New rules that would give the Government much more latitude to plan investment programmes while staying within EU borrowing limits are set to be announced by Eurostat tomorrow.
The new rules would change the way that public-private partnerships (PPPs) are counted towards borrowing by the EU and will increase the pressure on the Government to use this means of funding more widely to accelerate infrastructure provision. Under the new rules, the Exchequer contribution to many such projects would be excluded from the calculation of the general government deficit (GGD) - the EU borrowing measure.
Eurostat, the EU statistics agency, has been advised on the issue by a panel of statistical specialists from across the EU. It will publish its decision on Friday and is expected to back the view of the experts that the current regime should be loosened. While member states can then give their views before the matter is finally signed off by a the Committee of Monetary, Finance and Balance of Payments Statistics, it appears likely that the Eurostat decision will hold.
At the moment, the vast bulk of State spending is counted as part of the GGD. Only projects where the private sector assumes the bulk of the risk can be moved off balance sheet.
The majority of State spending on PPPs here to date has remained "on balance sheet" because it does not fulfil the current risk criteria.
The proposed change to the rules would allow parts of the roads programme to be moved off balance sheet, as well as other projects in areas such as transport, health and education, with much less onerous conditions for private sector participation.
The new proposals, expected to be adopted by Eurostat, clarify the rules for projects where tolls or other user-charges apply. They state that any project where the private sector contractor raises revenue directly from the user is taken as belonging to the contractor. Initial state capital spending may thus be excluded from the GGD.
However, the most significant change is for projects where tolls do not apply, which were previously very difficult to remove from the GGD, barring an expensive transfer of risk to the private sector. The new rules expected to be rubber-stamped by Eurostat say that for assets to be moved off the state balance sheet, the private sector must first assume the risk at the construction stage. Then the private sector contractor must accept either the risk of all or part of the asset not becoming available on time, or the risk of insufficient demand emerging to actually use it.
There would appear to be considerable latitude under these rules to move projects off the state balance sheet for GGD purposes.
This would lower the overall borrowing total reported to Brussels, which should be kept under 3 per cent of gross domestic product under the rules of the EU Stability and Growth Pact, itself now under pressure following breaches by France and Germany.
The Minister for Finance, Mr McCreevy, has outlined five-year capital spending programmes. The Government may now be able to undertake these programmes while reporting a lower GGD to Brussels. This is because the new rules may give the Government more scope to conduct PPP projects to further infrastructure spending.
However, arguments to increase spending further are likely to lead Mr McCreevy to point out that even if State money does not go towards the GGD, it still has to be repaid and therefore new projects must still be subject to rigorous assessment.
