PUBLIC PRIVATE PARTNERSHIPS aren’t flooding through the “pipeline” but, despite a cautious approach to PPPs in Australia, some see a growing number of significant projects ahead that will use this financing model.
Queensland, the state with some of the biggest pending infrastructure projects has several earmarked for PPPs, but the $14 billion of major construction announced in the state’s budget this month was largely free of private sector involvement.
The state also decided not to use a PPP to fund two hospitals — the Gold Coast and Queensland Children’s hospitals — although a government press release stated that other projects are still being considered for this type of financing.
PPP deal flow is not reaching the “sausage factory” levels of the UK, said Doug Jones, a PPP specialist at Clayton Utz. But he insists there are consistent levels of both “economic” PPPs and “social” PPPs, as well as a third category that is now emerging which uses public funding, but retains some of the risk sharing benefits of private financing.
Jones defines social PPPs as constructions such as schools, hospitals and prisons that are usually financed by the government but built and maintained by the private sector for a set period. Economic PPPs are infrastructure projects like toll roads and private railways, which are paid for by the users.
“In Queensland, there is now an appetite by government for road, toll road infrastructure. We acted for the Brisbane City Council on the North South Bypass Tunnel, and we are presently acting for the state government on the Airport Link Northern Busway project, which is bigger than NSBT, and a pretty significant part of the South East Queensland infrastructure plan.”
Because of the significant investment that goes into tendering for major infrastructure projects and the complexity, and long life of PPPs, bidders for these projects are keen to have a guaranteed pipeline of projects to justify the risks of investing the time and expertise to make bids, when they have every chance of not winning the project.
Institutional investors awash with superannuation funds are also looking for somewhere to put the money, but many are now forced to bid for projects offshore because of a lack of opportunities in Australia.
However, Jones pointed to a number of smaller projects using PPPs in South Australia and a study the Victorian Government had commissioned into options to improve east—west transportation links in Melbourne, which could result in some PPPs.
In its recent budget, South Australia forecast that from using no PPPs in the 2004—05 financial year, they will make up about 15 per cent of total government sector capital investment in 2009—10.
In total, about $600 million worth of education, prison and youth detention infrastructure will involve PPPs from 2005—06 to 2010—11.
This coincides with an increase in total South Australian Government capital investment from under $600 million in 2004—05 to $1.4 billion in 2010—11, with $4 billion to be spent over the next four years.
Perhaps the biggest source of PPP deals in future may be NSW, with Premier Morris Iemma last week foreshadowing plans for a big increase in the use of PPPs there for infrastructure projects in the wake of the Richmond Review, commissioned following the public boycott of the Cross City Tunnel and its subsequent bankruptcy.
Larger projects on the drawing board include the M4 East to connect Sydney’s CBD with the existing M4 to the west, along with a link to Port Botany, the northern Sydney M2 to F3 link and the possibility of extra rail lines across the Sydney Harbour Bridge and to the western suburbs.
Freehills projects partner Jim Theodore said he believed the PPP model of procuring infrastructure is “here to stay” and in fact “thriving”, and being used in innovative ways.
“Particularly here in Australia, it is going towards the delivery of services in places that people might not have expected,” he said.
Examples included the Rolling Stock PPP in NSW, which will replace close to 500 CityRail carriages, the Royal Melbourne Showground redevelopment, and the Bonnyrigg housing estate development in western Sydney.
Both Jones and Theodore also point to numerous schools, hospitals and prisons being either built using various models of PPP or being considered for this type of financing.
Jones said, however, there are also a growing number of partnerships between the public and private sector that involved the government picking up the cost, but still sharing some of the risk with private investors.
He added that the participants in the alliance who are service providers get paid their actual costs, “but whether they get any profit depends on how they perform against key performance indicators, like whether the project is delivered on time, or against a given budget”.