The National Development Plan is a key pillar to the Programme for Government and more critical than ever as we emerge from the COVID-19 pandemic with the aim to tackle Climate Change in a more meaningful way. For the first time since the formation of the state we have a commitment to capital spending above 5% of our economic output (Gross National Income) which will place us above historical EU averages of 3% of GDP.
Michele Connolly and Rob Costello of our Corporate Finance team answer the question: so what’s in the National Development Plan and where to from here?
What's in it?
The plan includes a headline figure of €165 billion from 2021-2030. This is broken down into €136 billion (80%) from the exchequer and €29 billion from State-backed enterprises and bodies. The capital expenditure allocation over the first 5 years of the plan equates to €59 billion with €76.8 billion (56%) over the remaining 5 years. There is also an allocation of €2.9 billion per annum for State body spending. The first five years has a strong emphasis on transport and housing: €30 billion or 50% of the total spend.
Climate Action is clearly emphasised and there are several elements that will not be exchequer funded e.g. RESS. However, the first 5-year allocation for the line department, DECC, is €4.1 billion and a large proportion of this, around €2 billion, will be to fund the National Broadband Plan.
Private finance is key
The previous NDP included a review of the use of PPPs in the context of the delivery of Project Ireland 2040 and appeared to limit the use of the model that successfully delivered several of our major infrastructure projects over the previous two decades. This has played out with only some social housing and third level projects being procured through PPPs in recent years in recent years. This NDP has made a commitment to review the existing treatment of PPPs and to examine the disincentives in policy to follow this model by Q2 2022.
In addition to the PPP review the NDP sets out a commitment to explore Energy Service Contracts, a form of partnership with the private sector whereby an Energy Performance Company (ESCO) delivers an energy efficiency project (e.g. a building upgrade) in return for a share in the energy efficiency savings derived from the work. This model is proven in a number of countries globally and has been widely backed by the EIB. It certainly has potential in Ireland, especially in the context of the upgrades required to public buildings.
Other areas where private finance will be key will be in the provision of offshore grid infrastructure with finance of €5bn estimated and to meet the renewable energy targets of 5GW by 2030 which the Government estimates will involve €10bn of private investment.
Capital spending in Health is critical
While there is €5.7 billion allocated to health over the first five years of the NDP and apart from the New Children’s Hospital, most of this spending appears to relate to replacement buildings, replacement equipment, replacement ambulances and investment in eHealth. The National Maternity Hospital to be relocated to St. Vincent’s is included at a range of €20m - €50m which indicates that most of the capital investment will not be until post 2030. The National Healthcare Capacity review conducted in 2018 identified the need for an additional 2,590 hospital beds by 2031. This was pre-COVID-19. The plan doesn’t seem to include the significant upgrades or replacements needed throughout our health system to address this. The €5.7 billion, which equates to approximately 5% of total health spending when you include current spend, is small in the context of the capacity challenges we face. While the New Children’s Hospital is likely to be fully funded and completed within this NDP there is no indication of the delivery of similar projects over the next five years.
The Public Spending Code – beyond the business case
The 2019 Public Spending Code is now widely used for the approval of capital projects and the NDP sets out the various elements and stages of it. As we move out of the initial government approvals stage on several significant mega projects and programmes it will be important that the government bodies get the procurement strategies and contract models right in order to deliver best value for money for the State. In many cases this will not be through the more traditional Construction Works Framework Contract but through more collaborative forms of contracting and partnerships.
Climate Action Focus
The previous NDP was published in advance of the Climate Action Plan and this new NDP has a new emphasis on Climate Action. This includes increasing the share of renewable electricity to 80% by 2030, mainly funded through private investment; upgrading the energy efficiency to B2 or higher for at least 500,000 homes; the installation of 400,000 heat pumps and the implementing the National Biodiversity Plan.
The NDP has allocated €5bn towards energy efficiency, a key pillar for the built environment on our climate action journey. Many of the forms of contract and the methods for delivery of energy efficiency projects currently exist and will now need to be scaled up in the Irish market. We have several big players in this space in Ireland and their expertise, together with the capacity of the construction sector to innovate and develop their skills will be crucial to the successful achievement of a more energy efficient built environment.
Delivery is key
Efficient and speedy delivery should now be the focus for Government, as emphasised by the Minister. Over the last three years we have seen the permanent government put in place several improvements in relation to planning, design, governance, and resourcing of capital projects. There are still improvements to be made and as the focus shifts to delivery it will need to be supported by strong sponsorship, leadership and capability to achieve the benefits targeted.
- We welcome the new National Development Plan, its ambition and increased spend. While Housing and Transport are a key focus, we would expect to see further capital investment and delivery in the health sector.
- The theme of Climate Action and the Green Recovery is presented throughout the plan and presents a positive case for significant change in the next ten years. Fundamental to this will be private investment with semi-states, through the RESS schemes and through partnership models like EPC contracts.
- The plan sets out the objective to create 47,000 direct construction jobs out to 2030. This would involve an increase of over one third on current levels to meet the demand created from the NDP. This should be catered for through a detailed action plan focussed on education, skills and innovation which we know the Government and Construction Sector Group and working on.
- We will share further insights into the NDP in the coming weeks as we analyse the project tracker and the plans for each sector in more detail.
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