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Evaluating public private partnerships

By Tom Richman - posted Monday, 17 October 2005


10) Melbourne's Mitcham-Frankston motorway is expected to cost $2.5 billion to build but may garner the PPP consortium involved between $7 and $10 billion in toll revenue over the lifetime of the contract, around $200 million of that in fees. Will we see an equivalent disparity with the NSBT should it be similarly financed?

9) As to the UK, which is often touted as a PPP model, is the BCC aware that during the last decade 256 projects worth $70 billion were built under this type of scheme, while the private partner received over $262 billion in payments? In other words, the private sector garnered $186 billion in revenues that might, otherwise, have gone into the public purse.

11) Is the BCC also aware that after 20 years of use, PPPs only account for 10 per cent of the UK's capital expenditure financing and this number is getting less all the time as the public becomes increasingly outraged at the abuses inherent in this option - witness the scandal over the Midlands M6 Motorway or the 407 in Ontario, where the provincial government had to take the Macquarie Infrastructure Group to court after “steep, unilateral, and venal toll increases”.

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12) The BCC was able to successfully build, for example, the Inner City Bypass and the S1 Sewer ahead of schedule and or under budget via traditional DCM (design, construct and maintain) arrangements. Considering this track record, why isn’t this method being considered first, with PPPs/BOOT schemes only as a last or near last resort?

13) After running the business case for its duplicate Gateway Bridge through the public sector comparator process, the State Government found it wiser to reject the PPP funding option and, instead, rely on borrowing or budget surpluses. It has also chosen to bypass PPPs for 17 other projects once earmarked for this scheme. Why then, has it insisted the BCC use PPPs for a similar project, the NSBT? And even more importantly, when one considers the above, why has the BCC acquiesced?

14) Are Queensland’s PPP guidelines tight enough to allow the State a fair share in windfall profits, for example, to enjoy the benefits of refinancing or where patronage exceeds projection forecasts?

15) At the end of each PPP concession period the debt must have been fully amortised before being handed back to the government. If there’s a shortfall, theoretically the new owner must find the money to repay the lender. For example, one scheme concessionaire in NSW has allegedly increased its original debt from $311 million to $470 million and is repaying only on interest. Should they be in arrears at the end of the contract will the government (or taxpayer) be expensively left holding the bag ... or can it - or should it - bail out or renegotiate beforehand?

16) To what extent are future hikes in insurance charges included in the PPP contract, particularly relating to increasingly expensive terrorism coverage and residual liability?

17) One motorway concessionaire received more than 31 per cent of its total capital amount in public funds and, in this case, was in direct competition with state roads. How is this factored in regarding allocation of risk and value for money?

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18) Finally, to support its decision can the BCC name even one PPP funded transport infrastructure, anywhere, that bested its DCM equivalent during the lifetime of a project in regards to innovation, allocation of risk and value for money - doing so without a state bailout or paying investor dividends via a tax offset? We can’t.

Lest the reader be left with the impression that King & Co is against private investment in infrastructure, that couldn’t be further from the truth. Our only concerns are when PPP schemes are used by Government to evade responsibility for infrastructure or when private greed dominates fair and open business arrangements ... with the public the loser in both cases.

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First published in Brisbane Line and Kings Counsel on September 15, 2005.



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About the Author

Tom Richman, writes and edits the King's Counsel, a biannual newsletter of King & Co Property Consultants. He holds a BA, MA and M. Phil (Oxon) and is a member of the Property Council of Australia (QLD), the Infrastructure Association of Queensland as well as the Brisbane Development Association.

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All articles by Tom Richman

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