105/Default.aspx#Less_Time_in_the_Car_–_More_Time_for_You_]

I simply don’t understand how anyone can look at this material and conclude anything other than the West has, in Irish terms, reasonable provision of infrastructure and services. Yet frequently the rhetoric of public debate seems to suggest that Dublin is taking an unfair share of national resources while the West is presented as neglected. It is also sometimes suggested that taxpayers in the regions are subsidising relatively generous services in the capital, when exactly the reverse is the case.

This does not directly impact on whether PPPs are a good way of bridging the infrastructure deficit (although evidence to date suggests they are a very expensive way of funding services.) However, I think it is important to set the issue in its proper context. The West has done well out of past expenditure, so there should be no surprise if the focus of public investment moves East. There seems to be a faint air of lumping PPPs on the East simply because usage levels can be depended on to provide an attractive commercial return to a private investor.

Aidan1 wrote:

Are there transfers going on here that don't show up in the figures that explain this?

Let me first say I don’t really know, but the notes in the publication says:

“Gross Value Added ….. differs from household income in three main respects. Firstly, GVA includes the total profits of companies. Company profits arising in the State, which accrue to non-residents, are considerable. Secondly, the workforce that produces the GVA in a region may not live there and may bring their incomes home to a neighbouring region. Thirdly, personal income includes items such as social welfare benefits and factor incomes from abroad, which are not included in GVA.”

My read of this would be a low GVA, but high income, in a region might be explained by a few factors, including people living in one county but working in another. I’m not sure how this applies in the case you’re point out, but the application to the Mid East’s low GVA and high income seems consistent with people living in those counties working in Dublin.

Aidan1

Thanks Ishmael, sorry to drag the thread OT.

I was guessing along the same lines, but that there is a preponderance of employment in the Mid West that is well paid, but does not add a huge amout of value (ie, not hugely profitable). Hence low tax take from industrial sources. Cost of living probably has an impact on the 'disposable income' also.

On the 'rhetoric of public debate', theres no question but that much of the west has a good PR system; its understandable when you look at the figures in the CSO document, the region depends to such a large degree on state transfers, that the ability to lobby politicians is critical.

To an extent the use of PPPs is obviously ideological rather than practical, they tie in with the idea of user charges, with all of the consequences for inter generational equity etc. Cynically, theres no doubt but that there's also a large element of 'free stuff' involved. Its infrastructure, built now, that the state doesn't have to pay for immediately. Even if it does show up as Govt debt, the fact that user charges help pay for it means that it has little immediate cashflow effects. The system used for the luas seems to make more sense, with the infrastructure owned by the state, but operated by a private company.

ishmael whale

Aidan1 wrote:

On the 'rhetoric of public debate', theres no question but that much of the west has a good PR system; its understandable when you look at the figures in the CSO document, the region depends to such a large degree on state transfers, that the ability to lobby politicians is critical.

Indeed, but an alternative read would be Western development activists should spend more time reflecting on what actions (particularly local actions) might promote meaningful regional development rather than just demanding more resources for any old thing so long as its in the West.

Aidan1 wrote:

The system used for the luas seems to make more sense, with the infrastructure owned by the state, but operated by a private company.

A fair point. The key thing is, indeed, that the Government retains control of the essential assets. Then at least there’s a clear line of accountability if the public start getting a raw deal.

D'Peoples Voice

gjim wrote:

This claim is not true; the 3% limit has been de facto dropped and was widely recongised as being a stupid idea to start with.

In BRUSSELS on March 22, 2005 -- European Union leaders changed the rules underpinning their common currency, meeting German and French demands for more room to spend their way out of economic problems.

The 25 E.U. leaders kept the rule that annual budget deficits may not exceed 3 percent of gross domestic product but gave the 12 nations using the euro more freedom to disregard that limit in special circumstances.

Annual budget deficits and debts are still limited to 3 percent and 60 percent of gross domestic product, respectively. However, there will be escape routes for governments to invoke in instances when they think they should escape sanctions for violating those criteria.
So yes, it may be de-facto removed, but it still requires the Government to justify why they can't increase taxes to pay for such investment, at a time the economy is roaring ahead relative to the rest of the Euro Area.

gjim wrote:

This is untrue and you're just repeating yourself. The government can borrow whatever it wants. Even within the 3% limit there's billions of slack available.

I don't know how much they can, after paying off the Nursing home fiasco(EUR1 bn approx), any new benefits for childcare(god knows!), ongoing cost of investment for people with disabilities(several bn over a few years), etc, etc, at a time when the oil crisis may lead to lower economic growth! Who knows?

gjim wrote:

If you assume something false (i.e. that the government cannot issue debt) then you're going to come up with false conclusions.

It might explain how you came up with your conclusions. If you took your logic the government would borrow billions to meet every need in the country. The fact is, there is a thing called pump-priming as you well know, and the Government don't wish to push up inflation any further than it is. To run budget deficits at a time when according to the central bank, personal borrowing is greater than people's income, is irresponsible. Of course, the Republican government in the US are running with this policy,so why not, grant it, you end up with massive trade deficits, but should in ten years, someone else is in power, so who cares.

gjim wrote:

Thanks for the history lesson (actually interest rates did reach those levels in the eighties). What's the relevence? The government can currently borrow at rates lower than 3%. Raise the same money using PPP and it will cost 8-10%. Why the f*ck would you want to pay TWICE as much money for the same piece of capital infrastructure?

If they can borrow! I'm not against government borrowing, I'm just asking the question, if they can borrow. As i said above, I don't know how much they can after paying off the Nursing home fiasco, etc, etc, but time will tell.

gjim wrote:

Another completely irrelevent tack. I'm in favour of tolling roads.

I'm not in favour of tolling roads, because I believe that someone on a toll road causes as much damage to the environment as someone on any other road. therefore its a form of discrimination against people who have to use that road, and don't have all day to go the backroads! I'm in favour of higher taxes on the price of petrol, hence the more you drive on our roads, the more you pay. And yes this does discrimiate against long distance commuters, but I don't care

gjim wrote:

Just to make things clear; your sole argument is that the government cannot borrow and so the only way capital projects in the country can be financed is through PPP?

No, I believe the government can cut expenditure in other areas or raise taxes. It may have to do this to repay the debt at some stage. Or it may continue to recycle the debt until it respresents so little % of our GDP, it can repay it easily. Just like at present, our debt has changed little in over 15 years, but as a % of GDP it has fallen greatly. Who knows?

gjim wrote:

You're prepared to accept this flimsy argument and as a result you think it's o.k. that we as a country will end up paying TWICE as much for our basic infrastructure?

Of course i don't, but what is the economic cost of dealying projects the Government cannot afford (borrowing or not) to build now. Has anyone built that into the equation. Are there any side-effects of having projects brought forward.
But then we are all entitled to our opinions!

Aidan1

... should spend more time reflecting on what actions (particularly local actions) might promote meaningful regional development rather than just demanding more resources for any old thing so long as its in the West.

I agree, but its sooo much easier just to whinge!

In reality, the current spatial distribution of population in much of Ireland is probably unsustainable in the medium term anyways, as the rate of agglomeration of population (and population growth) around metropolitan centres shows. 'Meaningful regional development' is almost impossible to deliver in rural areas with a low educational base and where capital can achieve a much higher rate of return in urban areas. In a way, these state transfers are a social welfare measure for ailing regions, set just high enough so that services are provided, but not so high as to cost the state too much and impact on economic growth.

And whatever about accountability over the use of resources, its even more important that the state can access contol of these resources/supply distribution systems if something goes wrong or if technological advances mean that developments are required. Eircom being a case in point.

SeanW

AFAIK Ireland is well within its 3% of GNP (or GDP?) deficit limit.

So there is plenty of scope to borrow to invest in public transport. The population is just going to get bigger and the economy and demand for travel is just going to keep growing, but oil is only going to get more expensive and eventually become unviable.

What we need is more trains, expanded DART, more Luas and a proper Metro as well as continuous improvements in the long distance railways. And we don't need to borrow into oblivion to support it.

Metrobest

There's a lot to be said for PPPs in terms of risk avoidance and the added efficieny and impetus private enterprise should bring to a project.

If Ireland had a competent, super-efficient public sector and a world-leading record in big construction projects, there would be a compelling argument againt PPPs. But the public sector is inefficient and the state's record of project management poor. Just think of the DART Upgrade, for example.

SeanW

The DART upgrade has not gone way over anything AFAIK. There were some threatened disruptions but that was caused by stuff IE had little control over, like An Taisce moaning about some decrepit features of old-assed stations, and IE unions looking for a quick payoff.

CIE/IE for their many faults have a record of delivering on time and on budget. Pity the same can't be said for the NRA/RPA, for which 200-300% overruns are commonplace. So when IE says E1.4bn for the Interconnecotor, you can actually believe it.

gjim

There seems to be a lot of confusion about what PPP means. To be fair some of it could be my fault because I haven't pinpointed the aspect of PPPs which are most offensive.

To go through some of the issues raised:

The argument about PPPs has NOTHING to do with the idea of user charges or motorway tolls or anything along these lines. There are PPP projects which DON'T involve the "user pays" idea (schools and hospitals) and there are non-PPP projects which DO involve user charges (e.g. Luas). You can have "user pays" or "everyone pays" independently of whether the infrastructure was financed by PPP or by government. This is a complete red herring.

The argument has NOTHING to do with managing risk. You can include as much risk as you want into the tender invitations. You can include 10 or more years of maintanance in the contract to ensure that the construction company builds the thing properly. You can specify whatever you want in the invitation. Project risk is something that can be managed (or offloaded) independently of how the finance for the project is raised.

The argument has NOTHING to do with public sector incompetence. The worst f*ck up in public infrastructure currently is the Westlink. If you wanted proof that using a PPP doesn't protect us from government/public sector stupidity this is a prime example. The public sector are well capable of f*cking up projects with or without PPP.

The bottom line is simply the money. Given two identical projects; one in which the capital is provided by private interests and another where the government provides the finance but IN ALL OTHER RESPECTS are structured the same, the PPP will end up directly (or indirectly) costing the tax payer approximately twice as much if the deal is structured over 30 years.

Victor

ishmael, on topic please.

gjim wrote:

The argument about PPPs has NOTHING to do with the idea of user charges or motorway tolls or anything along these lines. There are PPP projects which DON'T involve the "user pays" idea (schools and hospitals) and there are non-PPP projects which DO involve user charges (e.g. Luas).

You have a point, but Luas actually does have a lot of PPP input. The RPA have very little input into the day to day running of Luas, driving the trams, revenue protection, maintaining trams, stations, track and ticket machines are all privatised. The construction was a design and build contract.

Metrobest

Support of PPPs is to some extent ideologically-driven. However, one belief which few would disagree with is that on a big construction project private enterprise has more incentive to get the job done than a wholly Government-funded project.

I, for one, would not feel very comfortable with the government taking on huge levels of national debt to finance big projects like metros and interconnectors. When interest rates rise, as they invariably do, debt becomes a noose upon which economies are hung out to dry. A PPP can give a greater degree of certainty and security that a project will cost X Amount to the taxpayer; such security can be worth paying that little bit extra for.

D'Peoples Voice

Metrobest wrote:

Support of PPPs is to some extent ideologically-driven. However, one belief which few would disagree with is that on a big construction project private enterprise has more incentive to get the job done than a wholly Government-funded project.

Apparantly the 2nd westlink bridge was built within a quicker timescale than the new liffey bridge at Queen Street on the quays. which of those was being wholly funded by the Government. that's probably unfair, it may be easier to build a bridge across a huge ravine then across the liffey at the quays, I'm sure maintaining traffic flow was a issue.

Metrobest wrote:

I, for one, would not feel very comfortable with the government taking on huge levels of national debt to finance big projects like metros and interconnectors. When interest rates rise, as they invariably do, debt becomes a noose upon which economies are hung out to dry.

thankfully the NTMA who are in charge of our National debt, are recycling the old more expensive Government Debt,for new bonds being issued bonds using fixed coupon rates/ interest rates of between 4%-5% out to the years 2016/2020. So we won't have to reapy a large part of our debt for another 10/15 years, and in the meantime we are paying low interest rates. It's one fo the few good things Charlie Haughey did was setting them up. THe NTMA even managed to get a very competitve rate on a bond issued on behalf of the RPA.
However up to €5 billion of our National Debt is at floating rates, its made up of An Post financial services products like Saving Certs/bonds, prize bonds etc, so if interest rates go up, it won't be too crippling for the country(€5bn out of €38bn is not too bad).
Also, when borrowing you must remember that if you spend it wisely, ie if it boosts economic growth/development,then debt it not a bad thing, because the country as an asset is growing quicker than it's liabilities/debts.

the problem is borrowing at a time of strong economic growth, could mean an injection of cash into a fast growing economy. This usually leads to high incomes to the recipients of the government expenditure, which feeds into either higher imports or higher prices domestically. any increase in domestic prices leads to demands for higher incomes, etc, etc, that what we had in the late nineties/2000.Or alternatively our currency rate falls because exports fall and imports rise. that's why the EU criticised Charlie mcgreevy for not raising taxes or cutting expenditure to release cash from the economy.Our exchange rate was fixed, therefore we had to suffer a loss of competitveness. This can be far more damaging than a higher national debt. That's why many government wait until they are in recession before borrowing big time, because there is little risk of pushing prices too high, just look at France & germany.

gjim

Victor wrote:

You have a point, but Luas actually does have a lot of PPP input. The RPA have very little input into the day to day running of Luas, driving the trams, revenue protection, maintaining trams, stations, track and ticket machines are all privatised. The construction was a design and build contract.

Yes you could argue that the contract with Connex has PPP-like aspects but strictly speaking it isn't a PPP. The particular aspect of a project undertaken by PPP which distinguishes it from a normal government contract is that raising the capital finance for the project is included in the contract. The government pays back the cost of this aspect of the contract by promising a future stream of revenue.

metrobest wrote:

However, one belief which few would disagree with is that on a big construction project private enterprise has more incentive to get the job done than a wholly Government-funded project.

I see no reason at all why this would be the case. A company being paid a fixed price to complete a project will be JUST as anxious to finish the thing as quickly as possible.

I, for one, would not feel very comfortable with the government taking on huge levels of national debt to finance big projects like metros and interconnectors. When interest rates rise, as they invariably do, debt becomes a noose upon which economies are hung out to dry.

This is, to be blunt, absolute nonsense. Irish government bonds (and nearly all government bonds worldwide with a couple of notable exceptions) have a fixed coupon. The payments DO NOT vary with ECB rates.

In fact, completely contrary to your contention, rising rates would be good in this circumstance as the price of the bonds on the markets would fall giving the NTMA the opportunity, if they wished, to buy the bonds back for less than they got when they issued them.

metrobest wrote:

Support of PPPs is to some extent ideologically-driven. A PPP can give a greater degree of certainty and security that a project will cost X Amount to the taxpayer; such security can be worth paying that little bit extra for.

Again if you're prepared to assume something patently false you can come to whatever conclusion you want. And paying twice as much is not "that little bit extra". Thist is the issue - using a PPP DOUBLES the cost of infrastructure projects.

I'm highly suspicious about your claim about ideology also. I hate PPPs because they are a WASTE of government money.

D'Peoples Voice wrote:

Apparantly the 2nd westlink bridge was built within a quicker timescale than the new liffey bridge at Queen Street on the quays. which of those was being wholly funded by the Government. that's probably unfair, it may be easier to build a bridge across a huge ravine then across the liffey at the quays, I'm sure maintaining traffic flow was a issue.

If it's unfair, why did you raise it? Are you really that desperate for reasons to support PPP? How the hell can you draw any conclusions from the times required to complete two completely different construction projects? It would be like drawing attention to the fact that the speed ramps on my road took a week to put in while the Drogheda bypass - a PPP - took years and concluding that PPP delivers infrastructure at a snails pace.

the problem is borrowing at a time of strong economic growth, could mean an injection of cash into a fast growing economy.

Could you try to stick to arguing the specific points which destinguish PPP from government financed infrastructure projects? I don't want to argue about Keynesian economic theory. The borrowing aspect is irrelevent issue anyway; the issue for economists is the "injection of cash into a fast growing economy" as you say. This injection occurs if the government builds a motorway using PPP or by borrowing and the economic effects are the same. Your argument says nothing about the merits or disadvantages of using PPP.

D'Peoples Voice

gjim wrote:

If it's unfair, why did you raise it? Are you really that desperate for reasons to support PPP? How the hell can you draw any conclusions from the times required to complete two completely different construction projects? It would be like drawing attention to the fact that the speed ramps on my road took a week to put in while the Drogheda bypass - a PPP - took years and concluding that PPP delivers infrastructure at a snails pace.

Clearly if you compare the size of the two bridges, you would see the bigger of the two was built by the private sector in a shorter time period! As someone said earlier, the difference is if a private company go way over budget, they may threaten the viability of the company, and therefore in most cases this does not happen. The same cannot be said for most( not all) government funded projects.

gjim wrote:

This injection occurs if the government builds a motorway using PPP or by borrowing and the economic effects are the same.

As you quite rightly point out earlier, there are two forms of PPP, one where the private company undertakes a project, and receives a ongoing annual income in return, the other where the Government pays them for their work on completion of the project(example in schools, hospitals).
The title of this thread is "Whats the point in using PPPs for road building", therefore we can ignore the second form of PPP which is used for schools and hospitals, because to my knowledge, the only form of PPP used on roads, is where tolls apply. I stand to be corrected though.
So, as my point above was related to the title of this thread, then PPPs do not have the same injection of capital into the economy as government borrowing.
Somethings which come to mind are:

the Company needs to raise equity financing in addition to debt financing, don't know many financial institutions willing to bankroll a company 100%. Therefore their equity financing alone will drain money from other private investors in the economy, any return to the investors is then taxed, a further drain on the economy to the government

the private company must also meet ongoing higher interest payments than the government on their debt, another drain from them to the banks, and the banks in turn then pay tax on their income/profits, yet again a further drain to the government

the private company must pay tax on any toll income/profits, another drain from the economy to the government

the company must continue to maintain the road, these future expenses saves the Government having to borrow more in the future to pay for the upkeep

I'm sure there are plenty more, that I have not included, for the argument either way.

gjim wrote:

Your argument says nothing about the merits or disadvantages of using PPP.

My argument all along has been if the Government won't raise taxes, and we know the economy can absorb higher taxes, or alter it's expenditue patterns, because of political rather than economic reasons, then PPPs are not ALWAYS a bad thing.
People have said that the tolls pay for themselves many times over, because of the traffic on our roads. Therefore PPPs are bad. But the mere fact that we depend on roads so much, is indicative of how poor both our town planning and public transport are. The use of PPP on roads is lucrative for the private investor only because we have not invested enough in public transport to provide an alternative. Therefore letting more PPP build roads and the government using money that previously was going on roads to build public transport, less will travel by roads and roll tolls will fall as more travel by public transport, giving the goverment a greater return on their investment, and less return for PPPs.

Metrobest

gjim wrote:

This is, to be blunt, absolute nonsense. Irish government bonds (and nearly all government bonds worldwide with a couple of notable exceptions) have a fixed coupon. The payments DO NOT vary with ECB rates.
.........
Again if you're prepared to assume something patently false you can come to whatever conclusion you want. And paying twice as much is not "that little bit extra". Thist is the issue - using a PPP DOUBLES the cost of infrastructure projects.

I'm highly suspicious about your claim about ideology also. I hate PPPs because they are a WASTE of government money. .

My point about debt is that the relative cost of servicing a debt can become prohibitive during a downturn in the economy when tax receipts are down and PSB requirement higher. Just look at the slump in debt-plagued Germany and see why it's not a good idea for governements to exceed the EU's national debt guidelines. The mistakes of being saddled with huge govenment debt are well signposted; can we please avoid them? A project wholly funded by the government must shoulder the entirety of the debt risk, not to mention other risks inherent in the construction of big infrastructure. There can be no doubt that involving the private sector as a stakeholder whose financial input is invested in a project,the risk factor for the governement and taxpayers is lessened.

Your claim that PPPs cost "double" that of 100% taxpayer-funded projects sounds to me like SIPTU nonsense. Do you have a set of authoritative facts and figures to back up that assertion, or are you just trying to write one of Pat Rabbitte's speeches?

On roads, in particular, I am in favour of PPPs, not just because the construction is generally done more efficiently and cost-effectively than when the state's paws are all over a project, and most importantly, because the end user is the one who pays the toll. This is perfectly fair: non car drivers should not be expected to fund and subsidise glossy road projects which damage the environment while Dublin is bereft of a metro or any other proper integrated transport system.

Victor

D'Peoples Voice wrote:

Apparantly the 2nd westlink bridge was built within a quicker timescale than the new liffey bridge at Queen Street on the quays. which of those was being wholly funded by the Government. that's probably unfair, it may be easier to build a bridge across a huge ravine then across the liffey at the quays, I'm sure maintaining traffic flow was a issue.

I'd love to see the timelines, but note that the foundations for the Westlink were laid in the 1980s.

DubTony

Victor wrote:

I'd love to see the timelines, but note that the foundations for the Westlink were laid in the 1980s.

Brings up the risk point. They were taking such a "huge risk" back then that they actually borrowed to install foundations for a second bridge at the time. :eek:

Good forward planning I suppose. It seems the banks didn't think it such a huge risk either.

I know nothing of economics, so I'm unable to comment on most of what has been said in this thread. Interesting discussion guys.

gjim

metrobest wrote:

My point about debt is that the relative cost of servicing a debt can become prohibitive during a downturn in the economy when tax receipts are down and PSB requirement higher.

You used a fairly odd way of expressing the point by claiming that repayments would become a burden when interest rates rise. Alternatively you are just trying to wriggle out of your earlier display of ignorance.

Your claim that PPPs cost "double" that of 100% taxpayer-funded projects sounds to me like SIPTU nonsense. Do you have a set of authoritative facts and figures to back up that assertion, or are you just trying to write one of Pat Rabbitte's speeches?

I dunno why it's relevant but your spouting nonsense again; in case you are interested, I'm a card carrying union-hating CAPITALIST PIG. The claim of double is a worst case one but can be derived easily enough given the current market prices for long term government bonds, the typical cost of finance used in private industry and some basic financial functions. The longer the term of the PPP, the worse value you get. Even in the best case, for example, over 15 years, you get about 50% more infrastructure if the project is financed by issuing government debt than if it is financed by private debt. I'm not going to give lessons on basic finance here; you can look up concepts like present value, future value, interest rates and the associated formulae using google.

On roads, in particular, I am in favour of PPPs, not just because the construction is generally done more efficiently and cost-effectively than when the state's paws are all over a project, and most importantly, because the end user is the one who pays the toll.

Could you do us all the pleasure of reading some of the pre-existing messages in the thread instead of just repeating the same unsupported claims over and over? The user pays principle is completely INDEPENDENT of how the infrastructure is financed. Most toll roads in the US are not financed by PPP for example. I've already asked you to explain why you think a company given a fixed price contract to complete a project would be any less anxious to finish the thing on-time. So far you contribution to this debate has demonstrated your ignorance of how government debt works, a completely false presumption about my political views (which have nothing to do with the argument anyway) and endless repeating the same claims which were dealt with much earlier in the thread.

D'Peoples Voice wrote:

Clearly if you compare the size of the two bridges, you would see the bigger of the two was built by the private sector in a shorter time period!

I'm almost certain that both bridges were built by the private sector. Do you have any evidence that this isn't the case? My point was that you cannot take two very different civil engineering projects and draw any sort of conclusions unless it's to support a prejudice.

As someone said earlier, the difference is if a private company go way over budget, they may threaten the viability of the company, and therefore in most cases this does not happen. The same cannot be said for most( not all) government funded projects.

Listen, can we get away from the idea that this is some sort of debate about the efficiency of public sector versus the private sector please? This is not the argument. Nobody is suggesting that the government should hire a bunch of construction workers and buy a bunch of JCBs to build the roads. We can pretty much all accept that, generally and assuming an open and competitive tendering process, the private sector can build, maintain and manage public infrastructure far more efficiently than any public agency. Maybe because this doesn't represent an easy ideological left/right issue (despite metrobest's efforts) here that people seem unable or unwilling to discuss the basic point about PPP; there is ONE thing that the government can do much more efficiently than any private company and that is borrow money. If the government has to pay or hand over a revenue stream (toll booth money) to a private company to borrow money on their behalf then it will cost SIGNIFICANTLY more. It's as simple a question as that of whether you should put debt on your credit card against getting a top up on your mortgage to build an extension to your house. If you can afford to pay 200 a month over five years, using a credit card you'll be able to spend 7.5K on your extension, using a mortgage top up you can spend 24K.

gjim

I dunno what the etiquette is regarding "bumping" threads but todays Irish Times contains a graphic illustration of the financial lunacy (and ultimately the cost to all taxpayers/citizens) of the PPP model of financing public infrastructure projects.

Here are the raw numbers (as presented by the Comptroller and Auditor General):

The government and NTR have shared 310 million in revenue so far.

The state had invested 1.1 billion building the M50 to each side of the West-Link.

The West-Link itself cost 40 million euro to build.

The government will recover 440 million via their share of tolls, rates and corporation tax.

The final cost to the "public" of the West-Link will be in the region of 1.76 billion euro.

That's a great way of doing things. We've avoided the "risk" of simply tendering out the construction of a 40 million euro piece of infrastructure at the ultimate cost of 1.76 billion to the public.

Presumably, PPP proponents think so what? - the 40 million didn't end up in the figures for the goverment debt; some private company picked up the tab. Meanwhile 1.76 billion has been sucked out of the publics' pockets. I suppose the feeling is that it's only public money :mad: so who cares if it get's wasted? Even if they'd sent civil servants off on wheel barrow training courses to build the thing, and the project ended up costing four times as much as it cost NTR to build it, we'd still have saved enough money to build 100km of motorway.

D'Peoples Voice

Just thought I'd argue for argument sake!

gjim wrote:

The government and NTR have shared 310 million in revenue so far.

Excellent, if the government gets money from these toll bridges, it doesn't have to raise as much tax from other areas to pay for their expenditure.

gjim wrote:

The state had invested 1.1 billion building the M50 to each side of the West-Link. The West-Link itself cost 40 million euro to build.

Were these costings discounted to the same time base, I'm sure they did. they'd know that 40 million euro(or it's irish punt equivalent) would buy a lot more pints of beer in Messr Maguires in 1987 than now.

gjim wrote:

The government will recover 440 million via their share of tolls, rates and corporation tax.

Is this to date or does this take into acocunt that the road returns to the government in a few years time ,and they can continue to collect tolls forever!

gjim wrote:

The final cost to the "public" of the West-Link will be in the region of 1.76 billion euro.

In an economy with a GDP of over €150 billion, god knows how much the M50 has helped grow our GDP over the years, you only have to look at many of the satellite towns on the Dublin's west side to get an idea. Hence is it a true 100% cost!

gjim wrote:

That's a great way of doing things. We've avoided the "risk" of simply tendering out the construction of a 40 million euro piece of infrastructure at the ultimate cost of 1.76 billion to the public.

As long as it continues to yield money for the government, it's not wasted, it's simply a way of helping the government finance schools and hospitals on on our behalf. If the government received nothing from the bridge, then that would be a true cost of €1.76 billion to the public, if even that, I'm sure some of that includes money given to the government.

gjim wrote:

I suppose the feeling is that it's only public money :mad: so who cares if it get's wasted?

At last we agree on the same thing, the government are already wasting money, so clearly the crux of the argument is how do we alter government spending not how do we borrow money in the cheapest fashion.

gjim

Sorry, I think you missed the point? Or maybe avoided it because the conclusions are so damning of PPP.

The sums:
1.76 billion (total cost to the public)
- .44 billion (total expected to be recovered to the government)

---

= 1.32 billion (net cost to the country) for a piece of infrastructure that cost 40 million!!!

Even if you adjust the 40 million forward 30 years (which I'm assuming is the length of the westlink concession), it's value is 130 million tops.

So 1.32 billion for something worth 130 million? Where's the 1.1 billion odd gone? Into NTR's f*cking pockets! Remember that this 1.1 billion is in EXCESS of the cost of actually building the thing. This is a scandal of the highest order. This is why NTR want almost half a billion from the government to buy out the remaining half (15 years) of the concession.

I really don't understand your defence of this D'People's Voice? If a government project which delivered a piece of infrastructure worth 140 million ended up going 1.1 billion OVER budget would you be as flippant about it? I'd be highly indignant and I find it very odd that anyone would be prepared to defend this level of wastage. I can only imagine two reasons for defending this arrangement:
a. because of some weirdly misplaced feeling of ideology
b. because of a vested interest.

D'Peoples Voice

gjim wrote:

I really don't understand your defence of this D'People's Voice? If a government project which delivered a piece of infrastructure worth 140 million ended up going 1.1 billion OVER budget would you be as flippant about it? I'd be highly indignant and I find it very odd that anyone would be prepared to defend this level of wastage. I can only imagine two reasons for defending this arrangement:
a. because of some weirdly misplaced feeling of ideology
b. because of a vested interest.

I'm not defending the agreed terms and conditions of the M50 contract, but i agree with it's principle.
As I'm not a vested interest, so I guess then i must have a weirdly misplaced feeling of idealogy as you say, but my attitude is if they can built PPP road schemes in New Jersey/France and they work, then the concept can work.
I can't help but think that people weren't complaining when the East-Link was built, because maybe it earned very little money, relatively speaking. therefore the concept was probably okay then. but now when the company makes a sh1t load of cash on the M50, all hell breaks out, and the concept is dreadful.
I don't know, what was the costings for the East-link and the profits from it. they probably made a lot from it, but it would be interesting to see if the West-link exaggerates the case against PPP.