Author: Edgar Morgenroth

Professor of Economics at Dublin City University Business School

Wasting money on roads?

A number of stories on roads funding have been in the media over the last few weeks.

Firstly, Frank McDonald in a piece in the Irish Times had a go at the motorway building programme of the NRA. In particular he criticises the plans for the Slane bypass (N2 Dublin to Derry). That story was also picked up in Today FM’s Last Word (Matt Cooper) last Thursday.

The rationale for the bypass project involving a new bridge over the river Boyne is straightforward. Currently a significant volume of traffic of which about a quarter is HGVs (some 1600 per day) negotiate the steep valley on both sides of the river which is crossed via a narrow bridge. The nature of the roads has been blamed for a number of serious accidents involving HGVs, and hence the bypass is to be built to reduce accidents.

But why are there so many HGVs on a road connecting Ashbourne (population 6500) with Ardee (population 4000)? The answer is simple once on considers that the N2 runs almost parallel to the tolled M1, which is both quicker and safer. In other words the HGVs are on the N2 to avoid the toll, and now the tax payer is going to help them avoid the toll by building a new expensive bridge and dual carriageway. The simple, cheap and obvious solution to the problem of HGVs going through Slane is to ban them from doing so, as I argued in May 2009. This would also avoid all the hassle of forcing a major construction project through an area rich in archaeological sites and historic significance. I wonder is this a case for the Comptroller and Auditor General?

Secondly, on the 22nd of February Minister for Transport Noel Dempsey announced €411.408 million for 2010 Regional & Local Roads Programme. Of course the Minister did not announce any extra resources, rather he is reprofiling expenditure that was to go to road improvement. Given the damage to many roads due to the flooding in the autumn and the frost over the winter most people will welcome these resources.

But is this money going to be well spent? When it comes to potholes it is curious how they always appear in the same places, and often they are back soon after they were filled. Likewise, the same stretches of road (surprisingly many for a country where rain is not uncommon) are also subject to flooding on a regular basis, with consequent road damage. It is also peculiar that our road surfaces melt at the first sign of the sun (even over recent poor summers), again leading to significant damage.

In that context engineering and material standards should be reviewed in order to minimise future damage and costs before spending €400 million on repairing roads.

I am not against spending money on roads – anyone who has read my work on public investment will know that – but we should make sure we use the scarce resources we put into roads to best use.

Hangar 6

This topic has found its way onto another thread, and given that it has occupied lots of newspaper space and airtime over the last few days it is probably useful to discuss it here in terms of the economic issues. This has been a bit like a tennis match with the ball going back and forth for some time so it is hard to keep track of all the points.

On the one side we have Michael O’Leary who claims he wants to (re)create 300 jobs, but needs Hangar 6. On the other side we have Mary Coughlan and the DAA who say Hangar 6 is not available, as Aer Lingus has a lease on it.

While Michael O’Leary appears happy for other airports to build a facility for him, he does not seem to want the DAA or, given that he appears to prefers not to deal with them, the IDA to build a new hangar for him at Dublin airport. It would appear that the reason for this is cost – he claimed on radio that hangar 6 would be available at a low cost. No doubt Aer Lingus is also getting it at a low cost. In the debate some have argued that Ryanair is pursuing a different agenda – to open Hangar 6 as a terminal. Ryanair say they would be happy to sign a legal agreement preventing them from doing so. So what is this all about??

In a letter to the Irish Times the chairman of Aer Lingus, Colm Barrignton, makes the point that hangar 6 is the only hangar at Dublin airport capable of accommodating wide bodied planes, and that it is extensively used. Could the ability to accommodate wide bodied planes be the key to this scrap? At the moment Ryanair do not have any such aircraft, but might Ryanair have plans to get into the medium- and long-haul business? Aquiring hangar 6 would allow them to build a base in Dublin while at the same time discommoding Aer Lingus, which would be a competitor in that market?

IMF on NAMA and lending

As promised below, there is a story in today’s Irish Times that: “THE INTERNATIONAL Monetary Fund (IMF) told Minister for Finance Brian Lenihan last April that the National Asset Management Agency (Nama) would not lead to a significant increase in lending by the banks.” I dare say that this (NAMA not resulting in increased lending) does not come as a huge surprise to anyone??

Financing Infrastructure

Today’s Irish Times reports that the IMF had warned that NAMA would not significantly increase lending (separate thread). Increased lending is something businesses are looking for, but with public budgets being squeezed one area of investment that will also need to attract significant non-public funds is infrastructure.

A story by Louise McBride in the Sunday Independent argues that “Greece and Spain’s financial woes are making it tougher than ever for Governments to raise cash for vital state projects”. She argues that the €70 bn held by Irish pension funds is being targeted by Brian Lenihan.

While the key issue here is the level of government debt rather than the ability to raise cash, the article makes an important point that is being discussed in many countries – how do we fund our infrastructure in the current fiscally constrained environment?

Given that infrastructure is typically a fairly safe investment that can yield a certain inflation indexed return, pension funds should find it useful to invest in infrastructure. A range of possible projects is presented in an accompanying article, including Metro-North, Western Rail Corridor, Landsdowne Road and National Parks.

What the article does not properly consider is that of the €70bn only a fraction should be invested in infrastructure given the need to hold a balanced portfolio. The other point is that it is not obvious why Irish pension funds should necessarily invest in Irish infrastructure or indeed why we should not expect foreign pension funds to invest here.

The key issue in attracting private funding into projects is a revenue stream. Without a relatively certain income private funding will not materialise. That would seem to rule out national parks unless anyone is proposing to charge an entrance fee and the construction of very long fences. A certain and sufficiently large income or rather the likely absence of one would rule out private finance for the Western Rail Corridor. In other words the projects need to stack up as a business proposition, and those that are driven more by political or redistributive goals will have to be ditched (in the absence of other funding). Thus, private funding should have a significant positive impact in that there will be less ‘gold-plating’ and only likely winners will be get funded.

The issue of private finance for public infrastructure and services should also ignite a debate about what services should be provided publicly in the first place. Should public transport and water be provided publicly or could they be privatised? As was highlighted recently our water supply infrastructure (primarily the pipes) is in serious need of investment, which may not be forthcoming from public funds, yet to get private sector involvement the sector will need to consolidate significantly.  

George Lee resigns from Fine Gael and his Dail seat

I just spotted this – had to check I got the date right as this seems to much like a first of April story, but sure enough his former (???) colleagues at RTE, and the Irish Times have reports on this.  At the time George got elected a number of comments on this blog made the point that this would increase the economics know-how in the Dail.