## cr17333 ## Source details **Canonical URL:** [cr17333](https://www.imf.org/-/media/files/publications/cr/2017/cr17333.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr17333.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr17333.pdf.json) --- ### Preface — mission, team, and consultations - Mission: Public Investment Management Assessment (PIMA) at the request of the Department of Public Expenditure and Reform; visit period July 5–29, 2017. - Closing meeting with the Minister of Finance and Public Expenditure and Reform, Mr. Paschal Donohue. - Mission lead: Carolina Renteria (Division Chief, Fiscal Affairs Department). - Mission members: Jason Harris (Senior Economist, FAD), Richard Allen (FAD expert), Simon Groom (FAD expert). - Additional contributors at workshops: Peder Baltzer (FAD expert), Nikos Karadimitriou (Expert, European Commission), Merja Toikka (Coordinator for Ireland, European Commission). - Stakeholders consulted include DPER, Department of Finance, DTTaS, Department of Housing, Planning and Local Government, Department of Education and Skills, Department of Health, NewERA, National Development Finance Agency, Office of Government Procurement, ESB, Office of the Comptroller and Auditor General, Irish Fiscal Advisory Council, ESRI, sectoral regulators, local and regional authorities, and others. - Workshops: Spatial Planning and Urban Development; follow-up on Fiscal Transparency Evaluation implementation and FAD fiscal stress test tool. ### Executive summary — infrastructure needs, past investment, and measurement - Infrastructure needs and strategic context: - Evidence: World Economic Forum survey identifies inadequate supply of infrastructure as the most important barrier for doing business in Ireland. - Fast-growing population; six years of low spending created backlog of maintenance and rehabilitation needs. - IMF policy paper (Making Public Investment More Efficient (IMF 2015)) finds positive relationship between public investment, aggregate demand and potential growth. - OECD (Economic Policy Reforms (OECD, 2009)) suggests Ireland could benefit from reallocating spending to capital investment. - New planning tools: National Planning Framework (NPF) and an associated ten-year capital plan to redirect investment, with emphasis on urban development outside Dublin including four new Metropolitan Areas. - Measurement issues: - GDP distortions due to accounting rules and multinational enterprise activity; 2015 one-time revision of real GDP growth from 7.8 to 26.3 percent. - CSO GNI* introduced as a better measure; report uses GNI* for Ireland and GDP ratios for other countries. - Example: 2015 ratio of government debt shifts from 79 percent of GDP to 116 percent of GNI* when using the modified denominator. - Recent public investment history: - Annual investment rose to a peak of 5 percent of GDP in 2007 from an average of 2½ percent of GDP in the 1990s, producing a 10 percent of GDP increase in the public capital stock pre-crisis. - Post-crisis investment reverted to 1990s levels as percent of GDP. - Efficiency gaps and effectiveness: - Estimated efficiency gaps: 23 percent compared to the rest of the world; 58 percent compared to advanced countries alone. - Conclusion: improving public investment management (PIM) could deliver more output per unit of expenditure. ### PIM assessment — strengths and weaknesses across the cycle - Overall: Ireland manages public infrastructure relatively well; performance below the advanced G20 average but stronger than global average. - Planning phase highlights: - Fiscal rules: Institutional strength Good; Effectiveness Medium (complex rules, volatile GDP). - National and sectoral planning: Strength Medium; Effectiveness Medium (varying specificity/quality of project information). - Central-local coordination: Strength Medium; Effectiveness Medium (limited SNG flexibility; formula-driven investments). - PPPs: Strength Good; Effectiveness Medium (PPPs increased under fiscal rules). - Regulation of infrastructure companies: Strength Good; Effectiveness Good. - Allocation phase highlights: - Multi-year budgeting: Strength Medium; Effectiveness Medium (ceilings exist but forecasts patchy; major projects not always in budget; ceilings not always adhered to). - Budget comprehensiveness and unity: Strength Good; Effectiveness Medium (fragmented project-level data; maintenance poorly reported). - Project appraisal: Strength Good; Effectiveness Good—economic appraisal required for projects >€20 million; IGEES central support; appraisals not published. - Project selection: Strength Medium; Effectiveness Medium—DPER reviews appraisals but with limited external input and non-transparent selection criteria application. - Implementation phase highlights: - Protection of investment: Strength Medium; Effectiveness Good—legal continuity, up to 10 percent carryover allowed. - Availability of funding: Strength Good; Effectiveness Good—cash forecasting and management well executed. - Transparency of execution: Strength Medium; Effectiveness Medium—open procurement, departmental monitoring; no routine ex post audits of individual projects. - Project management: Strength Good; Effectiveness Medium—mandatory post-project reviews for major projects, but fundamental reviews infrequent and post-project reviews not published. - Assets accounting: Strength Low; Effectiveness Medium—no comprehensive asset survey; mixed ownership complicates accounting. ### Key recommendations (summary) - Planning — sustainable investment: - Integrate spatial, sectoral and 10-year capital funding plans with priorities, estimated project costs, infrastructure gaps, timelines, and performance targets. - Update and reduce planning strategies; integrate vertically and horizontally. - Establish a common analytical framework for DPER, sectors and semi-state entities to estimate demand pressures and infrastructure gaps. - Standardize sector plan presentation of projects, costs, and performance targets. - Establish an Infrastructure Projects Unit within DPER to advise on appraisal and selection, study bottlenecks, financing, and evaluate lessons learnt. - Planning — PPPs: - Consider replacing fiscal cap on unitary/availability payments with rule scoring total capital cost of PPPs against departments’ capital envelopes. - Consider restrictions on PPPs more likely to impose future fiscal burdens and require higher net cost savings vs public-sector benchmark. - Add a budget annex providing comprehensive information on PPPs and concessions, broken down by sector and project, with projection of future commitments. - Make public results of CBA of PPP projects and selection criteria; conduct more ex post reviews emphasizing economic and social impact. - Allocating investment — monitoring and maintenance: - Develop and further enhance the “Capital Tracker” to forecast investment requirements and ensure annual project profiles fit capital expenditure ceilings; improve information on annual cost profiles, capital vs recurrent costs, adjustments, delays and results. - Within the 2017 Stability Programme spending envelope, increase share of budget for maintenance and rehabilitation; use a government-wide register of nonfinancial infrastructure assets to determine steady-state maintenance levels. - Allocating investment — appraisal and selection: - Publish project assessments with key economic performance indicators and assumptions. - Review and harmonize the PSC, update appraisal methodologies/parameters, review the €20 million CBA threshold, and expand methodological guidance (mandate IGEES to develop sector-specific guidance). - Introduce a structured quality-at-entry process with three sequenced business case assessments (concept, appraisal, prior to contract signature) and align funding surety with business case maturity. - Enhance DPER’s gatekeeper role via the Infrastructure Projects Unit to lead the business case model, objectively review and sign off major projects, gather information, and publish summarized reports covering all sectors including PPPs and public corporations. - Implementing investment — ex post review and asset monitoring: - Strengthen and publish ex post assessments of major projects; encourage C&AG performance audits; prepare biennial summaries of lessons from the 10 largest completed projects. - Develop a central register of infrastructure assets valued at book (initially) or market value (ultimately). ### GNI*, public capital and investment composition - Using GNI* places Ireland’s public capital stock mid-range among advanced economies. - Capital stock declined from around the advanced economy average in 2008 to current level of 48 percent of GNI*, similar to the UK and Germany. - Cross-sectional indicators (reported values): - Fiscal Balance: -1.9, -2.8 - Debt: 78.7, 116.3 - Public Capital Stock: 32.4, 47.9 - Public Investment: 1.6, 2.3 - Semi-state enterprises: - Account for an additional 1.2 percent of GNI* of public investment, with a capital stock of 10 percent of GNI*. - In 2015, almost two-thirds of their investment devoted to energy and water assets. - PPPs: - PPPs represented cumulative commitments of No. of projects: 19; Total contractual value: €3.1 billion; Total projected unitary payments: €8.6 million (table shows millions/unitary confusion preserved as presented). - Concessions: No. of projects: 8; Total contractual value: €1.9 billion; Total projected unitary payments: €1.0 million. - Total PPPs and concessions: No. of projects: 27; Total contractual value: €4.9 billion; Total projected unitary payments: €9.6 million. - Total as % of GDP: 2.0 (contractual value) and 3.8 (projected unitary payments). - Transport dominates PPP contractual value (e.g., €1.9 billion out of €3.1 billion in PPPs). - Subnational investment: - Ireland’s subnational investment is one of the lowest in Europe; local government accounts for only 3 percent of GDP. - Capital share relative to total spending slightly lower than advanced country average; housing has a large share relative to advanced economy average. ### Infrastructure quality, service access, and efficiency metrics - Access and quality indicators: - Roads: exceptional coverage. - Access to treated water: 96.4 percent of the population. - Electricity production per capita: relatively low. - Weaknesses identified: education (large class sizes) and health (low numbers of hospital beds per capita). - Perception and scores: - Perceptions of infrastructure quality improved between 2008 and 2012, then declined slightly. - Advanced-economy assessment: above average in PISA scores, average in electricity efficiency, below-average use of MRIs. - Efficiency frontier results: - Global efficiency gap for Ireland: 23 percent (EU average: 15 percent). - Advanced-economy efficiency gap for Ireland: 58 percent (EU average: 42 percent). ### National and sectoral planning — structure, NPF observations, and coordination risks - National Spatial Strategy (2002) shortcomings: designated too many centers, inadequate legislative backing, not linked to capital program. - NPF (Ireland 2040, Our Plan: Issues and Choices) underway with draft process: draft to be published by end of summer and finalized by end of the year (as reported). - NPF highlights: regional connectivity, diversify energy (90 percent fossil fuel use, 10 percent renewable energy noted), universal high speed broadband, support innovation, respond to Brexit, address skills shortages. - Observations on NPF draft: mixes high-level strategy with specific projects, may raise expectations not aligned with cost estimates. - DPER challenges: mid-term review submissions total more than €10 billion vs available fiscal space of €2.6 billion (note: total fiscal space available is €5 billion, but €2.6 billion already allocated to housing). - Recommendation: integrate planning instruments, reduce proliferation, ensure alignment of national, sectoral, regional and local plans. ### Central-local coordination and local government finance - Local government: one of the most centralized fiscal systems in Europe; local authorities’ self-financing rate extremely low. - Local authorities restructured from 88 to 31 under Local Government Reform Act 2014; three Regional Assemblies established. - Local borrowing must be approved by minister following DHPLG review; local government sector’s debt service to revenue ratios low (no local authority >7 percent per 2013 FTE). - Local property tax (LPT): 80 percent retained by local authorities; 20 percent redistributed; government decides allocation of LPT expenditure annually. ### Capital Tracker, medium- and long-term cost profiling, and maintenance funding - Risk: absence of medium- and longer-term project cost profiles may allow over-commitment of resources; some “committed” projects (e.g., health) have exceeded available spending allocations. - Capital Tracker: - Government developing a Capital Tracker database to list major projects with total costs, region/sector, timing, status, construction timetable, and estimated completion. - Current limitations: lacks annual cost profiles; separation of construction vs operational/maintenance costs; economic performance info (CBA/CEA); adjustments/delays/results; performance targets. - Recommendation: develop Capital Tracker to forecast investment requirements, ensure annual profiles fit within ceilings, improve allocation of unapproved projects, and track progress. - Maintenance funding evidence: - National motorway maintenance funding: €157 million represents less than ½ percent of estimated national road asset value of €32 billion; projected increase to €457m by 2019 will leave maintenance funding at 1.4 percent (compared to norms 5 to 10 percent in other countries). - Hospital maintenance expenditure: 1.1 percent of estimated capital stock vs guideline 5–8 percent. - Recommendations: increase maintenance/rehabilitation share within 2017 Stability Programme envelope; use government-wide asset register to set maintenance levels. ### Appraisal, Public Spending Code (PSC), business case model, and optimism bias - PSC: - Introduced in 2012; CBA compulsory for projects with total capital value >€20 million; projects below €20 million use qualitative or multi-criteria analysis. - Threshold history: began at €50 million, fell to €30 million, now €20 million. - Appraisal reports not published; self-assessments unevenly completed and published. - IGEES provides central support and training (around 200 officials trained in 2016). - Appraisal and selection weaknesses: - Too few projects appear to be turned down based on CBA; pre-appraisal screening may account for this. - PSC provides parameter guidance (discount rates, shadow prices, carbon price) and recommends sector-specific methodologies. - No standardized optimism bias adjustment; PSC review should consider approach to optimism bias and deepen risk/uncertainty guidance (worked examples, expected value calculations). - Recommendations: - Publish project assessments (full or summaries) with key economic performance indicators and assumptions. - Harmonize, update, and extend appraisal methodologies; review CBA/CEA thresholds and departmental capacity. - Develop more detailed guidance for projects below thresholds; mandate IGEES to develop sector-specific methodological guidance. - Consider adopting a structured business case approach (sequenced Strategic, Economic, Commercial, Financial, Management cases). - Consider a two-gate model with DPER approval at entry into medium-term capital plan and approval of full business case prior to budget funding/signature for major projects. ### PPPs — use, oversight, VFM tests and recommendations - PPP program framework since 2001; PPPs increased after the financial crisis though cumulative PPP value smaller than some EU peers (Portugal and UK PPPs ~11 percent and 16 percent of GDP; Ireland ~3 percent of GDP). - Central oversight: central PPP unit in DPER and NDFA (roles include financial advice, monitoring implementation, procurement management). - PPP contractual metrics (Table figures preserved): - PPPs: No. of projects: 19; Total contractual value (€ billion): 3.1; Total projected unitary payments (€ million): 8.6. - Concessions: No. of projects: 8; Total contractual value (€ billion): 1.9; Total projected unitary payments (€ million): 1.0. - Total: No. of projects: 27; Total contractual value (€ billion): 4.9; Total projected unitary payments (€ million): 9.6. - Total as % of GDP: 2.0 (contractual value) and 3.8 (projected unitary payments). - VFM tests in procurement: four-stage process (detailed appraisal; output specification and Public Sector Benchmark; tender evaluation; award of contract test). - Concerns: recent PPP decisions may have been driven by additionality rather than VFM; disclosure and ex post review gaps. - Recommendations: replace fiscal cap with scoring capital cost against capital envelopes (subject to EUROSTAT rules); impose sectoral restrictions; publish CBA and selection criteria; add budget annex with full PPP commitment distribution; conduct and disseminate ex post reviews emphasizing economic and social impact. ### Procurement, transparency, project management, and audit - Procurement: - EU public procurement directives transposed into Irish law; all opportunities advertised on eTenders. - EC threshold for works contracts noted at €5.225 million. - Capital Works Management Framework (CWMF) introduced in 2007 with fixed-price, lump sum contracts; historical overruns cited (C&AG estimated real-term overruns 25-30 percent in roads historically; recent overruns 4.8 percent for building works and 8.4 percent for civil engineering works). - Public Service Spend and Tendering Analysis Report based on eTenders is not timely. - Monitoring and audit: - Project execution monitoring decentralized; Vote Sections monitor departmental spending but less focus on individual project performance. - C&AG does not routinely carry out ex post audits of individual investment projects; PSC mandates post-project review for projects >€20 million and sample 5 percent for others, but reviews often not published. - Recommendation: strengthen ex post assessment, publish departmental ex post reviews, encourage C&AG performance audits, prepare biennial summary of lessons from top 10 completed projects. - Project governance: - PSC requires appointment of project manager and Project Board; project manager accountable and senior. - Guidance exists but harmonization needed; triggers for fundamental review qualitative rather than quantitative; South Korea example cited where >20 percent cost rise or >30 percent demand fall triggers review. ### Asset management, registers, accounting, and public investment units - Asset management challenges: - No government-wide systematic asset survey or comprehensive asset register; cadaster incomplete. - Sector surveys exist (transport, higher education, health first-phase survey). - Transport Infrastructure Ireland valuation: national road network €32 billion (16.9 percent of GNI*). - Financial accounts do not include nonfinancial assets; cash-basis accounting excludes depreciation; ownership issues (voluntary organizations owning schools/hospitals) complicate balance sheet inclusion. - Government considering adoption of accrual accounting in early 2020s contingent on IT system and ownership resolution. - Public capital stock estimation: - Reported using perpetual inventory method in accordance with Eurostat; depreciation schedules based on asset classes (e.g., buildings: lifetime 20–80 years; aircraft: 15 years; intellectual property: 10 years). - Recommendation: develop central register of infrastructure assets valued at book initially and market value ultimately to improve maintenance allocation. - Public Investment Units — international examples and functions: - Typical roles: independent review of major projects; center of excellence for methodologies; monitoring major projects. - Country examples: France (Commissariat Général à l’Investissement), New Zealand (National Infrastructure Unit), South Korea (PIMAC), United Kingdom (Infrastructure and Projects Authority; National Infrastructure Commission). *Source: cr17333 - PREFACE, https://www.imf.org/-/media/files/publications/cr/2017/cr17333.pdf* ### PREFACE _________________________________________________________________________________________ 6 ### PREFACE ### Mission and purpose - At the request of the Department of Public Expenditure and Reform, a mission from the IMF’s Fiscal Affairs Department visited Ireland during the period July 5–29, 2017 to carry out a Public Investment Management Assessment (PIMA). - The mission had a closing meeting with the Minister of Finance and Public Expenditure and Reform, Mr. Paschal Donohue, where the main findings and recommendations were discussed. - The mission had an introductory meeting with Mr. Robert Watt, Secretary General, Department of Public Expenditure and Reform (DPER). ### Mission leadership and team - Mission lead: Carolina Renteria (Division Chief, Fiscal Affairs Department). - Mission members: Jason Harris (Senior Economist, FAD), Richard Allen (FAD expert), and Simon Groom (FAD expert). - Additional contributors mentioned for workshop participation: Peder Baltzer (FAD expert), Nikos Karadimitriou (Expert, European Commission), Merja Toikka (Coordinator for Ireland, European Commission). ### Meetings and stakeholders consulted - Department of Public Expenditure and Reform (DPER): William Beausang and team. - Department of Finance (DoF): representatives. - Department of Transport, Tourism and Sport (DTTaS): Ray O’Leary and team; Transport Infrastructure Ireland; National Transport Authority. - Department of Housing, Planning and Local Government: David Walsh, Maria Graham, Niall Cussen, Paul Hogan and teams; representatives from local and regional authorities; An Bord Pleanála. - Department of Education and Skills: Emma Leonard, Tom Plunkett and team; representatives from the Higher Education Authority. - Department of Health: Greg Dempsey and team; representatives of the Health Services Executive (HSE). - NewERA: John Dillion. - National Development Finance Agency: Gerard Cahillane. - Sectoral regulators and Central Statistics Office: representatives. - Office of Government Procurement: Paul Quinn and David O’Brien. - Department of Communications, Climate Action and Environment: Micheal Manley, Brian Carroll, Ciaran O’hObáin and teams. - Electric Supply Board (ESB): Geraldine Heavey and Ted Browne. - Office of the Comptroller and Auditor General: Andy Harkness, Colette Drinan. - Irish Fiscal Advisory Council (IFAC): Niall Conroy and team. - Economic and Social Research Institute (ESRI): Edgar Morgenroth. ### Workshops and follow-up activities - Workshop on Spatial Planning and Urban Development featuring international experts Peder Baltzer (FAD expert), Nikos Karadimitriou (Expert, European Commission), and Merja Toikka (Coordinator for Ireland, European Commission), who discussed international experiences with Irish experts (Jim Walsh, Niamh Moore-Cherry, William Brady and Larry O’Connell). - Workshop to follow up on the implementation of the Fiscal Transparency Evaluation report on Ireland (published in 2013) and to explain FAD’s new fiscal stress test tool with DPER, DoF, and IFAC. ### Acknowledgements - The mission expressed appreciation for the hospitality and courtesy extended by the authorities, and the excellent cooperation. - Special thanks to Paddy Howard, Brendan Ellison, and William Beausang from DPER for their leadership, collaboration, and coordination efforts. *Source: cr17333 - PREFACE, https://www.imf.org/-/media/files/publications/cr/2017/cr17333.pdf* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Infrastructure needs and strategic context - Emerging from the deep economic and financial crisis in the late 2000s, Ireland is seeking to resume the buildup of public infrastructure that is efficient, cost-effective and boosts the country’s long-term growth of productivity and output. - Crisis-driven underinvestment led to investment rates that lagged EU comparators and resulted in a decline in the public capital stock from the advanced economy average achieved before the crisis. - Evidence of infrastructure needs: - The World Economic Forum’s survey: an inadequate supply of infrastructure is perceived as the most important barrier for doing business in Ireland. - Fast-growing population increasing demands on existing infrastructure. - Six years of low spending have produced a backlog of maintenance and rehabilitation needs. - IMF policy paper (Making Public Investment More Efficient (IMF 2015)) provides evidence of a positive relationship between public investment, aggregate demand and potential growth. - OECD study (Economic Policy Reforms (OECD, 2009)) found Ireland is one of the countries that could benefit most from reallocating public expenditure from salaries, and goods and services to capital investment. - Government planning framework: - A new spatial planning strategy (the National Planning Framework, NPF) and an associated ten-year capital plan are being prepared to support redirection of infrastructure investment, with emphasis on urban development outside Dublin including four new Metropolitan Areas. - Ensuring alignment, integration and realism across national, sectoral, regional, and local plans is essential. ### Recent public investment history and measurement issues - Investment dynamics: - Annual investment rose from an average of 2½ percent of GDP in the 1990s to a peak of 5 percent of GDP in 2007, resulting in a 10 percent of GDP increase in the public capital stock. - Rapid expansion, including a PPPs program, moved Ireland from below European/advanced economy investment levels to average in the early 2000s and to well above average by 2007. - The financial crisis and fiscal consolidation sent investment back down to 1990s levels as a percent of GDP. - Measurement caveat: - GDP figures in Ireland are distorted by accounting rules, holding company regime, and tax-driven activities of multinational enterprises; these factors overstated the size of GDP and led to a dramatic one-time revision in 2015 when real GDP growth was revised from 7.8 to 26.3 percent. - The CSO released GNI* as a better measure of the underlying economy; GNI* excludes the impact of re-domiciliated companies and the depreciation attributable to relocated capital assets and is considerably smaller than standard GDP. - Example: the 2015 ratio of government debt shifts from 79 percent of GDP to 116 percent of GNI* when using the modified denominator. - This report uses the GNI* measure for Ireland while using GDP ratios for other countries. ### Effectiveness of past investment and efficiency gaps - Comparing infrastructure quality and quantity to the size of the capital stock reveals shortcomings in the effectiveness of past investment spending. - The report draws on opinion surveys and quantitative indicators across education, health, electricity, roads and water and the amounts spent to assess investment efficiency. - Estimated efficiency gaps: - 23 percent compared to the rest of the world. - 58 percent compared to advanced countries alone. - Improving public investment management could bring Ireland closer to the frontier of best practice and deliver more “bangs for the buck” from infrastructure spending. ### Assessment of public investment management (PIM) — strengths and weaknesses - Overall assessment: - Ireland manages public infrastructure relatively well with strengths and weaknesses across the three phases of the public investment management cycle. - Performance is below the advanced G20 average but considerably stronger than the global average. - Planning phase (high-level summary of Table 1): - Fiscal rules: Good institutional strength; Medium effectiveness due to complexity and volatile Irish GDP. - National and sectoral planning: Medium strength; Medium effectiveness due to varying specificity/quality of information on projects, costs and targets. - Central-local coordination: Medium strength; Medium effectiveness as SNGs have limited spending flexibility and investments are largely formula-driven. - Public-private partnerships: Good strength; Medium effectiveness as overall PPP spending has increased under current fiscal rules. - Regulation of infrastructure companies: Good strength; Good effectiveness with open markets or well-regulated domestic monopolies and high financial reporting by public companies. - Allocation phase: - Multi-year budgeting: Medium strength; Medium effectiveness—ceilings exist but forecasts are patchy and major projects are not included in the budget; ceilings are not always adhered to. - Budget comprehensiveness: Good strength; Medium effectiveness—information on PPP and SOE investments is published separately. - Budget unity: Good strength; Medium effectiveness—spending data on individual projects is fragmented and maintenance spending is poorly reported. - Project appraisal: Good strength; Good effectiveness—economic appraisal required for all projects >€20 million, central support from IGEES, consistent application for major projects; non-publication of appraisals is an issue. - Project selection: Medium strength; Medium effectiveness—DPER reviews appraisals but with limited external input and non-transparent selection criteria application. - Implementation phase: - Protection of investment: Medium strength; Good effectiveness—legal institutions ensure continuity of funding with up to 10 percent carryover allowed. - Availability of funding: Good strength; Good effectiveness—cash forecasting and management are well executed with timely release of funds. - Transparency of execution: Medium strength; Medium effectiveness—open procurement and departmental monitoring but no ex post audits of individual projects; C&AG focuses on financial rather than performance auditing. - Project management: Good strength; Medium effectiveness—well established structures and mandatory post-project reviews for major projects, but fundamental reviews are infrequent and post-project reviews are not published. - Assets accounting: Low strength; Medium effectiveness—no comprehensive asset survey, mixed ownership of state infrastructure assets causes confusion; CSO compiles estimates of capital stock and depreciation. ### Key recommendations (summary drawn from Table 2) - A. Planning — Sustainable levels of investment - Integrate the spatial, sectoral and 10-year capital funding plans so they coherently link to each other with information on priorities, estimated project costs and infrastructure gaps, timelines for implementation, and performance targets. - Update and reduce the number of planning strategies, and integrate them vertically (with the NPF and capital plan) and horizontally across sectors. - Establish a common analytical framework for the DPER, sectors and semi-state entities to estimate demand pressures and infrastructure gaps. - Establish a standard presentation in sector plans of investment projects, their cost, and performance targets, aligned with the capital plan and the budget. - Establish an Infrastructure Projects Unit within the DPER to advise the Minister on appraisal and selection of projects and to study infrastructure bottlenecks, financing, and evaluation of lessons learnt. - A. Planning — Management of PPPs - As part of DPER’s review of PPPs, consider replacing the current fiscal cap on unitary/availability payments with a rule that scores the total capital cost of a PPP against departments’ capital envelopes to assess full fiscal impact. - Consider imposing restrictions on PPPs that are more likely to impose a future fiscal burden and require PPPs to achieve higher net cost savings compared to the public-sector benchmark. - Add an annex to the budget documents providing comprehensive information on PPPs and concessions, broken down by sector and project, and include a projection of future commitments. - Make public the results of CBA of PPP projects and the criteria used to select them. - Conduct more ex post reviews of PPP projects, disseminate the results, and give more weight to economic and social impact in these reviews. - B. Allocating Investment — Monitoring investment projects - Develop the “Capital Tracker” database to forecast investment requirements to: (i) ensure annual profiles of approved projects fit within available capital expenditure ceilings; (ii) improve allocation of unapproved projects; (iii) track progress of projects underway. - Further develop the Capital Tracker to provide more comprehensive information on annual cost profiles; implementation including clear separation of capital and recurrent costs; and data on adjustments, delays and results. - B. Allocating Investment — Budgeting maintenance of public assets - Within the spending envelope set by the 2017 Stability Programme, increase the share of the budget directed toward maintenance and rehabilitation expenditure to prevent further degradation of the capital stock. - Sharpen the budget process focus on spending required to maintain infrastructure at a steady-state level using a government-wide register of nonfinancial infrastructure assets (based on existing sectoral registers) to determine appropriate maintenance levels. - B. Allocating Investment — Appraisal and selection of projects - Reinforce appraisal to prevent weak projects proceeding and identify risky projects early: - Publish project assessments with key economic performance indicators and underlying assumptions. - Use the review of the PSC to harmonize, update and extend appraisal methodologies and parameters, make it more accessible, and align it with complementary guidance. - Strengthen rules on use and application of cost-benefit analysis (CBA) and other appraisal techniques: review thresholds for CBA/CEA and upgrade departments’ capabilities; update and harmonize parameter values; develop guidance for projects below thresholds where multi-criteria analysis is required. - Mandate the IGEES to develop sector-specific methodological guidance in collaboration with departments. - Improve project selection: - Introduce a structured quality-at-entry process with three sequenced “business case” assessments (concept stage, appraisal stage and prior to contract signature) and wider assessment dimensions. - Align critical decision-points with business case assessments and ensure objective review of each assessment. - Correlate surety of funding in the annual budget, medium-term capital plan and long-term capital plan with the maturity of the business case. - Enhance DPER’s coordinator and gatekeeper role by mandating the Infrastructure Projects Unit to: (i) lead design and implementation of the improved “business case” model; (ii) act as objective reviewer and sign-off authority on major projects at each business case stage; (iii) gather information on planned, prioritized or approved investment projects; and (iv) publish a summarized report covering all sectors, including PPPs and public corporations. - C. Implementing Investment — Ex post review and asset monitoring - Strengthen ex post assessment of major projects and publish departmental ex post reviews to improve future project design. - Encourage the C&AG to carry out performance audits of major investment projects. - Prepare a biennial summary of government-wide lessons from reviews of the 10 largest projects completed. - Improve asset management and allocation of maintenance funding by developing a central register of infrastructure assets valued at either book (initially) or market value (ultimately). _Source: IMF staff report (EXECUTIVE SUMMARY)._ ### 4. Using the GNI* series shows how large the pre-crisis boom was, and brings Ireland’s ### 4. Using the GNI* series shows how large the pre-crisis boom was, and brings Ireland’s ### Public capital and investment levels - Using the GNI* series places Ireland’s public capital stock in the mid-range of advanced economies. - Post-2008 reduction in output reduced Ireland’s public investment ratio to well below advanced economy averages; depreciation was not offset. - Capital stock declined from around the advanced economy average in 2008 to the current level of 48 percent of GNI*, around the same level as the UK and Germany. - Cross-sectional indicators (as presented): - Fiscal Balance: -1.9, -2.8 - Debt: 78.7, 116.3 - Public Capital Stock: 32.4, 47.9 - Public Investment: 1.6, 2.3 ### Semi-state commercial enterprises (public corporations) and PPPs - Semi-state commercial enterprises account for an additional 1.2 percent of GNI* of public investment, with a capital stock of 10 percent of GNI*. - In 2015, almost two-thirds of their investment was devoted to energy and water assets, some allocated to offshore assets. - The state enterprise sector’s importance is in the mid-range of English-speaking comparator countries for which both investment and capital stock data are available. - Investment in public-private partnerships (PPPs) compensated for cuts in public spending during the financial crisis and subsequently. - PPP investment benefitted from permissive fiscal rules and is generally treated as outside the general government, creating incentives to bring forward new projects. ### Subnational investment and composition of capital stock - Most investment spending is at the national level; Ireland’s subnational investment is one of the lowest in Europe, commensurate with overall subnational spending volume. - Ireland’s capital share relative to total spending is slightly lower than the average for advanced countries but similar to the UK, Germany, and Spain. - Notable composition features: - Housing has a large share of the capital stock relative to the advanced economy average; this share is likely to increase as government expands social housing investment faster than other areas. - Relatively high share of assets related to environmental protection. - Very low share of capital spending on defense relative to the advanced country average. ### Efficiency and impact of public investment - By IMF “global measures” of infrastructure, Ireland’s infrastructure and access to services are relatively strong overall but mixed across sectors. - Roads: exceptional coverage. - Access to treated water: 96.4 percent of the population. - Electricity production per capita: relatively low, reflecting temperate climate and energy efficiency measures. - Weaknesses: education (large class sizes) and health (low numbers of hospital beds per capita). - Perceptions of infrastructure quality improved significantly between 2008 and 2012 (reaching EU averages), then declined slightly; decline mirrors other European countries. - Advanced-economy assessment (complements standard indicators with PISA scores, MRI machines per capita, transmission losses): - Ireland: above average in PISA scores, average in electricity efficiency, below-average use of MRIs. - Investment efficiency assessment (efficiency frontier methodology): - Global measure: Ireland’s efficiency gap is 23 percent; EU average is 15 percent. - Advanced-economy measure: Ireland’s efficiency gap is 58 percent; EU average is 42 percent. - Conclusion: considerable room for improvement in public investment management (PIM) efficiency; substantial scope for policy adoption to improve PIM. ### Public Investment Management (PIM) institutions — overview - Fifteen key PIM institutions evaluated across three PIM cycle phases: planning; allocation (Exchequer, PPPs, other finance); implementation. - Many institutions are well designed and effective, comparable to other advanced economies: - Strengths include: fiscal rules that support public capital formation; well-regulated semi-state enterprises; improved multi-year budgeting; adequate availability of funding for ongoing projects; good project management practices. - Areas needing improvement: - Planning process is complex and poorly linked to resource allocation for public investment. - PPPs could be subject to tighter fiscal rules. - Project appraisal and selection processes need improved effectiveness and sequencing. - Greater attention required to management and maintenance of infrastructure assets (maintenance profiling for PPPs is an exception, where costs are profiled for the 25-year operating period). ### Planning sustainable levels of investment — Fiscal rules (Institutional strength: Good; Effectiveness: Medium) - Ireland’s fiscal policy follows the EU framework and the 2012 Fiscal Responsibility Act; key rules include: - Budget balance rule: general government budget balance or surplus (tighter than the Maastricht deficit limit of 3 percent of GDP); in practice the rule is deemed met if the medium-term structural budget deficit rule is met. - Medium-term objective: structural budget deficit no greater than 0.5 percent of GDP; if structural deficit exceeds 0.5 percent of GDP, an annual reduction is required (0.6 percent of GDP for 2016 in Ireland). - Debt rule: limit debt to 60 percent of GDP; if debt exceeds 60 percent, an annual pace of reduction of no less than 1/20th of the difference between the actual debt ratio and the 60 percent of GDP limit. - Expenditure benchmark: limits annual growth in general government primary expenditure to potential growth assessed over a 10-year period (defined as the past five years, the current year, and a projection for the next four years). - Challenges and operational notes: - Complexity of rules and extreme GDP volatility in Ireland create significant operational challenges, especially for the structural balance rule which requires potential output assessment and is subject to large revisions. - Treatment of one-off adjustments complicates rule application. Example: in 2016, one-off adjustments related to the sale of Allied Irish Banks (AIB) improved compliance with the structural balance rule but led to non-compliance with the expenditure growth rule. - Corporate income tax revenue volatility is an additional complication. - Compliance history and outlook: - 2016 was the first year under the preventive arm of the EU fiscal framework for Ireland (previously under the excessive deficit procedure). - 2016 structural balance reduction: 0.3 percent of GDP (fell short of required 0.6 percent of GDP). - Expenditure growth rule in 2016 was met due to a one-off increase in the 2015 expenditure base; adjusting for that, public spending growth exceeded potential output growth by 0.4 percent of GDP. - Projections: government projections will not adhere to both the structural adjustment or spending growth rules in 2017, are projected to meet both in 2018, and have some positive fiscal space over the period 2019 to 2021. - The prospect of fiscal space opening up in 2019 has stimulated debate on increasing budgetary allocation to public investment. - Protections and limitations for capital spending: - Structural balance rule offers some protection for capital spending during temporary revenue shortfalls. - Spending rule provides special treatment for gross fixed capital formation via a smoothed series averaged over the past four years; in the first year of an expansion only 25 cents in each euro of additional spending is counted, but by the fourth year the spending will be fully reflected, potentially requiring adjustments to maintain rule compliance. - Complexity of rules presents interpretational and operational challenges for fiscal policy. *Source: Staff estimates, CSO, NewERA, DPER, European Investment Bank, World Bank, World Bank WDI, OECD, IFAC and IMF staff analysis as presented in the provided chapter.* ### 20. In the previous cycle, investment spending was strongly pro-cyclical—surging as ### cr17333 - 20. In the previous cycle, investment spending was strongly pro-cyclical—surging as ### Investment pro-cyclicality and caution - Investment spending in the previous cycle was "strongly pro-cyclical—surging as the economy boomed, and cut back following the crisis." - Current fiscal rules were introduced after the crisis and "cannot be assessed on that basis." - Policy implication: "the government should be wary of overcommitting in advance to avoid following the same path in the future." ### National and Sectoral Planning — institutional assessment - Institutional Strength: Medium; Effectiveness: Medium. - The planning framework in Ireland is "complex" with a "mixed" record in improving economic and social welfare. - The 2002 National Spatial Strategy (NSS): - Identified nine "gateways" (twelve cities and towns) and nine "hubs" (eleven towns). - Shortcomings: "designated too many centers," "created a perception of winners and losers," "was inadequately supported by the political and local government systems," "lacked an economic dimension," "did not have adequate legislative backing" and "was not linked to a capital investment program." (See paragraph 21.) ### New national planning framework and capital plans - Government actions: - Launched a comprehensive long-term spatial strategy looking forward to 2040 and a ten-year capital investment plan. - Discussion paper: February 2017 ("Ireland 2040, Our Plan: Issues and Choices"). - Department of Housing, Planning and Local Governments (DHPLG) preparing the National Planning Framework (NPF): a draft "to be published by the end of the summer, to be finalized by the end of the year." - Department of Public Expenditure and Reform (DPER) actions: - Preparing a mid-term review of its existing capital investment plan covering the period to 2021. - Preparing the ten-year capital plan; intends to publish it "at the same time as the new NPF." - Aim: "establishing the capital plan as an instrument to enable the objectives set out in the strategic plan." ### NPF — highlights (Box 1) - Spatial and implementation principles: - Recognize and address "increasing mobility of people, especially young people, and capital, particularly the 'pull' factor of large and capital cities." - Implementation requires "forming partnerships and formal coordination arrangements between regional and local authorities, private developers and citizens." - Specific issues to tackle: - "Enhancement of regional connectivity (roads and railways) without encouraging more sprawl." - "Diversifying energy sources (90 percent fossil fuel use, 10 percent renewable energy)." - "Enabling sustainable quality investment in water services." - "Universal high speed broadband access for business and citizens." - "Supporting investment in innovation (where Ireland rates below EU comparators)." - "How to make businesses/SMEs/start-ups thrive in small towns." - "Addressing new and emerging challenges like Brexit." - "Tackling skills shortages and performance of Irish-owned firms." - Urban development and livability: - "Parity in the development and progression of Irish cities will require the central government to work hand in hand with local governments" to promote "livability, critical mass, more sustainable mobility and more affordable housing in city cores." - "Greening of cities" requires "development of recreational areas and high-quality public spaces." - Managing mobility, traffic expansion, and "growth of urban noise pollution" is essential. - "Connectivity between regionally located cities and their outward links by air should be further developed." - Importance of "soft tools" in city development (example: Denmark private developers hire experts to advise on furnishing public spaces). ### NPF early draft observations and sector plans - The initial early draft mixes "high-level strategic directions and policies, with specific actions and in some cases, specific projects," which can: - Raise stakeholder expectations. - Be "not aligned with estimates of the cost of delivering significant capital infrastructure." - Sector plans: - Produced by government departments and semi-state commercial entities for transport, health, education, social housing, climate change, national broadband, electricity, and water. - "Most of the sector strategies include an assessment of capital investment requirements, without much detail for individual projects." - "In many cases the costings have not been validated by Vote Officers in the DPER." ### Example of good inter-departmental coordination: Social housing - "Rebuilding Ireland: Action Plan for Housing and Homelessness": - Clear targets: "to build 47,000 new housing units over the period 2017–21." - Funding envelope: "€5.35 billion approved by the DPER." - "Effective system of planning approvals" and "a construction pipeline that stretches across local authorities." ### Performance targets and local planning - Some sector plans include measurable performance targets; examples of good practice: climate action and water plans. - Local authorities prepare six-year development plans, but "for the most part, these documents contain little information on capital investment, the costs of such investment, or performance targets." ### DPER challenges aligning investment needs with fiscal space - Mid-term review submissions total "more than €10 billion" while available fiscal space is "€2.6 billion." - Note: "The total fiscal space available is €5 billion, but €2.6 billion has already been allocated to the housing program." - NPF focus on developing five metropolitan cities and other urban areas "creates specific challenges and will demand additional resources as well." - Budget structure problem: departmental "votes" do not fit comfortably with cross-sectoral approach of the NPF. ### Proliferation of plans and need for stronger alignment - Observations: - "Planning instruments, strategies, and plans have proliferated in Ireland." - "Absence of strong mechanisms to ensure that they are aligned at the national level." - Unclear "how regional and local strategies feed into or follow them." - Risks: "Expectations of higher investment may be created ... which cannot be fulfilled because of financing constraints." - Recommendation summary: "Measures could be taken to strengthen the coordination and alignment of the planning process and the preparation of credible and consistent infrastructure investment plans." ### Measures to improve management of infrastructure investment (Box 2) - Alignment of analytical work: - Many of the "69 National Policy Objectives" in the draft NPF reference investment projects "without specific costings." - Section 9.3 "projections and analysis are not aligned with the work carried out by the DPER" and "do not include any costings." - DPER could "develop a common analytical framework" for all departments and validate assumptions and analytical methods with spending departments. - Ensure "estimates of the future costs of major investment projects are based on a standard methodology and assumptions." - Alignment of presentation: - Current plans "do not 'read across,'" making it difficult to connect national strategy, NPF discussion, and DPER capital plan (example: social housing). - Suggest developing a system of "signposting" with cross-references between NPF, sector plans, and capital plan. - Standard presentation of sector plans: - Good practice example: National Mitigation Plan format, which sets out for each area: - (i) investment projects already initiated; - (ii) proposed new projects; - (iii) project objectives (measurable targets); - (iv) estimated impact on the Exchequer (direct expenditure and taxes foregone); - (v) the NPV of the project, measured over the short term (2017-20) and long term (2017–30); - (vi) the marginal cost per ton of carbon abated; - (vii) the cumulative reduction in carbon emissions. - Infrastructure Projects Authority / Unit: - Many advanced countries have special entities for independent review of major projects, best practice methodologies, medium to long-term demand analysis, alternative financing models, and monitoring implementation. - Creating such an entity in Ireland could be considered; "to avoid potential issues of 'capture', a preferred option might be to locate the entity as a unit of the DPER." - Specific recommendations (from Box 2): - Integrate spatial, sectoral and 10-year capital funding plans with a specified minimum set of information on priorities, estimated project costs and infrastructure gaps, timelines for implementation, and performance targets. - Update and reduce the number of planning strategies, integrating them vertically (with the NPF and capital plan) and horizontally (across sectors). - Establish a common analytical framework for DPER, sectors, and semi-state entities on estimating demand pressures and infrastructure gaps. - Establish a standard presentation in sector plans of data relating to investment projects, their cost, and performance targets; align these data with the capital plan and the budget. - Establish an Infrastructure Projects Unit within the DPER to provide advisory services on appraisal and selection of projects, special studies of infrastructure bottlenecks and financing, and evaluation of lessons learnt. ### Central-local coordination — institutional assessment - Institutional Strength: Medium; Effectiveness: Medium. - Local government sector: - Accounts for "only 3 percent of GDP," one of the smallest shares in the EU. - "Self-financing rate is also extremely low." - Restructuring under Local Government Reform Act 2014 reduced authorities from "88 to 31." - Three Regional Assemblies established to coordinate member local authorities. - Ireland described as "one of the most centralized fiscal systems in Europe," with local authorities having limited political power or fiscal discretion. - Local development plans cover six years but "include little information on capital investment projects, or their cost." - Borrowing and fiscal risk: - Local authority borrowings "must be approved by the appropriate minister, following a review by the department responsible for local government (DHPLG)." - 2013 Fiscal Transparency Evaluation assessed fiscal risks to be low in local government sector, with no local authority having a "debt service to revenue ratio of more than 7 percent." - MTBF and protocols: - The MTBF formalizes (in Annex 4) the General Government Balance (GGB) protocol between DPER and the then Department of Environment, Community and Local Government. - Under the protocol, "the local government sector is required to have a neutral impact on the GGB." - The expenditure benchmark in the MTBF "governs the total revenue and capital expenditure of local authorities" and affects expenditure of own resources on capital projects. - DHPLG management tools: - DHPLG manages local authorities' contribution to the GGB through "the revenue account, the capital account, loan sanctions, and borrowing controls." - "Allocation of non-mortgage loan sanction capacity for all local authority capital projects is set annually by the DHPLG." - Allocation framework accounts for "non-mortgage loan repayments, new loan financing requirements, and the planned expenditure of local authority own resources." - Local tax base: - The Local Government Act 2001 (amended 2014) expanded the tax base to include a local property tax (LPT). - "Eighty percent of the LPT is retained by local authorities" and "20 percent is redistributed to poorer authorities." - The government decides the allocation of LPT expenditure to local authorities each year as part of the budgetary process. *Prepared from cr17333 - 20. In the previous cycle, investment spending was strongly pro-cyclical—surging as (PDF chapter/section).* ### 36. Capital investment by local authorities is financed largely by transfers (grants) from ### 36. Capital investment by local authorities is financed largely by transfers (grants) from ### Local government capital financing and procedures - Capital investment by local authorities is financed largely by transfers (grants) from the state budget, with the remainder funded from development levies, borrowing, other internal resources, and sales of assets. - A three-year capital program is prepared by the Chief Executive for approval by the elected local council in accordance with Section 135 of the Local Government Act 2001. - Discussions between the government and individual local authorities are mainly conducted by the DHPLG, and with departments responsible for sectors such as transport, where local authorities have a significant role in the delivery of services. - The DPER itself has little direct contact with these authorities during the budget negotiations. - Information on grants and other allocations are often not notified to local authorities until several months after the national budget is approved. - At the end of each year, local authorities prepare an annual financial statement that includes information on income and expenditure of the capital account, and an overall capital balance. - The local government sector, as part of general government, is required to operate in accordance with the MTBF published by the Department of Finance in December 2013. ### Public-Private Partnerships (Institutional Strength - Good; Effectiveness - Medium) Findings - Ireland established a general framework for its PPP program in 2001. - Use of PPPs picked up substantially after the financial crisis, though cumulative volume and value of PPPs in Ireland has been much lower than in some other EU member states. - Portugal and the UK: PPPs represent around 11 percent and 16 percent of GDP, respectively, in terms of nominal commitments. - Ireland: PPPs represent only 3 percent of GDP. - The 2001 framework focused on methodology and procedures for preparing, selecting, and implementing PPP projects, without identifying specific sectors or projects; selection has proceeded largely on an ad hoc basis subject to central review on value for money and procurement. - The DPER is carrying out a review of Ireland’s PPP policy. - Central oversight arrangements include a central PPP unit in the DPER, and the National Development Finance Agency (NDFA) in the National Treasury Management Agency (NTMA). - NDFA’s roles: provide financial advice and support to departments in preparing PPP proposals, monitor implementation once tenders awarded, and more recently manage the procurement phase of PPP projects. - PPPs aim to deliver infrastructure across education, health, justice (law courts), social housing, and transport sectors. - DPER’s Capital Plan 2016–21 phases: - Phase 1: roads and primary education among others. - Phase 2: social housing. - Phase 3: higher education, health, and court projects. - Most PPPs take the form of Design, Build, Finance, Operate, and Maintain (DBFOM) projects, most relying on unitary payments (“availability payments”); a small number are concessions with user charges (e.g., toll roads). - Sequenced rollout: early PPPs in education (bundles of schools), then roads. Ireland’s motorway network expanded from 200km in 2004 to around 1000km, around 40 percent of which are PPP projects. - Crisis impact: many projects under development but not contracted were cancelled during the crisis; schools and road projects continued; older proposals are being reconsidered alongside new projects (higher education institutions, primary health centers, courts). - The PPP arrangement allowed the government to deliver projects when public spending was constrained by the financial crisis. - Concern: decisions on PPPs in recent years appear to have been driven by additionality rather than value-for-money (VFM) and affordability. PPP financial commitments and metrics (from Table 4) - PPPs: - No. of projects: 19 - Total contractual value (€ billion): 3.1 - Total projected unitary payments (€ million): 8.6 - Concessions: - No. of projects: 8 - Total contractual value (€ billion): 1.9 - Total projected unitary payments (€ million): 1.0 - Total: - No. of projects: 27 - Total contractual value (€ billion): 4.9 - Total projected unitary payments (€ million): 9.6 - Total as % of GDP: 2.0 (contractual value) and 3.8 (projected unitary payments) - Transport is dominant: - In PPPs: €1.9 billion out of €3.1 billion total contractual value. - In concessions: seven road construction projects with a nominal contractual value of about € 1.5 billion. - Some projects are grouped into “bundles” (e.g., one PPP covering construction and operation of several schools). VFM tests and implementation - Four VFM tests applied across procurement: 1. Detailed appraisal (qualitative suitability test). 2. Output specification and Public Sector Benchmark (PSB) (qualitative suitability test). 3. Tender evaluation after receipt of tenders—evaluates whether highest-ranking tender can deliver VFM against the approved PSB. 4. Award of contract test just prior to award, based on comparison with PSB when all costs are known. - DPER acts as gatekeeper at each stage with the right to delay or terminate projects if procedures not followed or VFM calculations inaccurate. - Only two projects over the past 15 years have failed the tests. - C&AG 2004 report showed incorrect use of the PSB in an early project; with corrected calculation the PSB would have been more expensive by 13-19 percent rather than cheaper by 6 percent. - Uncertainty remains whether VFM tests are used consistently across government due to limited recent audit information. Issues identified by C&AG and 2013 FTE - Government policy on PPPs since the financial crisis guided by additionality rather than good use of public resources. - Disclosure concerns: cost-benefit analysis (CBA) and other economic and financial analyses of proposed PPP projects should be made public. - Need for more ex post reviews of PPP projects and wider dissemination for lesson learning. - Ex post reviews should emphasize economic and social impact (e.g., performance of judicial courts, impact of new roads on traffic congestion). - 2013 FTE raised concerns about disclosure of commitments and contingent liabilities related to PPPs; more information is now published but data are not complete. - Notable omission: estimate of how the commitments of €9.6 billion are distributed over the remaining years of the contracts. Recommendations on PPPs (as provided) - As part of DPER’s review of PPPs, and subject to confirmation that the change would be consistent with EUROSTAT rules, consider replacing the current fiscal cap on unitary/availability payments with a rule that scores the total capital cost of a PPP against departments’ capital envelopes. - Consider imposing restrictions on PPPs (e.g., in the social sector) that are more likely to impose a future fiscal burden than PPPs in the economic sector (roads, energy, etc.); and consider “raising the bar” by requiring PPPs to achieve a higher percentage of net cost savings compared to the public-sector benchmark. - Add an annex to the budget documents that provides comprehensive information on PPPs and concessions, broken down by sector and project, including a projection of how future commitments are distributed over the remaining years of the contracts. - Make public the results of cost-benefit analysis of PPP projects, and the criteria used to select them. - Conduct more ex post reviews of PPP projects, and disseminate the results; give more weight in these reviews to the economic and social impact of PPPs. ### Regulation of infrastructure companies and state enterprises - Economic infrastructure markets are either open to competition (electricity generation and retail distribution, gas supply, telephone and internet) or are regulated monopolies (transmission networks for gas, water, and electricity). - Electricity market covers Republic of Ireland and Northern Ireland, interconnected with Great Britain; it has three private sector players and two additional public sector generators competing with the incumbent Electricity Supply Board (ESB). - Broadband provision is highly competitive with three alternative providers to the incumbent Eircom Limited (EIR). - The main domestic regulator, the Commission of Energy Regulation (CER), sets prices for many regulated monopolies and is organizationally, financially, and managerially autonomous. - CER sets transmission network prices based on economic criteria considering consumer impact and maintaining investment grade credit ratings; it scrutinizes company investment plans and demand projections. - Other regulators include the rail regulator and COMREG for communications. - Water pricing remains sensitive; services historically provided at no cost. A recent attempt to introduce water charges was reversed. CER regulates notional prices and the subsidy the water company receives; water costs are estimated to be significantly higher than in comparable countries. NewERA and oversight of state enterprises - Government reviews investment and financial plans of all state enterprises; NewERA was set up in 2011 to provide oversight and specialist financial advice to the largest SOEs and to compile their financial statements and investment plans into a single Financial Overview, though this covers only 75 percent of the SOEs. - NewERA currently manages: - Bord na Mona (peatland and electricity generation): turnover €433m; - Coillte (Forestry and windfarms): turnover €283m; - Eirgrid (electricity transmission): turnover €706m; - Ervia (Gas networks and water supply): turnover €1,342m; and - Electricity Supply Board (ESB—electricity generation and transmission): turnover €3,335m. - State enterprises’ investment plans are constrained by multiple interactions and checks: - Dual ownership by the Ministry of Finance and the relevant line ministry, which issue a Letter of Expectation covering objectives for financial performance, gearing ratios, and performance targets. - Some enterprises have borrowing limits in law (e.g., ESB). - Requirement to maintain investment grade credit ratings. - Requirement to produce five-year investment plans and annual corporate plans subject to NewERA and ministerial approval. - For complex transactions or large investments NewERA is often brought in to provide financial advice. ### Allocating investment and multi-year budgeting (Institutional Strength - Medium; Effectiveness - Medium) Findings - Ireland introduced detailed medium-term budgeting for both capital and current expenditures in 2011. - The process is based on medium-term expenditure ceilings that the DPER sets for each department; ceilings extend three-years into the future and cover all Exchequer-financed expenditure, separated between capital and current. - Ceilings are based on Comprehensive Reviews of Expenditure (CRE) that take place every two to three years; since 2015 ceilings also informed by the Infrastructure and Capital Investment Plan (2016–21). - In practice, expenditure ceilings have not always been followed: - The first three budgets following introduction held to previously announced figures, but thereafter there has been a pattern of upward revisions to ceilings. - Revisions are due largely to increased budget allocations in response to upward revenue revisions or allocation of increased available fiscal space towards public investment. - Spending outturns have tended to exceed budgeted figures even in budget years; some overspends due to emergency measures (e.g., 2011 flooding requiring extra road repairs funding). - Expenditure ceilings are developed by reference to spending plans and after consultation with line departments, rather than based on medium-term forecasts. - DPER does not maintain an overall expenditure forecast of ongoing, committed, or prioritized expenditure extending into the medium term; it provides the top-down capital ceiling and expects departments to work within that ceiling, though portfolio forecasts are maintained within some spending departments. *Source: cr17333 - 36.* ### 56. The lack of a medium and longer term profile of major project costs represents a ### cr17333 - 56. The lack of a medium and longer term profile of major project costs represents a ### Risk from absent medium- and long-term cost profiles - The lack of a medium and longer term profile of major project costs represents a potential risk to the public finances, as it opens the possibility of an over-commitment of resources. - Many planned projects are large, with construction and maintenance cost profiles that increase over the medium term, creating the potential that the government over-commits by giving budget approval to large projects that in the medium term could require funding exceeding that available within the fiscal rules. - Evidence of this risk exists in some departments (example: health) where projects that are “committed”—i.e., those with government and budgetary approval—have already exceeded their available spending allocation, even under the expanded budgets anticipated under the mid-term review of the capital plan. ### Capital Tracker database: status, current limitations, and recommendation - Status: - The government does not currently publish a list of major capital projects with total project costs, though one is being developed and will soon be made public. - The “Capital Tracker” database, due to be put on the DPER website later this year provides a full list of major projects—both underway and planned—with information describing each project, its region and sector, full cost, and expected timing. - Current version of Capital Tracker provides details of a project’s total Exchequer cost, total value, responsible department, status, construction timetable, and estimated completion date. - Current limitations (information not provided in present form): - annual cost profile of each project; - mix of construction versus operational and maintenance costs; - economic performance information such as CBA or Cost-Effectiveness Analysis (CEA); - data on any material adjustments to a project’s design or total cost; - whether implementation of the project is on track, or is subject to significant delays; - data on performance targets, such as a project’s outcomes and outputs. - Recommendation: - Develop the “Capital Tracker” database as a tool for forecasting investment requirements; to ensure that the annual profiles of approved projects fit within the available capital expenditure ceilings; to improve the allocation of unapproved projects; and to track the progress of projects that are underway. ### Budget comprehensiveness, extra-budgetary entities, and EU financing - Extra-budgetary entities and their capital spending: - There are ten non-commercial semi-state entities in Ireland that are part of the central government sector but whose transactions are not included in the state budget. - These extra-budgetary entities’ spending on capital investment amounts to only €83 million in 2017, equivalent to 0.3 percent of total public investment. - EU financial support: - Total financial support from the EU has fallen sharply from an average of about €5 billion a year in the 1990s, to €400 million currently, of which capital spending is only €60 million. - Ireland is now a net contributor to the EU budget. - PPPs: - Little information on PPPs is included in the budget documentation; data on specific projects can usually be obtained on request from the DPER, the NDFA, and the spending department responsible for individual PPPs. ### Budget unity and capital/recurrent separation - Capital and recurrent budgets are prepared together and submitted in a single document, but: - For individual capital projects, only the relevant spending departments record information that separates capital costs from associated recurrent costs. - While the budget includes appropriations of the recurrent costs associated with capital investment projects, the information is not shown at the level of individual projects. - Budget classification: - The budget classification and chart of accounts are based on GFS/ESA principles which provide a clear definition of recurrent and capital spending. - Not all departments apply this definition consistently for maintenance spending. ### Maintenance funding: adequacy, sector practices, and recommendations - General issues: - No standard methodology is used for determining levels of maintenance funding, either at planning or budgeting stages. - Most sectors do not have a defined approach for identifying maintenance funding needs or making reliable estimates of future cost. - The education sector largely relies on schools to fund capital maintenance through capitation grants covering operational expenditures. - Sectors with more sophisticated approaches: - Roads sector: operates a highly-developed system for determining and monitoring pavement quality on national motorways and has estimated maintenance and rehabilitation funding required to maintain steady-state road quality and availability. - PPP projects: include an obligation to maintain projects over their lifetime relative to contractual quality standards. - State infrastructure corporations: direct considerable focus to maintaining infrastructure asset values. - Evidence of underfunding and specific figures: - Maintenance and rehabilitation funding for the national motorway network of €157 million represents less than ½ percent of the estimated national road asset value of €32 billion. - This allocation is anticipated to increase to €457m by 2019, but will still leave maintenance funding of 1.4 percent, compared to norms of 5 to 10 percent used in countries such as South Africa. - Hospital maintenance expenditure represents 1.1 percent of the estimated capital stock, much less than the 5–8 percent guideline. - Maintenance funding guidance table (extract of sector norms): - Roads: Maintenance Funding 5-10; Replacement or Major Rehabilitation Every 20-30 years; Percent of replacement cost 5-10. - Hospitals: Maintenance Funding 5-8; Replacement or Major Rehabilitation Every 20-30 years. - Schools: Maintenance Funding 4-6; Replacement or Major Rehabilitation Every 30-50 years. - Public Buildings: Maintenance Funding 4-6; Replacement or Major Rehabilitation Every 30-50 years. - Electricity reticulation: Maintenance Funding 10-15; Replacement or Major Rehabilitation Every 20-30 years. - Water reticulation: Maintenance Funding 4-8; Replacement or Major Rehabilitation Every 20-30 years. - Source: South African Maintenance Budgeting Guidelines - Recommendations: - Further develop the Capital Tracker database (see Institution 6) to provide more comprehensive information on: the annual cost profile; implementation of projects, including a clear separation of capital and recurrent costs; and data on adjustments to project design and costs, implementation delays and results. - Sharpen the focus in the budget process on the level of spending required to maintain infrastructure at a steady-state level. Use the recommended government-wide register of nonfinancial infrastructure assets, based on existing sectoral registers, to determine appropriate maintenance levels (see Section 15). - Within the spending envelope set by the 2017 Stability Programme, increase the share of the budget directed toward maintenance and rehabilitation expenditure to prevent further degradation of the existing capital stock. ### Project appraisal, Public Spending Code (PSC), and business case approaches - PSC scope and appraisal requirements: - The Public Spending Code (PSC), introduced in 2012, applies both to the general government sector and to semi-state commercial enterprises and requires all major projects to be subject to economic analysis. - The PSC builds on 2005 Capital Appraisal Guidelines and is described as “the set of rules, procedures and guidance to ensure VFM in public expenditure across the Irish Public Service.” - CBA is compulsory for projects with a total capital value exceeding €20 million. For projects where it is not feasible to monetize benefits, CEA is allowable. For projects below the €20 million threshold, qualitative appraisal techniques are employed. - The PSC requires the CBA to be re-run during planning using detailed design cost estimates and tender prices. - Thresholds and historical changes: - €20 million is the current threshold for mandatory CBA. - The threshold history: The threshold began at €50 million, then fell to €30 million, before settling to €20 million. - Coverage gaps and publication: - Appraisal reports are not published; appraisal reports can only be obtained by means of a freedom of information request. - Departments are required to publish annual self-assessments of compliance with the PSC; completion and publication of self-assessments is uneven. - DPER has an independent review function of both the self-assessments and of the economic analysis of individual projects. - Effectiveness and monitoring: - Closer monitoring by DPER of the effectiveness of appraisal (and pre-appraisal) in filtering out weaker projects could be useful. - Concern: comparatively few cases of projects being turned down at the appraisal stage on the basis of CBA findings—this may reflect careful screening at pre-appraisal (required for projects costing more than €5 million). - Guidance, parameters, and sector methodologies: - The PSC provides detailed guidance on economic appraisal and key parameter values (e.g., Test discount rate; shadow price of public funds; shadow price of labor; price of carbon). - The PSC recommends departments develop sector-specific methodologies; transport has a Common Appraisal Framework for Transport Projects and Programmes with a common set of parameter values (Value of time; vehicle operating costs; emission values; collision costs; and active travel values). - IGEES provides central support, capacity building, on-call assistance, and secondments; in 2016 IGEES trained around 200 officials from departments and local authorities in appraisal and evaluation techniques in the PSC. - Areas for review and improvement: - The threshold for mandatory CBA (€20 million) is comparatively high by international standards and should be reviewed with a view to lowering it and widening coverage of projects subject to more in-depth analysis, with careful consideration of capacity building and sequencing. - The PSC review to be completed by the DPER before the end of 2017 is an opportunity to streamline presentation and procedures, refine methodologies, update parameter values, and improve linkages with procurement and implementation guidance. - More detailed, cross-government guidance on applying MCA (for projects below €20 million and above €5 million) is required. - Consider the wider use of a structured business case approach (five thematic cases) similar to the UK “Business Case Model,” which examines Strategic, Economic, Commercial, Financial, and Management cases across sequenced business cases to improve early attention to deliverability, procurement strategy, affordability, and delivery arrangements. - Treatment of risk and optimism bias: - The PSC covers risk and uncertainty and various analytical approaches (sensitivity analysis, scenario analysis, Monte Carlo analysis). - Application in practice varies by project scale and complexity; e.g., DTTaS uses Monte Carlo simulations for largest projects but simpler sensitivity analysis for simpler projects. - There is no standardized approach to the treatment of optimism bias in cost estimates (unlike the UK where standard “correction” coefficients are applied). *Source: cr17333 - 56. The lack of a medium and longer term profile of major project costs represents a (PDF chapter/section).* ### 78. The review of the PSC should consider the approach to optimism bias, and also ### cr17333 - 78. The review of the PSC should consider the approach to optimism bias, and also ### Optimism bias, risk and uncertainty guidance - The review of the PSC should consider the approach to optimism bias, and whether the guidance on the analysis of risk and uncertainty needs to be deepened. - Possible deepening could include: - The provision of worked examples for less complex approaches. - Discussion of expected value calculations, which is "barely touched on." - Advantage noted: the business case model allows a more structured approach to identifying a variety of risks earlier in the project cycle, helping identify mitigation measures and management strategies. ### Contingency allowances and guidance - Project budgets include an allowance for contingencies; this allowance is a requirement of the PSC and of the guidelines on preparation of project budgets. - The guidelines give detailed guidance on the estimation of a contingency reserve at various points in project development. - The requirement for an adequate contingency allowance is repeated in the letters issued by the DPER to departments notifying medium-term allocations under the multi-annual capital investment framework. - Footnote guidance on contingency evolution in project planning: - A contingency of 10 percent is expected at the detailed design stage for standard projects. - Contingency reduces to 1-2 percent at the implementation stage for standard projects. ### Recommendations on appraisal, methodology, and transparency - Reinforce the appraisal of investment projects to ensure that weaker projects are prevented from proceeding and riskier projects are identified early, then planned and managed accordingly. This will entail: - Publishing project assessments either in full, or in summary form, with key economic performance indicators and underlying assumptions. - Using the review of the PSC to harmonize, update, and extend appraisal methodologies and parameters, make it more accessible to users, and align it with complementary guidance. - Reviewing the threshold for economic analysis (CBA and CEA), and ensuring that departments have the capacities required to apply the new arrangements. - Updating, extending, and harmonizing parameter values for use in CBA/CEA. - Developing more detailed guidance for projects below the threshold, where multi-criteria analysis is currently required. - Mandating the IGEES to develop sector-specific methodological guidance in collaboration with investment-heavy departments. ### Appraisal review and the role of DPER (Project Selection) - Under the PSC, appraisals of all major projects are subject to review by the DPER, with input from external expertise on an “as-needed” basis. - Process summary: - Sponsoring Agency seeks DPER views before the Sanctioning Authority makes its “decision in principle.” - The Sponsoring Agency sends the appraisal to the relevant Vote Section in the DPER, which confers with the in-house IGEES team. - Depending on project nature, DPER may draw on NDFA and NewERA expert advice. - There is no formal obligation for the Sponsoring Agency to take account of the DPER’s views, but reputational/funding consequences make ignoring DPER views detrimental to future funding requests. - DPER has the ability to publish its review on a department website as a sanction, but this lever is rarely used. - Secondment of IGEES staff to departments acting as Sanctioning Authorities reinforces review function and consistency (example cited: Economic and Financial Evaluation Unit in the DTTaS). ### Comparative practice and thresholds - Other countries give a more decisive status to finance ministry appraisal reviews; example: UK Treasury Approval Point ("TAP") is a make-or-break decision point when the Outline Business Case is complete. - In Ireland: - For projects above €100 million, the Government is the Sanctioning Authority, allowing the Minister for the DPER to introduce the Department’s view at cabinet level. - DPER therefore has potentially stronger influence for the largest projects, but no decisive say for projects in the €20-€100 million bracket. ### Timing of DPER review and proposals for a two-gate model - Current practice: - DPER’s review role is performed before detailed project planning and design work has been undertaken. - During the annual budget process, review of the rationale and economic case by DPER is cursory; budget review focuses on aggregates, not economic analysis results. - Proposal: - Consider strengthening DPER’s role at a later stage (when project is fully developed and before contract signature) to create a final “gate” before budget funding is finally accorded. - Aim: approval in principle as general requirement for entry into the medium-term capital plan; approval of the full business case as requirement for funding through the annual budget. For major projects, DPER approval would be needed at both gates. - Capacity implications: - Developing such a model affects capacity needs. - May require distinct thresholds for CBA/CEA and for DPER reviews, since DPER may not have resources or desire to review all business cases if CBA threshold is lowered. ### Project selection criteria, policy guidance and gaps - No single explicit set of selection criteria for projects for budget funding is stated in one place; generalized criteria (VFM, readiness-to-go, government policy priorities) are implicit across documents. - PSC compliance is reiterated as a condition for Exchequer resources under the multi-annual capital investment framework. - Policy-level guidance: project selection is guided by the Government program and the Capital Plan. - The Capital Plan 2016-2021 identifies priority areas for funding. - The 2016 Programme for a Partnership Government (PfPG) identifies increases in capital investment in transport, broadband, education, health and flood defenses as priorities for the mid-term review of the Capital Plan 2016–21. - Observed problem: absence of a unified set of criteria at the start of annual budgeting or capital planning cycle makes the decision process difficult to follow. - Recommendation: issue more concrete criteria at the beginning of the budgeting/capital planning cycle to assist departments and the DPER. ### Limits of PSC and value-for-money (VFM) considerations - PSC’s economic analysis methods are of limited use for cross-sectoral allocation decisions; PSC does not provide a complete framework for selection decisions. - The PSC allows significant discretion: it states, “Nothing in the Public Spending Code should be taken as precluding Government or Ministers, under the delegated sanction arrangements set down by the Minister of Finance, from deciding to approve projects independent of the detailed application of the Public Spending Code.” - Concern: PSC appears to give too strong a dispensation from VFM considerations; tighter guidance to prioritize efficiency and effectiveness is recommended in the PSC review, while considering Accounting Officers’ responsibilities. ### Limitations of CBA for budget prioritization (Box 4) - CBA strengths: - Useful for quality control to ensure projects are socially profitable and sustainable. - Useful for prioritizing projects within sectors/sub-sectors (e.g., roads and flood protection) and for strategic investment decisions (e.g., road vs rail in a corridor). - CBA limitations for cross-sector budgeting: - CBA cannot be applied to all projects. - Relative importance of non-monetized benefits and costs differs between sectors and sub-sectors. - Reliability of benefit estimation techniques differs (revealed vs stated preference techniques). - Makes cross-sector comparisons difficult. - In sectors where CBA is not readily applicable, CEA does not produce an absolute indicator of net project worth for comparison across sectors. - Empirical note: few, if any, countries use economic appraisal findings as the main determinant of budget priorities across sectors; appraisals typically form one piece of information. ### Project pipeline and Capital Tracker - Some departments maintain pipelines of approved projects, but not at the national level. - DPER does not currently track projects according to stage in project cycle, though it is moving in this direction with the Capital Tracker. - Suggested refinement: capture projects earlier in the project cycle, at pre-appraisal stage. ### Recommendations on business case sequencing and DPER role - Introduce a more structured quality-at-entry process, involving three sequenced “business case” assessments at different stages of project preparation, and a wider range of assessment dimensions. - Align critical decision-points with the business case assessments and ensure objective review of each assessment to inform decisions. - Closely correlate surety of funding—in the annual budget, medium-term capital plan and long-term capital plan—with the maturity of the business case for the project. - Enhance DPER’s role as the coordinator and gatekeeper of the appraisal and selection process by: - Leading design and implementation of the improved “business case” model for major projects; and - Acting as objective reviewer, signing-off on major projects for each business case once the system is established. ### Implementing investment — Protection of investment (continuity and appropriations) - Ireland cannot make a budget appropriation for the total cost of a multi-year project at project commencement due to lapsing annual budget appropriations; annual appropriations are made within multi-annual capital allocations in the capital plan. - Continuity of funding is achieved through rule of law and contract law; government meets contractual commitments. - During the financial crisis, no funding to ongoing projects was interrupted; reduced capital budgets affected new projects or ongoing projects not yet contracted. - Virements: - Virements from capital to current expenditure are permitted without parliamentary approval, with prior DPER approval. - Such flexibility is expected to be used only in exceptional circumstances and “should not be used as a tool of expenditure management.” - Transfers occur very rarely and rules are not abused. - Carryover of unspent capital appropriations: - Allowed subject to a limit based on the total capital budget. - Departments may carryover an amount of unspent capital not exceeding 10 percent of the voted capital allocation for the budget year ("deferred surrender"). - Departments are no longer required to spend the carryover on the originally underspent projects; they can redirect to other priorities subject to DPER assessment. - The carryover amount is identified separately in the Appropriations Act, and if not spent by end of the second year, it must be given up definitively. ### Availability of funding, cash management and monitoring - Ireland’s procedures for cash management and banking arrangements align with advanced international standards. - Accounting Officer of each department/agency is focal point and is answerable to Parliament on financial management quality. - PMG provides cash for departments; day-to-day financial management is devolved to departments and agencies. - DPER practices: - Makes multi-annual allocations for capital investment. - Imposes limits on departments’ ability to make contractual commitments for the current budget year and the three following years. - Specific limits (examples provided in footnote): 75 percent of the indicative capital allocation in 2018, 60 percent in 2019, and 50 percent in [text truncated]. - Departments prepare monthly cash plans at year start; Vote Officers in DPER closely monitor and may require adjustments. - Some large-investment departments prepare five-year cash flow forecasts. - Lumpiness of investment may require adjusting project disbursements or delaying project starts. - System assessment: well managed; C&AG confirmed occasions of cash shortages or untimely releases are extremely rare. - Section E of the PSC provides guidance on financial management of EU funds; procedures transposed from EU directives/regulations and well integrated into Ireland’s cash management system. *Source: cr17333 - 78. The review of the PSC should consider the approach to optimism bias, and also* ### 2019. The rules are set out in a letter (“Multi-Annual Delegated Capital Sanction 2017-2020”) from the DPER to ### cr17333 - 2019. The rules are set out in a letter (“Multi-Annual Delegated Capital Sanction 2017-2020”) from the DPER to ### Transparency of Budget Execution (Institutional Strength - Medium; Effectiveness - Medium) - Ireland operates according to EU public procurement procedures; EU directives are transposed into Irish public procurement law and regulations and apply to all public-sector bodies, including state corporations. - All public procurement opportunities are advertised on-line at the site (eTenders) managed by the Office of Government Procurement (OGP). - Tenders above a threshold set by the EC (currently €5.225 million for works contracts) are automatically transmitted to the Official Journal of the European Union by eTenders. - Typical procurement processes: - Generally, a two-stage restricted tender process is used for public works contracts (open prequalification then shortlist). - In a few special cases (example: implementation of the National Broadband Plan) a competitive dialogue process might be used. - Capital Works Management Framework (CWMF): - Introduced in 2007 to deliver objectives for procurement of construction contracts. - Consists of an on-line suite of model contracts and standard conditions of engagement, with guidance notes. - Fixed-price, lump sum contracts are central; introduced to better control public-sector risk after significant past cost overruns. - Comptroller and Auditor General previously estimated cost overruns in real-terms in the 25-30 percent range for road projects. - Recent overruns reported at 4.8 percent for building works and 8.4 percent for civil engineering works, still higher than the 1–2 percent target envisaged when the CWMF was introduced. - A 2014 review found over-emphasis on price and insufficient attention to contractor capabilities; it recommended greater weight to tenders that are most economically advantageous while retaining price as dominant criterion—this recommendation has not yet been implemented. - Procurement monitoring and reporting: - OGP publishes analytical reports; eTenders functions as an effective procurement database. - The Public Service Spend and Tendering Analysis Report is based on eTenders plus additional spending information, but is not produced timely (report for 2014 available; report for 2015 in preparation). - The annual report fails to provide important information for monitoring (e.g., procurement method used, number of bidders per tender). - Complaints and redress: - Procurement complaints are handled through the judicial system; there is no administrative complaints mechanism. - Complainants must go directly to the High Court, with the possibility of appeal to the Court of Appeal. - This judicial route is expensive and may deter genuine complaints; on average 10-20 complaints are in process at any one time. - Monitoring of project execution: - Regular financial and physical monitoring takes place at spending departments and agencies, not centrally. - Vote Sections in DPER monitor overall departmental spending but pay less attention to individual project performance. - “Capital Tracker” system under development by DPER could provide centralized tracking but requires extended information and systematized information flows. - Other jurisdictions (UK, New Zealand) assign delivery confidence ratings (red, amber, green) to projects for risk-based centralized monitoring; this is an approach Ireland could consider. - Audit and ex post review: - PSC envisages an “audit” role for DPER regarding procedures for reporting project progress, but active centralized monitoring is not part of PSC; quarterly reports for projects >€20 million “may” be subject to audit by DPER (not required). - C&AG does not as a matter of course carry out ex post audits of individual investment projects; project expenditures are included in overall audits of implementing bodies, with follow-up only if financial audits raise issues. - Only a small number of performance audits have been performed by the C&AG’s Office; institutional and financial constraints may limit this. - Performance audits are desirable if public investment expenditure is to be ramped up. - Box 5 (example findings from a C&AG special report on Limerick Greyhound Stadium): - Project appraisal weaknesses: projected net revenues overstated by an estimated €2.9 million (in net present value terms). - Projected cash flows from property disposals (accounting for over one third of total revenues) were not backed by current valuations. - No evidence of sensitivity analysis; commercial viability heavily dependent on assumptions around tote betting contribution and track profit at Limerick. - Capital investment appraisal inadequate for a proposed investment of the order of €20 million; absence of appraisal comparing new greenfield stadium vs. re-development of existing stadium. - Conclusion: better analysis would likely have shown the development was, at best, a marginal commercial proposition; strategic arguments might exist, but board should have recognized adverse effects on financial position. ### Management of Project Implementation (Institutional Strength Good; Effectiveness - Medium) - PSC framework and project governance: - PSC requires appointment of a project manager by sponsoring department/agency at planning/procurement stage. - A Project Board with appropriate expertise and authority must be created; must include the project manager and a representative of the sanctioning authority. - Project manager is personally responsible for monitoring progress against contract requirements and reporting to the Project Board; must be sufficiently senior (at level of official sitting on Management Advisory Committee or equivalent). - Guidance and harmonization: - Good guidance exists centrally and at departmental levels (e.g., Guidance Note No. 1.1 on Project Management, National Roads Authority’s Project Management Guidelines (2010), Capital Planning Group protocols for Health Services Executive). - Need for harmonization of terminology and management structures across guidance (e.g., PSC does not mention a project director though guidance does; roads guidance refers to Project Steering Group rather than Project Board). - Adjustments, fundamental review, and termination: - PSC sets process for adjustments and stresses need for fundamental review of problematic projects; significant adjustments must be identified, reported to Sanctioning Authority, analyzed for project viability, and possibly lead to termination if viability undermined. - In practice, little evidence that fundamental reviews have been undertaken even where appropriate (example noted: National Children’s Hospital). - Triggers for fundamental review in Ireland are qualitative rather than quantitative. - Comparative example: South Korea triggers fundamental review if costs rise in real terms by more than 20 percent or forecast demand falls by more than 30 percent; during 2006-2010, 24 out of 140 projects subjected to fundamental review in South Korea were terminated; total project cost savings of 18 percent were achieved (compared to requested adjustments) on projects that continued. - PSC Rules for Project Adjustments (summary of Box 6): - Sponsoring Agency should report adverse developments and proposed remedial measures to Sanctioning Authority at earliest moment. - Approval of Sanctioning Authority required before committing to extra expenditure beyond approved amounts; applications must outline reasons, why offset measures were not possible, and report on viability given changed circumstances. - Willingness to terminate projects when cost escalation or unrealized benefits make continuation unjustified; ascertain and disclose termination costs before final decision. - Ex post review requirements and transparency: - PSC mandates mandatory post-project review for all projects with capital cost in excess of €20 million. - For remaining projects, a sample of 5 percent are subject to review. - Many reviews are being carried out, but results are not routinely published, undermining lesson-learning, feedback, and transparency. - Recommendations (from the source): - Strengthen the ex post assessment of major projects to improve the design of future projects; publish departmental ex post reviews of projects. The ongoing review of the PSC could include these practices. - Encourage the C&AG to do ex post performance audits of major investment projects. - Prepare a biennial summary of government-wide lessons from the reviews of the 10 largest projects completed. ### Monitoring of Public Assets (Institutional Strength - Medium; Effectiveness - Medium) - Asset surveys and registers: - No systematic survey of government assets; no government-maintained asset register; the cadaster is incomplete. - Major sectors undertake surveys: transport and higher education conduct regular surveys; a health sector survey was recently commissioned with first phase covering acute hospitals completed. - Transport Infrastructure Ireland (TII) maintains pavement management systems (dTims for national and MapRoad for regional and local roads) and reports a valuation of the national road network of €32 billion (16.9 percent of GNI*). - Higher education sector asset survey conducted in 2010. - Financial accounts and nonfinancial assets: - Government financial accounts do not include data on nonfinancial assets. - Office of Public Works maintains a register of government office buildings; departments also record such information, but no systematic maintenance of infrastructure asset information. - Ownership and accounting issues: - Mixed ownership complicates a comprehensive public infrastructure asset register: - Voluntary organizations (mainly religious bodies) often own school and health infrastructure even though government funds capital and current expenditures; government therefore does not include these assets in balance sheets. - Local authorities are ultimate owners of much transport infrastructure, including shares of national road network within their boundaries. - Neither voluntary organizations nor local authorities systematically account for their infrastructure assets. - Financial statements do not record depreciation of infrastructure assets: - Partly due to ownership issues. - Partly due to use of the cash basis for accounting (which does not include depreciation). - Government is considering adoption of accrual accounting in the early 2020s, following introduction of a new accounting IT system; any move must address ownership questions. *Source: cr17333 - 2019. The rules are set out in a letter (“Multi-Annual Delegated Capital Sanction 2017-2020”) from the DPER to the respective departments.* ### 117. The government financial statistics do, however, report the general government ### The government financial statistics do, however, report the general government public capital stock, and includes estimates of depreciation. ### Public capital stock estimation and depreciation - Estimates prepared in accordance with Eurostat requirements. - Method: perpetual inventory method (the cumulative sum of gross fixed capital formation at historical prices adjusted for depreciation). - Depreciation schedules based on a simple classification of assets: - buildings: assumed lifetime of between 20 and 80 years, depending on the type; - aircraft: 15 years; - intellectual property: 10 years. - Calculations do not attempt to adjust for the ownership of the assets. ### Challenges in asset management, valuation, and ownership - Lack of asset surveys, together with issues concerning valuation and ownership, present a challenge for the management and maintenance of public assets. - Without a solid estimate of the capital stock, the amount that should be provided for maintenance and rehabilitation of the assets is unclear. - Current funding of maintenance is provided on a relatively ad hoc basis. - Anecdotal evidence indicates premature deterioration in assets. - Absence of systematic data on the stock of assets is likely to present a challenge when asset sales take place. - Example cited: planned combination of three hospitals into a single national pediatric hospital in Dublin, where two hospitals to be replaced are owned by private orders (state funded for decades) and the third is a state hospital. ### Recommendation - Improve asset management and allocation of maintenance funding by developing a central register of infrastructure assets valued at either book or market value. ### Public Investment Units — international experience (summary of roles and drivers) - Common responsibilities of public investment units: - undertaking or coordinating independent reviews of major projects; - acting as a center of excellence for the development and dissemination of best practice assessment methodologies; - monitoring the implementation of major projects (in France, New Zealand, and the U.K.). - Units’ roles are advisory; decision-making power lies elsewhere. - Establishment drivers since the mid-2000s: - A renewed focus on closing infrastructure deficits, which are perceived as inhibiting economic growth; - A heightened focus on efficiency and effectiveness in response to tighter fiscal constraints following the global financial crisis; - Emergence of a stronger portfolio approach to PIM, particularly with respect to mega projects and PPPs; - General dissatisfaction with the decentralized approach to managing infrastructure investment, especially in appraisal and selection of projects and efficiency of delivery. ### Examples of public investment units (organizational features and functions) - France — General Commission for Investment (Commissariat Général à l’Investissement) - Established in 2010. - Reports to the Prime Minister. - Prepares government decisions on contracts between the state and agencies responsible for management of funds under the special program ‘investments for the future’. - Conducts reassessments of feasibility studies (RFS) for off-track projects; conducts value for money tests for PPP projects; carries out ex post evaluations of government investment programs; provides annual review of the implementation of the public investment program. - New Zealand — National Infrastructure Unit - Established in 2009. - Unit of the Treasury. - Coordinates the preparation of project specifications and checks their consistency with the Government's policies and strategy on future investment. - Formulates, and monitors progress on, the 20-year National Infrastructure Plan (NIP). - Conducts preliminary feasibility studies (PFS) for major projects, based on general and sector-specific guidelines. - South Korea — Public and Private Infrastructure Management Center (PIMAC) - Established in 2005. - Independent think-tank. - Coordinates the processing of investment project, the independent review process, and provides advice and recommendations. - Examines the efficiency and appropriateness of projects by reviewing economic and policy feasibility. - United Kingdom — Infrastructure and Projects Authority (IPA) - Established in 2011, but recently merged with Infrastructure UK. - Reports jointly to HM Treasury and the Cabinet Office. - Coordinates the processing of investment projects, the independent review process, and provides advice and recommendations. - Develops the Government Major Projects Portfolio, with regular reporting to ministers. - Initiates and oversees an integrated quality assurance and approval planning process for all major projects or programs, in coordination with HM Treasury. - Initiates and oversees a mandatory Starting Gate Review process for all new projects and programs; escalates issues of concern to ministers and accounting officers. - United Kingdom — National Infrastructure Commission (NIC) - Established in 2015 as an Executive Agency. - Executive Agency - reports to HM Treasury, but operates at arm’s length. - Provides impartial, expert advice and makes independent recommendations to the government on economic infrastructure. - Prepares a National Infrastructure Assessment once in every Parliament, setting out long-term infrastructure needs with recommendations for action by the government. - Takes account of potential interactions between its infrastructure recommendations and housing supply. - Prepares an annual monitoring report taking stock of the government’s progress in areas where it has committed to take forward the NIC’s recommendations. *Source: Fiscal Affairs Department, International Monetary Fund.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17333.pdf_