THE Cabinet is to approve a number of pilot projects which would be suitable for joint venture investment by the public and private sectors when it returns from its Easter break. The projects are expected to include the Dublin eastern bypass relief road, a major sewerage project in Cork and several school projects.

The move will pave the way for a series of private sector investments in Government buildings and schemes and will help to soften the impact of EU funding cutbacks. It is understood that the first projects could be put out to tender by the end of this year.

The schemes are known as Public Private Partnerships (PPPs) and although used extensively in Britain, they are relatively new in the Republic. The schemes are expected to receive major Government backing since last weekend's confirmation that EU structural and cohesion funding had been cut back by almost 60 per cent.

Cohesion funding, which will cease in 2003 and will amount to £390 million (#495 million) until then, was used mainly for road-building in the Republic. Over the past six years, Ireland was getting around £190 million per annum from this fund.

Structural funding is also used for roads and other infrastructural projects and has been severely curtailed. Total structural and cohesion funding over the period will be about £3 billion.

The ESRI, in its document National Investment Priorities 2000-2006, published last month, stressed the importance of investing in infrastructure and forecast that £50 billion was needed in this area over the period.

Mr Peter Brennan, IBEC's representative in Brussels, told The Irish Times that the Government's capital expenditure programme will run at about £2.2 billion per annum over six years, totalling around £15 billion.

"The figure for current expenditure would be broadly similar," he said.

However, even when adding these figures to the EU funding of £3 billion, it leaves a considerable shortfall, he pointed out.

Mr Brennan, who worked on a previous report on PPPs, says the private sector has a major role to play in operating these schemes. He says IBEC will be putting forward a new submission to Government on the issue, to try to add more impetus to the process.

"The pilot projects are fine, but we will be asking whether we need to ramp up the process, in the light of the EU funding cutbacks," he says.

Mr Brennan says IBEC and the Construction Industry Federation (CIF) will be drawing up a list of suitable projects and encouraging the Government to try to "fast-track" the planning process. It is also thought that new enabling legislation to give effect to such projects will have to be introduced.

Both the Minister for Finance, Mr McCreevy, and the Taoiseach, Mr Ahern, are on record as supporting PPPs and stressing that they will have an important role to play. A unit to co-ordinate the projects has been established in the Department of Finance. The unit was set up on foot of recommendations set out in a report submitted to, and approved by, the Government last August. It was co-authored by Mr Liam Hennessy, of Farrell Grant Sparks, and Goodbody Economic Consultants and Chesterston Consulting.

Mr Hennessy says he believes whatever projects are identified by the Government will prove very attractive to private investors.

Politicians are in favour of PPPs, he adds, because they see them as a way of delivering services quickly to their constituents.

It is understood that once the Cabinet identifies suitable projects, detailed criteria will be drawn up and the schemes put out to tender.

However, there is a feeling among some interested parties that although politicians are enthusiastic, some Government officials are a little more cautious. Mr Brennan says this may be so but it is understandable because PPPs are a relatively new concept. PPPs can work in a variety of ways. The private sector can design, build and operate the project, - for example a hospital, toll road or perhaps a prison, for a specified period of years, often 25. They receive an annual "rent" from the Exchequer and when the 25 years elapses the property reverts to the Exchequer.

Specific performance clauses are included in the contract and if the private sector fails to deliver on them, the project reverts to the Government. Depending on the project, parties involved can include the contractor, a bank or investment fund and other interests who operate the facility.

Mr Kevin Feeney, a solicitor who is director of law firm A & L Goodbody's PPP unit, says one of the great advantages of PPPs is that Government or local authorities know exactly what they have to outlay on each project every year. They can effectively "ring-fence" their expenditure, he says, nor do they have a heavy initial capital outlay.

Mr Feeney worked for several years with leading London law firm Linklaters, which has extensive experience in PPPs, or Private Finance Initiatives (PFIs) as they are known there. "It is providing value for money for the UK government," he says, "otherwise they wouldn't be following it."

The Labour government acted quickly on private sector initiatives when it assumed power in 1997, much to many observers' surprise, establishing a Treasury taskforce just four months later. It drew up detailed guidelines for drafting contracts between the public and private sectors. Mr Feeney says it helped eradicate the scenario where both parties could end up in the middle of a contract substantially renegotiating that contract. "They formed a view on how the risk should be carved up between both parties," he says.

Mr Brennan believes it is only a matter of time before a private equity fund is established in the Republic to cater specifically for PPPs. "There is no shortage of expertise within the private sector and the banks and financial institutions are very willing to contribute," he says.

Mr Feeney says the British experience has shown PPPs to provide good value for money. It has provoked keen competition among the lending institutions, with banks and others offering financing at rates which even the government would find hard to match.

"The key to the project is value for money," he says, although this does not always mean completing a project at the cheapest price.

Both Mr Feeney and Mr Hennessy believe Ireland can learn much from the British experience. Mr Hennessy says that in his report to the Government, it was suggested that strategic alliances could be built between Irish and British project advisers.

Mr Feeney says Ireland has an advantage - it can avoid the teething problems Britain had. "We can use a risk matrix that is bankable," he says. "The Irish Sea will not prove a barrier [to British firms seeking to become involved in projects] and it will improve competition. It is not something to be feared and will offer value for money for the public."