Given the amount of time and energy that has been expended on Ireland's Public Private Partnership (PPP) programme, you could be forgiven for thinking that the list of completed deals must run to a couple of pages of A4. It doesn't. Just one PPP transaction has been closed in Ireland to date ? the 25-year Eu68 million concession to redevelop a group of five schools in Cork, Monaghan, Clare and Sligo. But the list of proposed projects does run to several pages, and experts now predict that the country should see at least two or three deals closing each year going forward.

The development of PPP projects in Ireland is important from a foreign sponsor's perspective since such deals present large-scale opportunities for investment. Ireland has experienced no shortage of interest in other sectors in the past but the government's hugely ambitious programme of infrastructure investment ? particularly in roads ? will generate substantial interest from overseas private financiers and contractors. ?PPP has been a good catalyst for FDI,? says Eamonn Conlon, partner specialising in infrastructure and projects at law firm Masons in Dublin. ?You just have to look at the many foreign names in the sponsor and financing consortia.? The country's National Roads Authority (NRA) spent Eu622 million on improving the road network in 2000, a figure which rose to Eu787 million in 2001. The National Development Plan (NDP) for 2000-2006 details 24 major new road projects (together with 20 due for completion).

This represents a huge investment. ?Ireland's problems in 2000 were largely infrastructural and the key deficiency was roads,? explains Reg McCabe, director of the PPP Unit at the Irish Business and Employers Confederation (IBEC). He explains that the government essentially had two choices as to how to address the problem: the old policy of sequential investment or to tackle all the required upgrades in one go. They chose the latter. ?This represented a huge draw on the exchequer and the government was therefore looking to raise a substantial part of this investment from the private sector.? Although there were clear budgetary considerations, Ireland is unusual in that PPP was launched into an environment of substantial government surplus and by an administration that had several other sources of funding to choose from: namely the Cohesion Fund and the European Regional Development Fund. ?The government may have had surpluses two years ago but in reality they knew they were going to need capital,? reckons Cathy Bryce, senior manager in the special finance unit at AIB in Dublin.

?PPP was rolled out in an environment where the government wasn't short of cash and the local construction industry was not dependent on infrastructure as the only game in town,? says Conlon, noting that the situation has changed substantially in the intervening two years. But he explains that unlike some other countries where PPP has been widely used, interest in getting off-balance sheet finance was not a key driver for the Irish government in its adoption of PPP. What does seem to have been the key driver was access to private sector expertise and speed. ?Speed and deliverability were of key importance,? says Morton Corbett, senior development director at Jarvis Projects ? a division of UK construction firm Jarvis, which is the contractor on the bundled schools project and is preferred bidder on another schools deal ? the Eu56 million Cork Music School redevelopment. ?PPP was not adopted as a means to get PSBR down it was a means to address the huge infrastructure deficit in the country.?

Ireland's infrastructure requirement
by sector (2000)Transport I£5.5bn (Eu**)Environment I£3.5bnEnergy I£2.5bnEducation I£2bnTelecommunications I£1bnSource: IBECTo say that the government embraced the PPP concept with gusto is something of an understatement if the list of proposed projects is anything to go by. The scheme was launched in 1999 with a series of pilot projects, the lion's share of which were in the road sector (see chart). Others were in waste and schools. ?This was a key difference between the way PFI projects were selected in the UK,? explains Aidan Walsh at PricewaterhouseCoopers in Dublin. ?There was no need to PFI-test the project, the government simply nominated projects as pilot projects.? This decision was made on the basis of the ability to attract market revenues and accelerate the country's infrastructure development programme ? speed being, again, of the essence. A look at the website of the NDP today reveals three schools projects, 28 in local services, three in public transport, 18 in roads, 29 in solid waste, water and waste water and 4 ?others?. ?PPP in Ireland may have been slow to start but it has started with a bang,? observes Conlon at Masons.Initial pilot PPP projects identified in 1999SchoolsCork School of Music (Eu56 million)Five Grouped Schools (Eu68 million)

Public Transport
LUAS Operation Line A&B

Roads
M50 Second Westlink Bridge (Eu21.5 million)N25 Waterford Bypass (Eu125 million ? Eu250 million)N4 Kilcock to Kinnegad motorway (Eu250 million ? Eu350 million)N7 Western River Crossing (Eu125 million ? Eu250 million)

Solid Waste
Dublin Thermal Treatment Plant (Eu125 million ? Eu250 million)Source: NDPBut, as mentioned, just one of these projects has actually closed. This is the design, build, operate and finance (DBOF) deal for the five grouped schools. Under this contract the company will redevelop the schools on a 25-year concession and will also be responsible for a range of facilities management services, including building maintenance, cleaning security, ground maintenance and IT and communications support. Jarvis' other school project, the Cork Music School, is due to reach financial close in the near future. Jarvis has a strong track record in PPP in the UK and was therefore a real contender for the mandate. It has signed 13 separate schools PFI contracts in the UK covering 54 schools. But what is it about the Irish framework that brings sponsors to the PPP programme? ?Essentially, the way these deals work is the same wherever they are,? concedes Corbett at Jarvis Projects. This is because the concession is awarded by the local authority and the mechanics of the transactions work in pretty much the same way. ?What is important is the country's commitment to the [PPP] process,? he explains. ?This factors largely in the decision.? The company needs to know that the government supervising the concession programme is 100% committed to the PPP process when signing up for 25-year to 30-year concessions. ?Our investment is recovered annually [through unitary charges] but at the end of the day we do not have any security on the land or property ? it all reverts back to the authority,? says Corbett. Then there are the two main risks that the company takes on with a PPP project. The first of these is maintenance risk ? which would normally be borne by the tenant ? and the second is the non-core service risk. The costs of non-core services (cleaning, etc) are regularly recalibrated every five years or so and are therefore closely linked to inflation. Thus, if the project is located in a high-inflation location, the risk that non-core costs could rise significantly is a very real one.For this reason, Jarvis tends to keep a high percentage of its project costs as building costs ? which are only part-linked to inflation. ?We like to keep around 70% of the investment in the building,? explains Corbett. He reckons that the threshold for investment is around Eu20 million and thus there is a strong incentive to bundle projects ? as was the case with the schools deal. Funding for this project has been arranged by Jarvis' project finance arm David Wylde Project Finance and provided by Barclays Infrastructure Fund and Barclays Bank. There is one further schools project, the establishment of a National Maritime College. Preferred bidder for this Eu38 million DBOF project has yet to be announced. But while all the action so far has been in the schools sector, once the road deals get underway that is where the focus of the PPP programme will remain. So far four road deals have reached the shortlisted bidder stage. They are: the N4/N6 Kilcock to Kinnegad motorway; the N25 Waterford Bypass; the Dundalk Western Bypass and the N8 Rathcormac to Fermoy Bypass (see chart for shortlisted bidders).NRA roads programme shortlisted biddersN4/N6 Kilcock to Kinnegad motorway (capital cost Eu250 million ? Eu350 million)Celtic Roads Group (National Toll Roads, HBG Ascon, Edmund Nuttal, Grupo Dragados)Direct Route (Halliburton Brown & Root, Strabag AG, Jon Sisk & Son, Lagan Holdings, Roadbridge (Mulcair))Erin Route (Carillion, Balfour Beatty, Egis, WS Atkins)Sli Nua ? SIAC (Cintra SA, Siac Construction, Ferrovial)

N25 Waterford Bypass (Eu125 million ? Eu250 million)
Celtic Roads Group (National Toll Roads, HBG Ascon, Edmund Nuttal, Grupo Dragados)Erin Route (Carillion Private Finance, Balfour Beatty Capital Projects, Egis Projects SA, WS Atkins Investments)Vinci ? Hegarty (Vinci, PJ Hegarty & Sons)Sli Nua ? Morrison (NCC AB, O'Rourke & Sons, Barclays Private Equity, Intertoll Management Services, Halcrow Group)

Dundalk Western Bypass
Celtic Roads Group (National Toll Roads, HBG Ascon, Edmund Nuttal, Grupo Dragados)Euro Route (Bilfinger Berger, GRAHAM, WSP Group)Sli Nua ? O'Rourke (Barclays Private Equity, AWG Project Investments, NCC AB, O'Rourke & Sons, Intertoll Management Services, Halcrow Group)Sli Nua ? SIAC (Cintra SA, SIAC Construction)

N8 Rathcormac to Fermoy Bypass
Direct Route (Halliburton Brown & Root, Strabag AG, Jon Sisk & Son, Lagan Holdings, Roadbridge (Mulcair))Erin Route (Carillion Private Finance, Balfour Beatty Capital Projects, Egis Projects SA, WS Atkins Investments)Togher Toll (Mota-Engil SGPS SA, Mota & Companhia SA, Engil Sociedade de Construcao Civil SA, Acciona SA, Banco Espirito Santo SA, Coffey Construction, Priority Construction)Source: NRAAside from these four projects, the NRA has another 16 road projects in the pipeline so the market is likely to be awash with NRA PPP deals for some time to come. It is not surprising that the list of shortlisted bidders involves a number of Iberian players as Spain and Portugal have led the field in PPP toll road projects in Europe. But there is an important difference between Ireland's proposed road deals and those that have been completed in Spain and Portugal: Ireland is planning to use hard tolls as opposed to the shadow tolls that have been used elsewhere. This in itself is quite a radical policy as it runs the risk of a) alienating the public by making them have to pay for road usage and b) alienating the finance community by making them have to take usage risk.So why has this course been chosen? Reg McCabe at IBEC reckons that risk a) is negligible. ?The NRA conducted a poll in the summer which showed that 52% of motorists favour tolling,? he says, explaining that the decision to use hard tolls was only taken after extensive consultation and was really a matter of affordability. But what about risk b)? ?These deals are harder to finance as hard tolls. It is riskier,? says Bryce at AIB in Dublin. ?The banks would prefer them as shadow tolls but there is nevertheless a good level of interest in these deals.? And not all revenues from the roads will derive from the tolls. There is a mix of grants, hard tolls and availability payments (from the NRA) for each route and the risk that the investor is exposed to depends on that mix. For roads where relatively low traffic volume is anticipated the availability payment will be relatively high. An example of this is the Waterford Bypass where the mix of availability payment and tolls is expected to be around 50/50. However, for roads where high traffic volumes are expected the level of toll risk will be higher. Revenue from the N4/N6 Kilcock to Kinnegad motorway is expected to be 80% tolls. Given that the road concessions will run for up to 30 years that is an important consideration for any investor. Bryce at AIB explains that the hard toll nature of the roads means that they will almost definitely be financed through the bank market rather than investigating other options such as project bonds. Aside from the tolling issue the projects should be fairly straightforward. One interesting feature, however, is that for the Dundalk Western Bypass the maintenance contract under the PPP concession covers both the toll (20km) and non-toll (50km) sections of the road.Away from the road and school sectors, the types of projects that have been put forward in the NDP become more mixed, with many being quasi-PPP. One of the most active sectors is the water and waste water sector with a string of 28 design, build and operate (DBO) projects planned ? but these will not entail the use of private finance. The largest of these has been the Eu168 million Ringsend Treatment Works project which involves the upgrade of the existing treatment works, the construction of a new pumping station and the laying of a submarine pipeline across Dublin Bay. The contract was awarded to ABA Construction in 1999. One sector that will involve private finance and is likely to be a rich source of deals is public transport.Public transportThe pilot PPP scheme in this sector was the LUAS Operation Line A&B project which was conceived in the early 1990s. This involves additional light rail lines to link up with or extend the LUAS system currently being developed. These include an extension of Line A of the LUAS into the Docklands, a new north-south line from Ballymun via the city centre to Dundrum, and a new east-west line from Lucan via Ballyfermot to the city centre. The project will not involve private finance and the concession to run the lines was awarded to Connex on a five-year extendible basis on February 28 this year. But the main interest in this sector will be generated by the much-anticipated project to develop a new metro system for Dublin. This Eu2.5 billion project is being managed by the new Rail Procurement Agency (established at the end of December last year) and will see 70km of metro built in two stages. 12km to 14km of the system will be underground. Phase one will see a line from Dublin Airport to the city center and Shaganagh with a spur to Blanchardstown. Phase two will see this spur extended southwards through Clondalkin and Tallaght back to the city center. As part of the scheme the LUAS line will be upgraded to metro status. This is the reason that the Connex franchise on this line is relatively short at just five years (short franchises have been a source of much dissatisfaction on the UK rail network). The metro will be the largest infrastructure project ever undertaken by the Irish state and will be the acid test for PPP in the country. The bidding group is likely to include all the big names in the field with rolling stock, track and tunneling mandates up for grabs. NMI Contractors (part of the Nishimahtsu Group) was awarded the Eu448 million contract for a design-and-build (DB) project to build the Dublin Port Access Tunnel in 2000 and therefore may be a likely contender for the tunneling contract.This high-profile metro deal inevitably begs comparison with the the proposed PPP financing of London's underground network. Endless political squabbling has delayed the much-needed investment in London's Tube and provoked a furious debate in the UK press about the merits or otherwise of the PPP concept. Despite the fact that a large percentage of Ireland's population read the UK press and watch UK TV the dispute has yet, however, to spill over into Ireland's PPP environment. But there is every chance that it will ? especially given the fact that many UK Trade Unions (who have been vociferous opponents of the scheme) have commonality of membership in Ireland. ?I don't think that we should be too concerned about it,? says Reg McCabe at IBEC. ?There are very close links with UK trades unions but the general public wants good services and value for money. We are working hard to try to get positive information about PPP into the media.? Union angstBut Ireland's trade unions have already successfully flexed their muscle in the fledgling PPP market ? delaying all four of the shortlisted roads projects. The dispute was over the prices that the government was willing to pay for land acquisitions for the new motorways and was brought by the Irish Farmers Union. ?This was a very significant standoff, and involved deferral of the survey work on all four projects,? explains Walsh at PwC. The dispute has, however, now been resolved in the farmers' favour. But it is not only the road deals that have come up against opposition. Jarvis' redevelopment of the Cork Music School ran into problems after a national heritage group called Antaisce opposed the scheme as it was ?not in accordance with the principles of sustainable development.? The objection was that the demolished 1950s concrete building could not be disposed of in landfill. ?This was a completely spurious objection,? remarks one industry observer, ?but I think the planning appeals board realised this and fast-tracked throwing it out.? The bundled schools should be up and running by April 2004 and the Cork School of Music by February 2004.After the close of the two schools projects the next deal to reach preferred bidder stage is the N4/N6 Kilcock to Kinnegad motorway. Tenders closed in mid-February and a decision is expected in April. Finding finance for the sizeable (Eu250 million to Eu350 million) project will provide a clear indication of the market for these deals. ?There is massive appetite from the financial community for these projects,? says Eamonn Conlon at Masons. ?The level of appetite is being reflected in the terms being offered.? The country could also benefit from a slowdown in activity elsewhere in Europe (and especially the UK) with the result that there are fewer deals for people to chase. But even given this relatively favourable financing environment the question is whether the entire NDP PPP schedule, hatched in an atmosphere of frenetic economic growth, is simply too ambitious now that growth in Ireland and the OECD has eased.?The question of whether the programme can continue along the ambitious lines that they set is an important one going forward,? concedes Cathy Bryce at AIB. As is the question of where cuts will be made if this becomes necessary. One point on which all are agreed is that the roads programme will continue unaltered. ?The government is fully committed to this programme,? says McCabe ? this despite some criticism that some of the development far overreaches the traffic levels forecast. ?I don't get a sense of overcapacity,? says Bryce. ?The fact that the roads will not be heavily trafficked does not mean that they are not needed.? But some trimming may not go amiss. ?Suggestions of overcapacity are certainly not fair comment for the four shortlisted road projects but it may be a fair accusation for some sections of the radial inter-city network,? notes Walsh at PwC. ?But those sections are not part of the infrastructure plan yet.?