The Irish PPP market has been a tightly-priced mini version of the UK dominated by the NRA's (National Roads Authority) road programme. The tight pricing continues – but a number of deals have recently been awarded or reached financial close that signal both a diversification in the way Irish PPPs are financed (notably the Limerick conduit deal) and the expansion of the PPP programme into social infrastructure.
In his address at the Second Irish Public Private Partnerships' Forum last April, Ireland's Minister for Finance, Brian Cowen, confirmed his government's continued commitment to PPPs – not just in the transport sector but also in social infrastructure: "The total allocation of capital investment for the next five years is Eu43.5 billion; Eu5.5 billion to be provided for under the PPP/NDFA line. There will also be an additional allocation of over Eu2 billion for PPPs funded by user charges."

PPP going social

The expansion of the programme into social infrastructure is not new, but to date such deals have been rare – the Cork Music School for example. The biggest of the new wave, the new National Conference Centre in Dublin, was awarded to the Spencer Dock International Conference Centre Consortium (SDICC) – led by Treasury Holdings, Harry Crosbie and Iarnrod Eireann – in August. The project will be structured as a 25 year DBFO with total cost estimated at around Eu350-400 million. Although yet to be finalised, mandated lead arrangers, AIB and Depfa are said to have lined up Eu250 million of debt and the deal is expected to close before year-end.

The Courts Service has also come to market with a criminal courts complex, comprising 22 criminal justice buildings with all user facilities. The 25-year DBFOM is expected to become operational in 2009 and Babcock & Brown was appointed as preferred tenderer on the Eu100 million project in May.

And the Irish Prison Service is in the market with a Eu250 million PPP to relocate the Mountjoy prison complex to a greenfield site – Thornton Hall. The project is being procured on behalf of the prison service by NDFA with advisory from Deloitte and Aon. Shortlisted bidders for the project are Babcock & Brown and Laing O'Rourke; BAM PPP Investments Ireland, John Sisk & Son and Serco; Barclays Private Equity and McNamara; and a consortium including Sacyr and Bowen Construction.

The push into social infrastructure PPP is also finding its way into the health sector. The HSE is looking to develop plans for PPPs to design, build, finance, maintain and operate (DBFMO) the National Network for Radio Oncology. The project will comprise four large centres in Cork, Dublin and Galway, as well as satellite centres in Waterford and Limerick. Some 35 linear accelerators are proposed under the national plan. Capital costs for the project could top Eu500 million. The clinical staff will be recruited under public service arrangements and will deliver the public health services. It is predicted that extra capacity will be needed by 2008, with full national capacity expected three years later.

One of the most significant deals in terms of structuring is the 'Schools Bundle PPP' – the first time such a deal has been attempted in Ireland. The Department of Education and Science has packaged up five separate schools projects with a total value of around Eu100 million. The tender started in September and the bidding deadline is November 3. If the scheme proves successful the Department is expected to bring a further Eu250 million project for 23 new post-primary and four primary schools to market.

Tail end roads?

The move into social infrastructure is good news for the PPP market given the pipeline of major toll road deals appears to be coming to an end. Ireland's largest roads' project – the Eu600 million Eurolink-sponsored M3 Clonee-Kells – is expected to close before the end of the year having been held up in a dispute over archeology. And the project that will draw to a close Tranche II of the NRA's PPP roads programme is expected to be mandated next month. The Eu250 million N7 Portlaoise–Cullahill and the N8 Portlaoise–Castletow will be combined as a single scheme. Originally announced in June 2000, tenders for the 40km stretch are currently under evaluation.

The NRA's scheme has been successful but largely vanilla funded by bank debt. Nevertheless, in August an Irish road was the focus of the first conduit deal for a PPP project anywhere – the HBoS-arranged Limerick Tunnel PPP. The fact that Ireland has never even seen an infrastructure-related bond makes the deal even more remarkable.

Launched in April 2004, the Eu258 million project took a long time to get to the table, having first been announced in 1999. The project – which comprises 10km of standard dual carriageway and a 900m immersed tube tunnel under the River Shannon – is procured under a fixed-price design, build, finance and operate (DBFO) contract.

With the NRA basing its PPP programme on the UK Highways Agency model, certain adjustments had to be made to allow for real toll revenues. Moreover, investors needed to accept the notion of traffic risk, rather than the UK availability-based structure.

Sponsored by DirectRoute – a consortium comprising Strabag (40%), John Sisk & Son (20%), Lagan Holdings (20%) and Roadbridge (20%) – the financing comprises Eu143.5 million of senior conduit debt and a Eu97.6 EIB loan, both of which were wrapped to triple-A by MBIA, along with Eu18 million in mezzanine provided by AIB and Meridian. The overall tenor on the deal is 34 years leaving a two-year tail on the 36-year concession.

The senior debt, including a Eu41 million bridge loan, is structured through HBoS Treasury Services administered CP conduit Landale Asset Purchasing Company No. 3. The structure allows DirectRoute to issue privately placed notes to the conduit, which, in turn, borrows from the short-term commercial paper market and lends the proceeds back to the sponsor.

The potential mismatch between long-term financing and short-term CP market is overcome by a matching liquidity line from HBoS – a fact reflected by A1-plus and P1 short-term ratings from S&P and Moody's respectively. If the CP market becomes expensive the liquidity line kicks in and the conduit can, if need be, pay off investors.

Although the tenor on the debt is nearly ten years longer than previous Irish road deals, the pricing came in at below 50bp.

Whether this form of capital markets' solution will become the rule rather than the exception, remains to be seen. "Various bidders on road deals have looked at bond structures. However, one of the reasons that they have not been implemented more often has been the fairly aggressive timetabling of these deals," says Eamonn Conlon, partner at A & L Goodbody in Dublin.

And some bankers remain unsure as to whether there is enough juice in these transactions to make them worthwhile. "When you look at conduit financing, you've got to ask yourself what advantages are there for funding costs? Recent conduit structures have combined relatively low cost of funding with the flexibility of banking products. But the funding solution alone might not give you a significant competitive edge" says Christian Kummert, managing director at Depfa.

The only other deal currently in the Irish market that might take the bond route is the M50 upgrade. Five consortia – which include BAM Sisk Strabag Consortium (BAM PPP Investments, John Sisk & Son (Holdings) Ltd and Strabag AG), EuroLink M50 Consortium (SIAC Consortium Ltd and Ferrovial Agroman S.A.), Hibernia Roads (Acciona S.A., Mota-Engil SGPS S.A., Mota-Engil Engenharia E Construccao S.A., Michael McNamara & Co, Banco Espirito Santo S.A. and Coffey Construction Ltd Coffey Plant Limited), ICON (FCC Construccion S.A., ITINERE Infraestructuras S.A. and P.J Hegarty) and Irish Mobility Group (Dragados Concesiones de Infraestructuras and Dragados, S.A.) were shortlisted in late June. The project was expected to be awarded in early December, though the tight deadline may carry it over into January 2007.

Once the NRA's current road programme comes to an end, a further programme is expected to come on stream. But the end is in sight in relation to tolling schemes, with the NRA expected to look at availability payment for smaller road deals.

Dublin Metro

Despite the roads sector shrinkage, the transport emphasis in Irish PPP is not dying – just switching to track. Estimated at Eu2-3 billion, the Dublin Metro North project is expected to dominate Ireland's PPP market next year.

The original plans for the project date back to 2002, when the Irish government mandated the Railway Procurement Agency (RPA) to develop proposals for delivering the system. However, the project was delayed when the government weighed up the cost benefit of the project.

According to one Dublin-based banker, "There are a number of issues in play. One is whether any section of the metro will be underground, and another is the expected capital cost. It is as yet unclear as to whether the project will include rolling stock. We expect it to be nearer Eu2 billion than Eu4 billion. What is certain is that the government does not want the deal on its balance sheet. This project will definitely be a PPP."

Since the project was launched in March, the RPA has received a large response for selecting the best route. The RPA is now considering a combination of the East and Central route involving an underground section from Drumcondra to DCU, as well as replacing the Trinity and Upper O'Connell St. stations on the Central Route.

The 16km Metro North rail-line will connect the Fingal County town of Swords to Dublin City centre, serving Dublin Airport. Metro North, which will carry 30 million passengers each year, is expected to come into service in 2012, though this is contingent on the RPA's Railway Order being approved in 2008. KPMG has been appointed lead adviser to the RPA.

With the project expected to kick off by mid-2007, it is too early to say how the deal will be financed. In light of Limerick's successful conduit financing, there are rumours that some bankers will be look to tap the bond markets. Others believe that the need for capital markets' funding just isn't there. n