The Government's plan to use a new agency to raise €10 billion debt for new roads and other developments without breaching EU borrowing limits will not get Brussels' approval, the Cabinet has been warned writes Mark Hennessy, Political Reporter.
Pushed heavily by the Minister for Finance, Mr McCreevy, the National Development Finance Agency (NDFA) was one of the key elements of Fianna Fáil's economic platform during the general election.
The agency, he said then, would be able to borrow €2 billion a year for key National Development Plan projects - though none of it would have to appear on the Government's Exchequer borrowing figure.
More significantly, half of it would be excluded from the General Government Debt - the guide now used by the European Commission to judge the health of the EU's 15 economies.
Under the Stability and Growth Pact, the 15 EU states, including Ireland, have agreed to keep Exchequer borrowing below 3 per cent of Gross Domestic Product at all times, and preferably close to balance.
In a memorandum presented to Cabinet last Friday, however, the Minister was downbeat about the NDFA's prospects. "Charlie McCreevy has gone rather cold towards the whole idea in recent times," said one Minister.
In their written responses to the proposal, some Departments argued that the debt raised would not be exempted by the EU - even if the public have to pay tolls to use the services provided - because the debt would be State guaranteed.
"If the risk is transferred to the private sector then it is not Government borrowing.
"But if, at the end of the day, the State is there to pick up the tab if everything goes wrong then it is," one business figure told The Irish Times.
"There had been a belief certainly at the beginning that half of the money would be excluded from the General Government Debt figure. But people are taking a far more cautious attitude now," said one key Government source.
The EU's statistical office, Eurostat, raised serious questions about Portugal's adoption of a similar scheme recently and it has demanded more information before it is ready to sign off that country's accounts.
Nevertheless, the Cabinet still intends to set up the agency, though it may end up handling already scheduled infrastructural borrowing rather than providing new sources of finance.
Such an outcome will be opposed strongly by the Minister for Transport, Mr Brennan.
He is counting on the NDFA to provide much of the nearly €500 million extra he needs to keep National Development Plan projects on track.
During last Friday's Cabinet meeting, Ministers approved the drafting of the heads of legislation needed to set up the NDFA.
These should be ready in mid-October. But the agency is unlikely to be set up now before the end of 2003, if then.
"If the agency cannot raise extra money off the books then what use is it? Unless it was raising extra money, it does not make much sense to have it," one informed Government source told The Irish Times.
During the election campaign, Mr McCreevy said the NDFA would find the "optimal" way of funding National Development Plan projects, if necessary by competing with private financial institutions.
The inspiration for the NDFA came from the Taoiseach, Mr Ahern, Mr McCreevy told one election press conference.
"He came back from summit meetings asking how the Portuguese, for example, were managing to do more than we were."
However, Fianna Fáil and the Progressive Democrats agreed a key change to the proposal during the Programme for Government negotiations, when they agreed that NDFA loans would not "substitute" for private sector investment.