Governments can’t comprehend it, but a partnership is not a dictatorship

Public private partnerships, generally known as PPPs, have had a chequered history in Australia, quite differently to their fate in other nations. Prime examples of such disasters have been the Airport Railway in Sydney and the Clem 7 Tunnel in Brisbane, but there are several more tragedies pending.

Their significant problem has been that governments do not know what the word partnership means. They reckon that a partnership is one where the government lays down all the rules and regulations, while placing all financing and public risk responsibilities firmly in the hands of the privatesector, and clearly indicating that under no circumstances is the government to bear any cost whatsoever. They even make the private sector pay the legal bills incurred in setting-out their rules.

Despite the enthusiastic spin that state and federal governments give us about their positive attitude to PPPs, their actual policies are a disaster and need drastic reform.This is sad because our nation needs PPPs badly. All of our governments have a poor cash flow and mounting debts, which put them in the position of being unable to provide capital to build the infrastructure that we desperately need to overcome crowded roads, inadequate railways, clogged ports, increasing demands for world class hospital facilities, and much more.

In searching for an answer to this debacle, I consulted two friends of mine who are infrastructure partners of Blake Dawson Lawyers, Tony Denholder and Mark Disney. They have done a lot of work on planning how governments can get into PPPs in the right way to get real results, and I reckon that they will be a key driving force behind a PPP revolution in Australia. Setting it out in basic terms, we have come to the beliefthat these principles are the foundation for good PPPs that can be based on toll revenues for a range of different projects:

• Preferably, all PPPs should be 50/50 partnerships. This equal partnership must cover the provision of capital, the acquisition of debt and the allocation of all risks. The partnership would end on a pre-agreed date for an IPO, when either or both parties have the right to get out.
• If a government would prefer that the private sector provide all the capital and debt and assume responsibility for all risks, then it must provide a shadow toll for at least a decade based on projected vehicle movements or mineral tonnages transported or shipped, without underwriting any actual trading losses. The minimum franchise period should be 50 years, after which the project is handed back to government for one dollar.
• Capital required by governments for their equity requirements can be raised from the public by infrastructure bonds that pay a specified margin above the bank rate, with the interest being paid from general revenue.
• Revenue from bonds can also be used to provide the debt requirements of projects, with interest being the ultimate responsibility of the private partner. This would avoid the high fees normally paid to financial advisers who would otherwise arrange debt.
• Governments must reduce approval and regulatory processes from the current period
• Directors appointed to represent the governments on joint venture companies must not be public servants, but instead be experienced corporate directors selected from panels chosen by governments and comprising persons of integrity who have no conflicts of interest with a particular project.

I will be interested in your views, as the creation of a new PPP framework is now a matter of extreme urgency, as Australia is at least a generation behind in meeting its fundamental infrastructure requirements.

Just one instance of this is our total lack of high speed trains. We needed them badly during the ash cloud crisis. Maybe, this could be the trigger for governments to move.