State investment fund backed Irish Water to ‘fill a gap’

The State’s investment fund pumped €300m into Irish Water last year to “fill a gap” and satisfy the utility’s private funding partners, according to its director.

Ireland Strategic Investment Fund (ISIF) chief Eugene O’Callaghan said the fund’s investment in Irish Water came about as the utility’s lenders were keen to see the State with some “skin in the game”.

Its investment added a level of comfort to those prospective partners while also satisfying the fund’s dual mandate of providing a return on investment and supporting economic activity, Mr O’Callaghan said.

“This was a commercial credit investment. It was a loan facility to Irish Water alongside, I can’t remember, five or six other financial institutions and ultimately there was a gap.

"These institutions have a limit on what they were potentially willing to do. They were also very keen to see some State skin in the game in relation to exposure to Irish Water…

“Our presence was important for the other players to participate and fill the gap that wasn’t easily able to be filled otherwise... The reality is that in early-stage situations like that that the other potential financiers take comfort from the involvement of people like ourselves and that makes it easier for them to get over the line,” Mr O’Callaghan said.

He added that the investment will have a “big economic impact” albeit a delayed one given the suspension of water charges.

ISIF is “quite happy” with its investment from a commercial point of view and is confident of getting a satisfactory return.

Mr O’Callaghan also defended the €7.9bn fund against over the pace at which it has made investments, suggesting politicians’ criticism was misplaced.

“The typical stakeholder — political stakeholder — sort of has grown up in a world of spending and you’re just spending government money to achieve an end and spending can be done much faster.

“Investment where you’ve got to get a return, is much more difficult, it’s more demanding, it’s inherently more demanding. It’s much easier to spend than it is to invest but the point then is that if we invest wisely there’s no depletion of state resources involved and so it means that we can continue to deliver.”

ISIF, which had committed €2.2bn by the end of 2015, is targeting a further €750m to €1bn capital deployment this year.

ISIF released its latest economic impact update yesterday which showed that the 108 Irish companies supported by the fund directly and indirectly employed close to 18,000 people.

Annual revenues generated by the companies totalled €1.2bn in 2015 while 5,935 additional jobs were supported by the fund’s investments last year alone.

The gross value added (GVA) of the Fund’s investments, a key measure of their economic impact, was €538m at end 2015.

Mr O’Callaghan also defended the fund’s investment appraisal approach which is based largely, although not exclusively, on qualitative decisions.

The fund’s director accepted other bodies use quantitative measures like cost-benefit analysis to determine the use of public funds and said ISIF was likely to employ these tools more so in the coming years.

Some projects have intangible economic benefits that can be hard to quantify, he added.

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