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State has €4bn bill over PPP deals in the boom

Russian oligarch's firm will be paid until 2041

THE taxpayer faces a further €4bn bill to cover the cost of public-private partnership projects (PPP) procured on the 'never never' from big banks, construction groups and a Russian oligarch's company during the boom.

The latest report by the Comptroller and Auditor-General (C&AG), published last week, pegs the future bill owed by the State for 37 road, school and infrastructural projects at €4.03bn in the coming years.

This estimate of costs is based on the assumption that inflation will remain at just 2 per cent for the foreseeable future.

Promoters of PPP schemes have already received payments of €2.34bn from the State coffers for projects including the National Conference Centre, the Cork School of Music, the new Criminal Courts complex in Dublin and miles of roads criss-crossing the country.

The Fianna Fail-led government was extremely active in farming out infrastructural projects to the private sector.

The attraction of these projects was that the State had a very limited outlay at the beginning and the cost could be kept off the balance sheet, meaning that the national debt was not affected.

However, PPP promoters make a very healthy return from these projects, collecting tolls or annual fees for building and often operating the assets, ranging from schools to toll roads and water-treatment plants.

It has also emerged that some of the PPP projects have wobbled badly.

Some PPP contracts gave the promoters certain guarantees that if roads or tunnels didn't generate enough traffic and tolls, then the State would be liable to make up the shortfall.

Some €5.2m was paid to the owners of the €590m Limerick tunnel and the M3 road last year as traffic numbers didn't hit targets.

Analysis by the C&AG suggests that the original traffic number estimates were well short of the mark, meaning that the taxpayer will have to cough up for another 30 years for one project.

"The projected traffic levels using the Limerick Tunnel will not reach the guaranteed traffic levels and the State will make additional payments to the PPP company for the whole duration of the contract (ie until 2041)," according to the C&AG's report.

Russian oligarch Oleg Deripaska is the biggest shareholder in construction firm Strabag, which is one of the promoters of the Limerick tunnel.

The C&AG has also warned that rising inflation could have a major impact on the final cost of the PPP slate of projects.

"Because the operational and availability payments extend for decades, variation in inflation rates will be likely to have an impact on overall payment levels. From a risk perspective, any emergence of high inflation would be a concern," it warned.

Sunday Indo Business