Building the Republic in the public-private interest
11 January 1999
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The Irish government has announced plans to use public-private partnerships to fund a £13bn bonanza in infrastucture spending. Ryan Dunleavy reports on benefits for lawyers within the Republic and the UK.
Two phrases are echoing around the corridors of Irish law firms - privatisation and public-private partnership (PPP).
Work on them is set to take off in the Republic, which has seen PPP only in a limited capacity before and handled few privatisations.
As John Fish, projects partner at Arthur Cox, says: "It is fairly obvious that PPP is very much flavour of the month."
The Irish government announced this summer it was preparing to introduce PPP. The system allows the state to seek alternative sources of finance for major projects in Ireland, and corresponds to the private finance initiative (PFI) used in the UK.
The government has listed a set of pilot schemes valued at £504m, but this represents only the first tranche of an £11bn national development plan.
Sonja Price, a William Fry lawyer who is advising the department of finance on PPP, says: "The Irish government is now committed to PPP. The projects that the government has mentioned are still in the planning stage. None have gone to tender yet. They are securing the routes these deals will take."
Lawyers say that the £13bn the government needs to spend on infrastructure is a major reason for introducing PPP.
Price says: "The infrastructure in Ireland has fallen behind. We want things to be built as quickly as possible. Dublin especially is being choked by traffic congestion.
"PPP provides vital infrastructure that may not necessarily be undertaken otherwise."
EU funding for the Republic has been cut as the economy has strengthened. However, this is not the chief reason for the government's decision.
Michael O'Connor, a projects specialist at Matheson Ormsby Prentice, says: "The government is sitting on a huge budget surplus. The economy is booming, so it is in funds. Public workers are threatening strike action if they do not have pay rises. But the government is afraid that if it gives some public workers any more it will open the floodgates and the whole public sector will open up and demand more money.
"Instead, it wants to concentrate on infrastructure. Its options are firstly, to build infrastructure itself, secondly, to use some of its surplus to build the infrastructure, or thirdly, pay off the public sector workers.
"PPP gives it a way out. There is a lot of public will in favour of PPP, but there is an accounting issue as well. It is far cheaper to use PPP."
Privatisation is also a hot issue for Ireland's lawyers. The most high-profile privatisation was completed this summer when the national telecommunications supplier, Telecom Eireann, was floated (The Lawyer, 3 May 1999).
But lawyers say a new wave of public companies are set to be privatised. They include Irish gas board Bord Gais, airport operator Aer Rianta, national airline Aer Lingus, state forestry Coillte, National Ports, and two banks - the Agricultural Credit Corporation and the Industrial Credit Corporation.
Declan Moylan, managing partner of Mason Hayes & Curran, says: "I think the privatisation measures are going to be very significant over the next couple of years. The government is committed to them.
"Telecom Eireann attracted huge public interest. We saw a large proportion of Irish citizens becoming shareholders.
"Privatisation will provide lawyers with a feast of work for the next few years. Certain firms will have positioned themselves to take advantage of that."
But it remains to be seen which firms will win the work. Moylan says: "Only the top six firms will get it in Ireland." He claims they are the only firms with the expertise to carry the work through. They are McCann FitzGerald, A&L Goodbody, Arthur Cox, Matheson Ormsby Prentice, William Fry, and Mason Hayes & Curran.
The same goes for the PPP work. As both PPP and privatisations are specialised areas dealt with by projects lawyers.
But it is not only the firms in the Republic that intend to handle the work. Northern Irish firms are hoping that their experience will give them the edge over their southern counterparts.
Ken Rutherford, partner at Northern Irish firm C&H Jefferson, says: "We have PFI experience and we are aware that there seems to be expertise in Northern Ireland that Dublin firms want to tap into.
"PFI has been going on here for a number of years but it is not done in the South. And I would like to add that privatisation experience in the South is also limited, but once again we have handled it up here."
Michael Lynch, partner at Northern Irish firm Elliott Duffy Garrett, which has an alliance with A&L Goodbody, says: "We will definitely be working closely with A&L Goodbody on PPP. The South has no experience of it. We will probably lead them. Our privatisation experts will also come into play."
English firms are also looking to gain some of the projects work, especially the PPP deals. Fish says: "There is not doubt that law firms in London are taking an interest in what is taking place with PPP in Ireland."
Ed Marlow, head of Denton Hall's PFI unit, says: "Ireland is very exciting for me as a PFI and PPP lawyer. There are some very good lawyers in Ireland already but they do not have the experience of PPP that we have.
"Certainly, in the early stages, the UK firms are going to have a role to play and we will continue to have a role in the foreseeable future as Ireland develops PPP."
But he says that there is room for both UK and Irish firms in the Republic's PPP market. "We are working alongside them and looking at the potential PPP market," he says.
John Scriven, a projects and PFI partner at Allen & Overy, says: "We are in touch with our traditional clients and many are looking at Ireland. UK companies are looking at Ireland for projects work in general." But he adds: "We would always work with Irish firms."
The firms in the Republic are preparing thoroughly for PPP in an attempt to gain as much of the market as possible. Many are setting up specialist PPP units, such as at Arthur Cox, the only firm in the Republic to have an office in the North. A&L Goodbody and most of the other top six firms have followed suit, and many have been hiring from the North and from Britain to gain valuable PFI and privatisation experience.
Matheson Ormsby Prentice hired projects expert O'Connor from Clifford Chance as part of its drive to raise its level of PPP experience. He spent four years in Clifford Chance's international projects group working on PFIs and privatisations around the world.
O'Connor says: "I came back to specifically look at projects in Ireland. We are looking at a couple of privatisations and are actively involved in a couple of PPPs now.
"In terms of the role of English firms over here, I think the Irish firms will hold their own."
Fish says that one thing in Irish firms' favour is that PPP will probably not follow the British or Northern Irish PFI models.
Naimh Burke, a former-Clyde & Co partner who now works at Arthur Cox, agrees. She says: "Government departments are looking at the English PFI system and in other jurisdictions, but it will be different in Ireland.
"The technicalities of the system in the UK are very different, and in Ireland the EU will come much more in to play."
And a huge raft of projects work will be created by the Irish government.
Firms in the Republic are at a natural disadvantage when it comes to handling this work because of lack of experience, especially with the more technical areas of transactions, and foreign firms are looking to gain from their weaknesses.
But practices in the Republic have prepared for this by building up their knowledge and employing new experts to protect their market. It remains to be seen how effective their preparations will be.