May 2013

Ireland

Case Study - Schools Bundle 3 PPP Project

Background

Track Record in Ireland of successful PPPs

• First a question……

How Many to Date?

(A) 18

(B) 25

(C) 10

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Track Record in Ireland of successful PPPs

• Historic 9 Major inter-urban motorways/by-passes 4 Education PPPs, including 15 schools International Convention Centre Major Criminal Courts Complex Motorway Services Stations contract

• And recently….. N11 Roads Contract (April 2013) and Schools Bundle 3 (November 2012) A further Roads Contract is scheduled to close by end 2013

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However……

• Black clouds emerging after 2007

• Government Finances increasingly under pressure

• Affordability constraints emerged

• Leading to many project cancellations

• Increasingly negative environment for delivering infrastructure

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NDFA: statutory body with dual mandate

• Established under legislation in 2003 Report to Minister for Finance

• Statutory financial adviser on capital projects >€20m Project financial assessments Issue formal “Value for Money” Opinions

• Delivery agent for State Authorities for PPPs except transport and regional authorities Administer the procurement and construction phases Hand back to sponsor / PPP contract management

The Department for Public Expenditure and Reform is responsible for PPP policy matters and for issuing guidance in the area.

Who is the NDFA?

The Schools Bundle 3 PPP Project

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The Project

• Now, another question……..

What is the expected increase in pupils in the primary school system between now and 2018?

(A) 25,000

(B) 35,000

(C) 45,000

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The Project

• Third Bundle in the Irish Department of Education and Skills Schools PPP Programme

• €100m construction contract generating more than 1,600 direct and indirect jobs during construction

• Design, Build, Finance and Maintain PPP contract (25 yr. term) - Procured by means of Negotiated Procedure

• EIB had confirmed project met its eligibility requirements & historically a strong supporter of Irish projects including the schools programme

• Method of Payment – Monthly Unitary Charge payable by Government

• Construction and Availability risk passed to PPP Co

The Project

• The project comprised 8 Schools on 7 sites, providing accommodation for 5,700 Pupils

School Pupil No's

Gaelcholaiste, Letterkenny 350

Doughiska Community School 650

Doughiska Primary School 450

Ballinamore Community School 400

Doon Secondary School 850

Tramore Secondary School 1,000

Athlone Community School 1,000

Gorey Community School 1,000

Locations

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Procurement Step Date

OJEU Notice August 2010

Issue of ITN December 2010

Tenders Received July 2011

Appointment of PT (BAM PPP) September 2011

Target Financial Close March 2012

The Timelines

Procurement Step Date

OJEU Notice August 2010

Issue of ITN December 2010

Tenders Received July 2011

Appointment of PT (BAM PPP) September 2011

Target Financial Close November 2012

Original Actual

7 month delay????

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The Issues – Funding… Funding… Funding !

• Issue 1: The Financial Crisis!!!....2007 onwards

• Significant contraction of PF funding market - not only an Irish issue

• Insufficient funders remaining in Irish PPP market to finance all tenderers

• Remaining funders also unwilling to carry out due diligence until PT stage

• Prompted use of Negotiated Procedure for Schools Bundle 3 PPP in place of Competitive Dialogue, with committed financing deferred to PT stage

• Authority generated term sheet issued to tenderers during procurement

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The Issues – Funding… Funding… Funding !

• Issue 2: The EU/ ECB/ IMF programme for Ireland….2010 onwards

• In short Ireland’s credit rating has gone from AAA (S&P, Jan 2007) to BBB+ (S&P present) & the PF funding constraints experienced across Europe were amplified in Ireland

• Led to remaining international PF banks exiting Irish market

• Furthermore Irish banks had huge recapitalisation requirements due to the collapse in the Irish property market and their ratings plummeted to typically BB levels

• Therefore Authority/PT concluded that potential funding was limited to Bank of Ireland (“BoI”) & EIB

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The Issues – EIB & Irish Banks

• However

• EIB’s co-funding requirements meant a mismatch between EIB & Irish Banks!!

EIB (AAA ) + Irish Banks (c. BB)

Enter the National Pensions Reserve Fund (“the NPRF”).

The NPRF was established to meet as much as possible of the costs of Ireland's social welfare and public service pensions from 2025 onwards. Split across two portfolios, the discretionary portfolio (value €6.4bn March 2013) and directed portfolio (value €8.8bn March 2013). The Fund is controlled and managed by the National Pensions Reserve Fund Commission.

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The Issues – EIB & Irish Banks

With the NPRF….

EIB (AAA) + Bank of Ireland (BB) + NPRF

Final Funding Structure

Facility Provider

Equity Bridge Facility BoI

Senior Debt Facility EIBBoI

Committed Standby Senior Debt Facility NPRF

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The Outcome

• Successful financial close reached in November 2012 - with only 7 month delay!

• Construction progressing well …. as you can see in following slides

(Aerial photos taken Feb 2013)

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Athlone, Co. Westmeath 1,000 pupils

before after

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Ballinamore, Co. Leitrim 400 Pupils

before after

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Doon, Co. Limerick 400 Pupils

before after

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Doughiska, Co. Galway Primary & Post Primary 1,100 Pupils

before after

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Gorey, Co. Wexford 1,000 Pupils

before after

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Letterkenny, Co. Donegal 350 Pupils

before after

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Tramore, Co. Waterford 1,000 Pupils

before after

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Best Education Project, EuropeIRISH SCHOOLS

The Outcome

National Development Finance AgencyTreasury Building | Grand Canal Street | Dublin 2 | Ireland

www.ndfa.ie

Brian Murphy, Chief Executive D +353 1 664 0246 M +353 862346992 E bmurphy@ntma.ie