The Government yesterday bowed to Europe as it unveiled plans for a National Development Finance Agency.

The agency will operate under the aegis of the National Treasury Management Agency (NTMA) and will provide advice to State bodies to help evaluate financial risks and costs of public investment projects, and assess the best funding options, including public-private partnerships.

But sources close to Government said last night that, while it was originally seen as a method of raising money for infrastructural projects in a way that would not count against general government balance - the measure used by the European Union to assess government debt - it had become clear that this was unlikely to succeed.

Project funding is assessed on a case-by-case basis by Eurostat and, unless risk is transferred away from the State and private- sector financing put in place, it is unlikely to be taken off the general government balance, which determines compliance with the Stability and Growth Pact.

The creation of the agency was the "big idea" of the Fianna Fáil manifesto before the last election but was seen at that time as primarily a body to raise finance. This plan was later included in the Programme for Government.

However, yesterday it was presented as an in-house group of expert financial advisers for the public sector, which might, "in certain circumstances", raise funds to finance such projects.

Publishing the National Development Finance Agency Bill 2002, Ms Mary McKeon, head of policy and communications at the central public-private partnerships (PPP) unit in the Department of Finance, said what was driving the Bill was "value for money and expertise, not balance-sheet issues".

She said it was envisaged that much of the funding of projects arranged through the agency would remain on the balance sheet for debt purposes.

The agency will be able to set up special-purpose companies to fund individual projects with the specific consent of the Minister for Finance.

These will not be funded by the State and will not carry any State guarantee.

NTMA director Mr Jim Farrell said the agency would help to maximise value for money in public infrastructure projects.

The agency will operate separately from the Department of Finance PPP unit, which will continue to address the policy side of public-private partnerships.

The Government has prioritised the legislation and hopes to see it pass through the Oireachtas in time to come into operation at the start of next year.