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Transport Minister seeks to spend over €10bn on a €1.5bn metro

Seamus Brennan’s plans are flawed, they display a total ignorance of how an economy functions and they are doomed to failure, costing taxpayers an awful lot of money in the process. We would like to take this opportunity to explain his plans and why they cannot work.

The minister proposes to build the metro plan favoured by the Rail Procurement Agency (RPA). As outlined by BUSRAGE in June 2003, it is an altered version of Luas Line D (Broadstone – Ballymun and Dublin Airport) and Luas Line E (St. Stephen’s Green – Broadstone), plans over three years old. It would involve running a light rail (or “metro”) line underground starting at D’Olier Street, passing underneath the Liffey, onward to the old Broadstone Railway Station (currently being used by CIE as a bus storage depot) and finally terminating at Dublin Airport. As recently as June the RPA estimated that this would cost €1.5bn. Now the minister wants Irish taxpayers to buy it from a private company, on a hire purchase scheme, costing us a grand total of €10bn. Brennan wants a private firm to build the metro and lease it to the taxpayer for 25 to 30 years, at a cost of €350m per year, for a project he says will cost €2.4bn. If this is a fair example of how a Public Private Partnership (PPP) works then we really have to question the sanity of the minister on this issue. If this were a straightforward loan for €2.4bn, €350m per year over 30 years (for repayment of interest and capital) would represent an interest rate in the region of 14.57%. This is in contrast to the European Central Bank (ECB) borrowing rate, which is currently a paltry 2%. Certainly this bears all the hallmarks of the worst idea since the closure of the Harcourt Street rail line.

“It’s not possible for the State to fork out billions for the metro in the traditional structure, so the PPP structure of it being provided by the private sector and the State leasing it for 25 or 30 years – that is still the preferred way to do it,” stated Minister Brennan recently.

This is vague, misleading and just plain wrong. Brennan has frequently stated that it is not possible to build an underground because the money isn’t there, strange considering that €700m was recently earmarked for motorway construction. BUSRAGE is in a position to reveal that the money is indeed available to us right now, in no less than the “traditional structure”. We can borrow it from a bank.

Why Hire Purchase Schemes are Best Avoided

Let’s get a few things straight. Firstly, the hire purchase of anything is generally not a very sensible idea. Take for example the concept of buying an item, such as a television, on hire purchase. You can expect it to cost you an awful lot more than it would have done if you paid for it outright with cash, since the company selling it to you would charge an exorbitant interest rate for it.

Successful business people don’t touch hire purchase schemes with very long bargepoles (or even stilts), they borrow money from banks at decent rates, buy their televisions, and have the loans paid off in a reasonable and affordable space of time. That is smart, after all how do you think the company who sold you the television on hire purchase got the cash to run their business in the first place? They got a loan and paid it off with cash from selling tellys to people who sign up to hire purchase schemes.

So why are the government not in favour of borrowing the money? Why is the money “not there”? Seamus Brennan says he wishes to pursue this scheme so he doesn’t have to go “cap in hand” to the Minister for Finance, Charlie McCreevy.

This is possibly in response to comments made by McCreevy over the course of the last year, including a letter to Bertie Aherne last February where he complained that Brennan was disregarding financial state of the country and that he had already given the Department of Transport an extra €209m for roads. This attitude speaks volumes about the attitudes of the key figures in the government and their lack of understanding and vision with regards to public transport.

Throwing more money at roads will simply lead to further congestion in our cities and towns by private cars, and thus more damage to our ailing economy. What we need is investment in bus and rail (both heavy and light) modes of transport, moving people quickly and economically from place to place. Unfortunately the government seem to be more concerned with reducing insurance costs and keeping the price of petrol steady, moves which only encourage more cars onto the roads and damage the long term viability of our economy.

Myths about the EU, ECB and the eurozone stability pact

Charlie McCreevy hates borrowing money, he’s paranoid about it. Mention borrowing money and you’ll find him bleating about how his hands are tied and the EU and the ECB would not hear of it. He hates spending money even more, and told a meeting of EU finance ministers earlier this year that he might have to choose between “trimming current expenditure and shelving ambitious infrastructure projects” unless the stability pact’s rules were relaxed.

This might be true for roads, but investment in public transport is encouraged by the EU, certainly through PPPs, but also through other means. If they were approached with a specific plan we may be exempt from certain restrictions under the pact. The fact that we have presented no such plan to our EU partners is the reason we are tied by these rules, not that the rules themselves are inflexible.

Weighing in on this issue too was our friend, Mr. Brennan, who said “We can’t do the metro without a change in these rules”. Well that’s fine, but what about this weeks announcement by the European Investment Bank (EIB) concerning a loan to our very own Rail Procurement Agency (RPA)?

On October 10th 2003 the EIB announced it was lending €60m to the RPA, as extra funding for the Luas project to bridge the gap between investment and Irish Government funding.

“(the) EIB is extremely happy to be part of the development of a flagship transport infrastructure project for Dublin”, says EIB vice president, Michael Tutty.

“By providing finance for the LUAS project the Bank recognises the contribution LUAS is expected to make to the improvement of the urban environment in the Greater Dublin area.”

No better bank to approach to fund the metro then, as the branch of the EU which engages in long term lending for projects in tune with EU policy objectives. Increased use of public transport is an EU policy objective, for both environmental and economic reasons, so the EIB looks like the perfect body to approach with a view to obtaining some funding for the metro.

One of McCreevy’s big fears is, as he put it himself, “repeating the borrowing mistakes of the past”. During his time as finance minister he’s gone out of his way to obtain money other ways, be they changes in the taxation system, service charges, so called “stealth taxes” and PPPs. He has even gone as far as establishing the National Development Finance Agency (NDFA), a body which is meant to be helping get funding for projects just like the metro.

When looking at Charlie McCreevy and the way he operates, it is important to realise a couple of things. Firstly, that the biggest mistake of the past was not the act of borrowing money itself, it was borrowing money at the wrong time, at bad rates and for the wrong reasons. Secondly, it is worth remembering that Charlie McCreevy is not an economist and is said to refuse to even employ an economist as an advisor. In actual fact, McCreevy is a chartered accountant.

This explains an awful lot about him and his attitude to the country’s finances. He acts like he is the chief financial officer of Ireland PLC, to be a success all he has to do it turn the company around, keep it in the black and everything will be fine. This is probably why he is so keen on PD inspired privatisation plans, such as the “franchising” of parts of CIE. Of course, in the business world, unprofitable industries go bust, usually leaving their customers high and dry.

Well here’s some news just in: Ireland is not a PLC, a Ltd or even a semi state company, it’s not a business or a “going concern”. It’s a nation, and nations and businesses have different aims and priorities, they may be complementary, but they are not the same. Besides, if we were shareholders in a company and the CFO blew a €5bn surplus chances are he wouldn’t be in the job much longer, we’d be screaming for an Emergency General Meeting to have him removed.

Borrowing money for a capital project is not a bad thing and just because Charlie McCreevy shuns the notion doesn’t make it so. If it was a case of borrowing money to pay the drivers of metro trains, then yes, that wouldn’t be sensible. However, borrowing money to pay for the construction of the tunnels, and then perhaps buying rolling stock (although it would probably be more economic to lease them) would be fine, that’s what loans are for. By doing this we could have the loan paid off a lot faster and cheaper, taking advantage of the record low in interest rates, than effectively borrowing the money from a firm by way of a lease or hire purchase agreement.

The Economic “Downturn”

Bad public transport is bad for the economy. It causes employees to be late for work, which damages productivity and ultimately costs firms money. Badly performing businesses are bad for the entire economy, with less revenue for the government to spend on health, education and, indeed, transport.

On the other hand, decent public transport, that is transport which is reliable and gets employees to their place of work in a reasonable amount of time, results in increased productivity and profits for businesses. It also has the benefit of attracting skilled workers to the country and making Ireland an attractive place for international firms to do business. All of this leads to increased revenue for the government, allowing greater spending in key areas.

Carrying out major improvements to public transport infrastructure now, rather than waiting for the economy to pick up has many advantages. While there is a natural tendency to cut back spending in various areas during a slowdown, just because it seems natural doesn’t make it right. A slowdown is the perfect time to carry out a major infrastructure project.

For one thing, it is when material costs are low and the downturn in the construction industry leads to a greater availability of labour, at a lower cost than the “boom times”. Also, by putting money into a capital project such as a metro we may also help kick start the economy by providing employment and generating business for firms to aid the project, and indeed sowing the seeds of future economic success.

The last thing we need is to find ourselves in the middle of a global economic upswing with the roads dug up, our streets clogged with cars and business leaders left with their hands tied as commuters battle their way through the traffic in the vain hope of being on time for work. Better to obtain a relatively small loan to pay for the project and take the pain now, enabling us to face to good times better prepared than ever before.

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