Source Data:
- “Detailed description of Limerick Tunnel Scheme Traffic Guarantee Mechanism” document. (Appendix 1)
- Limerick Leader newspaper article 20/09/2010 Re: Daily Traffic Counts through Limerick Tunnel for August 2010. (Appendix 2)
- NRA website statement on nature of Limerick tunnel PPP. (Appendix 3)
Assumptions:
- That the information in information in the detailed description, (Appendix 1) remains accurate.
- That the limited traffic data from the Limerick Tunnel provided, (Appendix 2) is sufficient to calculate an Annual Average Daily Traffic for the opening year 2010:
Average Daily Traffic through Limerick Tunnel 2010 = 13,500
- The NRA website PPP information page, (Appendix 3) states that the scheme investment is €660 million, €240 million coming from a government payment during the construction phase and after. The remaining €420 million therefore represents the investment or “senior debt” that is to be repaid over the concession period of 31 years. I have used these figures from 2006 as the detailed description, (Appendix 1) section 1.7.1 states:
“The level of Traffic Guaranteed will be …. the traffic corresponding to 90% of Tenderer’s debt service costs for the equivalent period in accordance with the Tenderer’s Base Case…”.
The 90% of Tenderer’s debt service costs for a year represents the upper limit the Traffic Guarantee Amount for the same year can attain.
It is assumed that The contract states that the debt is calculated on that which the private contractor states at the base year, 2006, when the contract was awarded to prevent a cost over run during construction raising the upper limit of the Traffic Guarantee Amount that the NRA could have to pay.
- Using a simple on-line mortgage calculator and assuming 6% annual interest on a repayment type mortgage over the 35 year concession, (Appendix 4) the annual tenderer’s debt service costs are €29,871,828, (€2,489,319, x 12 months).
Results:
See attached excel work book, Limerick Tunnel N7 PPP Contract, (Appendix 5).
Scenario 1: Assuming growth as per PPP contract but starting from an Average Daily Traffic in 2010 as per that calculated from the average traffic count for August 2010 of 13,500. The penalty payment required by the NRA to return to Direct Route by 2035 would be €30,230,851.
Scenario 2: Assuming no growth in traffic in the 1st, i.e. opening, year of the Limerick Tunnel followed by traffic growth as per PPP contract but starting from an Average Daily Traffic in 2010 as per that calculated from the average traffic count for August 2010 of 13,500 . The penalty payment required by the NRA to return to Direct Route by 2035 would be €61,347,101 .
Scenario 3: Assuming no growth in traffic in the 1st two years of the Limerick Tunnel followed by traffic growth as per PPP contract but starting from an Average Daily Traffic in 2010 as per that calculated from the average traffic count for August 2010 of 13,500 . The penalty payment required by the NRA to return to Direct Route by 2035 would be €77,640,701.
Scenario 4: Assuming no growth in traffic in the 1st three years of the Limerick Tunnel followed by traffic growth as per PPP contract but starting from an Average Daily Traffic in 2010 as per that calculated from the average traffic count for August 2010 of 13,500 . The penalty payment required by the NRA to return to Direct Route by 2035 would be €93,255,401.
Scenario 5: Assuming that the three years of negative traffic growth, as recorded by the NRA, are reversed over the next three years, followed by traffic growth as per PPP contract but starting from an Average Daily Traffic of 13,500 (August) . The penalty payment required by the NRA to return to Direct Route by 2035 would be €153,594,655.
Conclusion:
- Over-estimations of Traffic growth and “Optimism Bias”(by not allowing for the possibility of no annual growth or negative growth) by the NRA will result in penalty payments by the NRA during the course of the Direct Route concession in the 10′s to 100′s of millions of Euros.
- These penalty payments remain significant when compared to the overall value of the debt to be paid by Direct Route:
| Total Penalty to be Repaid to Direct Route , (€) | Total Penalty to be Repaid to Direct Route Expressed as % of Total Debt to be Repaid, (%) | |
| Scenario 1 | 30,230,851 | 7.2 |
| Scenario 2 | 61,347,101 | 14.61 |
| Scenario 3 | 77,640,701 | 18.49 |
| Scenario 4 | 93,255,401 | 22.20 |
| Scenario 5 | 153,594,655 | 36.57 |
- The data supports the case that for such schemes the Irish taxpayer will pay the “Double Hit” of one, first, paying extra for an over sized new road and second, the contractual penalty payments when traffic fails to grow to forecast. This represents an “off the balance sheet debt” left as a legacy by the NRA for the Irish taxpayer for 31 years to come. Whilst the private sector company secures large profits without having to place itself at any significant risk with a loan basically guaranteed by the Irish State.
- The data furthers the case for an open review of NRA traffic forecast figures before further road schemes can be progressed.
Appendices: to follow
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