The Minister for Finance says he shares the frustrations at the difficulties in getting the private-public partnership programme off the blocks, writesCliff Taylor, Economics Editor.

The private sector is frustrated with the pace at which the private-public partnership (PPP) programme is moving. However, public sector concerns remain about getting value for money - and about the extent to which such projects can be removed from the Government's borrowing.

The private sector believes that the process has not had full backing from the Government and the Civil Service.

But at a conference in Dublin yesterday, organised by Public Affairs Ireland, the Minister for Finance, Mr McCreevy, insisted that PPPs did have political support. He said he shared "the frustration" at the difficulties and delays in getting the process under way. However, the private sector must understand the need to put in place an appropriate framework and evaluation of PPPs.

Addressing the perception that his Department was not fully supportive of PPPs, he said that the process had his full support and that the Department cannot be blamed all the time. It was also up to other agencies and State bodies to come forward with projects, he said.

Dr Michael Somers, chief executive of the National Treasury Management Agency (NTMA), highlighted two of the central issues from the State's viewpoint. Equity investors in PPP projects would look for returns of up to 15 per cent, he said, and with the State capable of borrowing money directly at 4.5 per cent, a significant transfer of risk to the private sector was needed to justify the additional funding cost.

The other attraction for the Government would be if the projects could be moved off the State's balance sheet for the purposes of calculating EU borrowing. Under the rules of the EU Stability and Growth Pact, the State is limited to a general government borrowing (GGB) limit of 3 per cent of GDP. But in some PPP cases - where sufficient risk is transferred to the private sector - the State borrowing involved would not count towards the GGB.

While this would allow the Government more leeway to spend on infrastructure in the Budget, Dr Somers said he believed that the conditions for moving projects off the balance sheet were very strict and would generally involve projects involving tolls, mainly roads.

The National Development Finance Agency, which is part of the NTMA, advises State bodies on infrastructure funding.

However, Mr Michael Tutty, vice-president of the European Investment Bank, told the conference that projects need not necessarily involve tolls to be disregarded for EU borrowing purposes. What was essential was the transfer of risk to the private sector, he said. Provided that this was sufficient, Eurostat could approve the removal of the associated State borrowing from the GGB. Not only tolls but also arrangements using leases and other instruments might qualify, he said.

The conference heard the results of a survey of IBEC's 50-person PPP council, which showed that 94 per cent believed that progress in the PPP areas was either "poor" or "very poor".

The main concerns were the flow of deals, uncertainty about the process and a perception that PPPs lacked adequate public sector resources and political support.

The road programme was seen as the main area of progress.

Mr Jim Barry, chairman of the council and chief executive of infrastructure firm NTR, said that the choice was between allowing the PPP programme to "hobble along" or building a real understanding between the public and private sectors about how projects would operate and allowing PPPs to make a significant contribution.

This view was echoed by Mr Aidan Walsh, senior partner at PricewaterhouseCoopers, who said that "a transparent process" was needed to show that PPPs can also deliver value for money in the Republic.

"Otherwise we are at risk of losing PPP as a procurement approach, given the confidence crisis that currently exists in the process and that the private sector is particularly disillusioned with the lack of progress in terms of deal flow, the cost of bidding, and length of the approval process," he said.

This frustration would lead the international players to look elsewhere, he warned. The approval process was long drawn out, he added and needed to be rationalised.

The conference ended with a warning from Goodbody's head of research, Mr Colin Hunt, that PPPs were the only way to deliver the kind of infrastructure improvements needed by the economy. If this is to happen, however, the potential public and private partners still appear to have some talking to do.