Infrastructure

PPP evolution – where to now?

5 Feb 2019, by Amy Sarcevic

Approaches to infrastructure procurement in Australia have evolved considerably over decades, giving rise to a suite of models. Public private partnerships (PPPs) have proven to be a particularly robust ‘species’, given their superior capacity to deliver projects on time and within budget, and ultimately generate value-for-money for the tax payer.

However, the environment in which PPPs are being deployed is becoming increasingly challenging. A highly stretched construction market, rising levels of risk, growing community expectations (and scrutiny) all make for difficult conditions in which the PPP model must not only survive, but thrive.

Ahead of the National PPP Summit we spoke with Catherine Black – Managing Director at the Infrastructure & Project Financing Agency; and Michael Arnott – Director of Infrastructure & Structured Finance Unit at the NSW Treasury – who shared their views on the efficacy of PPPs in the current climate.

Depoliticisation versus social license to operate

Past examples of high-profile projects which have turned out poorly have created controversy around the PPP model. As a result, PPPs have declined a little in popularity among the civil community, and procurers have been keen to oblige public interest. This has led to the gradual derailment of PPPs in recent years.

At the same time, however, independent bodies are calling for the depoliticisation of infrastructure, encouraging procurers to base decisions on their genuine merit, rather than on the perverse incentives that apply in the lead up to an election. How do PPPs hold up in this trade-off?

“Above all else, it’s important that governments choose the procurement approaches which deliver the best services for the community”, said Ms. Black. “There have been far more successful PPPs than failures, and those successful PPPs have been embraced by their communities because they deliver better services”.

Another challenge from the community comes from the perception that PPPs are akin to privatisation, with legitimate concerns that the public asset will become costlier; that there will be rationalisation of services and job losses.

“The infrastructure sector – both government and industry – shares a responsibility to gain and maintain social licence, and this is only possible where we are all engaging honestly and effectively with our stakeholders,” Ms Black added.

PPPs versus City Deals

City Deals are a relatively recent development in the infrastructure landscape in Australia, generating much interest in both the infrastructure and broader communities. They vary in scope and coverage between cities, but does the model’s focus on infrastructure, sustainability and social outcomes overpower or lend itself to PPPs?

“PPPs should definitely be part of the procurement toolbox when governments are considering how to deliver projects in general – but also within a City Deal””, said Ms. Black.

“City deals are highly effective at what they set out to achieve – greater collaboration between all three tiers of government and stakeholders to deliver a community benefit. As too are PPPs.

“If City Deals and PPPs are combined to deliver integrated infrastructure and services, urban design and environmental outcomes, there may be opportunities for excellent, long term results”.

Risk allocation

Mr. Arnott advocates the use of PPPs, but notes that if they are to survive in the climate, they must be more flexible in their approach to risk allocation.

“Historically, there was a tendency for governments to absolve themselves of all or most of the risk associated with a PPP. But in today’s climate, this approach needs to change.

“With contractors now more than ever attuned to the risks inherent in the projects they take on, it is vital that we [government] rethink and refine our risk allocation strategies to win interest for projects and ensure that PPPs are executed with minimal disruption”.

Get it right and projects can attract a competitive pool of bidders, more efficiently negotiate contracts and reduce the likelihood of dispute during the concession period. Get it wrong and the opposite will occur.

Catherine Black and Michael Arnott are among an esteemed line up of speakers to address the National PPP Summit – to be held 11-12 February 2019 in Sydney.

You may download the full agenda here.

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