A new public transport interchange in the heart of Belfast connected to a modern shopping plaza and high quality office accommodation could be the first project financed through the new Northern Ireland Investment Fund, it has emerged. Simon Hamilton told Business Month, in an exclusive interview, that he is keen to make much faster progress with the planned and ambitious Europa transport hub upgrade.
“For me, it [the Europa interchange] is the perfect example of how we should be using Financial Transactions Capital,” said Mr Hamilton. “There are ten acres of spare development land in the centre of Belfast. We have pushed and pushed DRD [the Department for Regional Development] and I don’t think they have been moving as quickly as I would like to see them moving.”
Under the system of Financial Transactions Capital (FTC), some of Stormont’s capital budget must be spent in association with the private or third sector. In the 2015/16 financial year, a total departmental capital budget of £1.1bn for Northern Ireland includes some £128m that is allocated as FTC. This means that it must be used as equity or to lend to a private sector project, or as part of a joint venture with the private sector.
This in fact provides an opportunity for Stormont to circumvent spending rules that have caused problems for several Northern Ireland departments, including DRD. Many millions of capital allocations are at risk of being lost because government departments are unable to spend them within the financial year.
The new Northern Ireland Investment Fund – which is expected to become operational during the 2015/16 financial year – will get around this problem. The fund is to be managed by the European Investment Bank, the European Union body charged with improving infrastructure across the EU by assisting with the financing of major projects.
A spokesman for the EIB commented: “We are happy to do things with Northern Ireland.” He added that a priority for the EIB in its engagement is to improve the use of European funding for Northern Ireland – including Peace funding, the competitiveness programme, the Social Fund and Interreg. The spokesman added: “We are looking at ways we can help leverage European and national resources…… We can both lend into the structure and we also have a team with experience of setting-up funds in different parts of Europe and the UK.”
The EIB has previously expressed a wish to finance projects in Northern Ireland, but has been hamstrung by rules that prevent it being engaged in projects smaller than £150m in size. Few projects above that size exist in Northern Ireland and support for Ulster University’s new Belfast campus was the first example of EIB engagement here.
By creating a large single fund for a range of infrastructure projects that are individually smaller than £150m, the EIB is able to become an active investor in Northern Ireland. It is hoped that a £100m investment by the Northern Ireland Executive will create a £1bn fund.
The Executive has approved £12.1m that is unallocated from this year’s capital budget to be set aside as the initial base for the Northern Ireland Investment Fund. The Treasury has agreed that as this money will no longer be in the hands of the Executive, and instead held by the EIB, it will be treated as having been spent and so will not be lost to Northern Ireland.
As well as the Europa transport hub, other projects likely to be backed are social housing schemes, large urban regeneration projects, renewable energy developments, energy efficiency schemes, telecommunications infrastructure and mixed use education campuses. By processing schemes such as the Europe interchange through the Investment Fund, it also means that speedy progress can be made on a project that will stimulate the construction sector and provide new premium office space in Belfast, while not reducing funding for other priority DRD schemes, such as road and rail upgrades.
Only schemes that involve the private or third sector will be able to access the NI Investment Fund. Housing associations will be eligible to put forward proposals, but the Northern Ireland Housing Executive would only be able to bid if it is restructured to take it outside the public sector, or if it works with a private sector partner. Similarly, the new district councils can work with private sector developers or higher or further education providers to seek support for development projects.
“The origins were early this year,” explains Mr Hamilton. “Two things were filtering in. The first was the reality dawning around [the underspending of] FTC….. This is going to become an increasingly large part of our budget going forward. Whatever we get we have to ensure we spend it.”
These concerns about the underspend of FTC coincided with a period of quiet reflection and intensive reading being undertaken by the finance minister. He was learning about infrastructure funds established both in Germany and the United States. “Every [US] state seems to have its own infrastructure bank,” he explains.
The first discussions began in August last year with the EIB about enabling it to finance infrastructure and these intensified earlier this year, when it became clear that government departments were having severe difficulties in managing their capital budgets and spending their capital allocations. “They have experience in some other European countries with similar issues,” explains Mr Hamilton. “They were very receptive to this.”
However, Northern Ireland – for once – is moving faster than the rest of the UK and the South. “This is the first time anyone in this part of Europe has done anything like this,” says the finance minister. “We are ahead of the curve, doing this before Scotland, Ireland, or England. We are only limited [in the use of the fund] by our imagination. FTCs can fund anything we can think of where we have private partners.”
Moreover, the intention is for the fund to be around for the long-term. “There is no pre-determinate timescale” for the existence of the fund, says the minister, who hopes it will be a fixture in the infrastructure investment landscape in Northern Ireland.
Significantly, the Northern Ireland Executive is displaying what could be excellent timing. Incoming President of the European Commission, Jean-Claude Juncker, has pledged investment in infrastructure as central to his presidency and his plan to lift the EU out of its economic crisis. Juncker wants to invest €300bn into European infrastructure, probably through the EIB. Northern Ireland’s active engagement with the EIB will raise hopes that we can benefit from some of this additional infrastructure investment.
With a significant capital sum already allocated to the Fund and the support of the EIB, it looks certain to go ahead. If the £1bn target can be reached the Fund could prove extremely important in helping to address what the CBI has calculated is a £2.5bn infrastructure deficit. In doing so, it would create jobs and improve our economic competiveness. Northern Ireland looks to be on a winner.