I INTRODUCTION Project finance is a well understood and widely used model for carrying out infrastructure projects in Ireland across all sectors including health, education, roads, rail, waste, water, IT and energy.
Public-private partnerships (PPPs) are the most widely used model of project finance in Ireland. The government set up the National Development Finance Agency (NDFA) in 2006 to procure all infrastructure projects with a capital value in excess of 30 million. The NDFA procures all PPP projects other than in the transport and water sectors.
Roads projects are carried out by the National Roads Authority (NRA) and rail projects are carried out by the Railway Procurement Agency or by Iarnród Éireann.
Project finance is also widely used in the energy sector, particularly on renewable energy projects such as wind farms. This is not the PPP model but is a very typical structure where finance is secured by way of a power purchase agreement.
II THE YEAR IN REVIEW Ireland has gone through a deep recession in recent years and has correspondingly seen the number of construction and project transactions diminish. Banks are not lending and the government has cut back its capital spending as part of the austerity package agreed with the International Monetary Fund (IMF) and European Central Bank (ECB). Indeed, as part of the government's deficit reduction programme of the past four years, a number of PPPs were no longer affordable and were stopped: the government office 'decentralisation' programme; the major prison relocation and expansion project; the third level institutions PPP programme; and the Dublin Metro and Underground Rail Link, to name a few.
Residential construction has been the biggest area of decline. Large commercial projects and infrastructure projects are still being developed, but at a slower pace (N11 Roads Contract - financial close in April 2013).
Banks are still lending for 25-year periods in the more straightforward PPP projects such as schools projects (Schools Bundle 3, November 2012) and Justice projects (Courthouse developments and 3 Divisional Garda Head Quarters developments), but long-term finance is harder to secure for more risky projects. For example, a large number of roads PPP projects were carried out in the past decade on the basis of the user-pays PPP model, but banks will not now take a risk on traffic forecasts, and the NRA is currently developing PPP projects using the availability PPP model.