PURSUING PUBLIC PRIVATE PARTNERSHIPS FOR INFRASTRUCTURE PROJECTS
DEPUTY PRIME MINISTER THE HON WARREN TRUSS
G20 AUSTRALIA 2014 PUBLICATION
Modern nations face a challenge when it comes to delivering nationally significant infrastructure which enhances productivity. Such infrastructure is universally recognised as a necessity for economic growth and social progress – however, the demand for such infrastructure consistently exceeds the capacity of governments to act as a sole provider of funding.
In recent decades, this has spurred efforts to mobilise private investment to expand the financial base for infrastructure development, and reduce public financial risk. These efforts have included a major focus in many developed and developing countries on the formation of public-private partnerships (PPPs), to deliver infrastructure sooner and more affordably.
The failure of some PPPs to fully deliver against their advertised objectives has generated skepticism about the value of the PPP model. However, the risk of any approach to infrastructure delivery – not just PPPs – is increased if specific delivery arrangements are not calibrated to specific project circumstances. There is good evidence in both Australia and elsewhere that well-selected PPP ventures are both cost- and time-efficient, and that they deliver clear social benefits by bringing infrastructure online as quickly as possible for local communities.
As with any infrastructure delivery mechanism, the effectiveness of PPPs is maximised when they are delivered in a strategic framework. In Australia’s Federal system, the Australian and state governments recognise the importance of PPPs for effectively delivering infrastructure delivery – and national policy guidelines have been in place since 2008.
The Australian, state and territory governments will consider a PPP for any project with a capital cost in excess of $A50 million. Several major PPP projects are in the market, including the North-West Rail Link in New South Wales; the Toowoomba Second Range Crossing in Queensland; and Melbourne’s East-West Link Stage 1 freeway connection. Potential PPP projects include the WestConnex Stage 2, a major urban road project in Sydney, and the Brisbane Bus and Rail Tunnel. Further information on these projects can be found at https://www.nics.gov.au/
For its part, the Australian Government is keen to leverage greater private engagement in infrastructure investment and delivery. We see this as an essential part of meeting infrastructure demand. We understand that the approach taken by lending institutions to infrastructure proposals can constrain private interest – especially in relation to lending terms.
The Government is committed to considering the use of alternative funding and financing mechanisms for infrastructure projects on a case by case basis.
Our investment in the Perth Freight Link, for instance, reflects our commitment to innovate through alternative funding approaches. The Freight Link is designed to achieve substantial economic and social benefits by separating commuter and freight traffic. Along with Western Australia, we are seeking opportunities for private sector co-contributions to the Perth Freight Link – both in expertise and capital. The significant private interest in participating in this project is very encouraging.
In Sydney we will provide a concessional loan of up to $2 billion to accelerate the M5 East section of WestConnex – the loan will be available from mid- 2015 to 2018 and will help bring forward the M5 East section by about 18 months. This is the first time a Federal government has used a concessional loan mechanism to deliver a major road project in Australia.
We have also introduced a further innovation to leverage the private sector’s role: the Asset Recycling Initiative, within the Infrastructure Growth Package.
This Initiative is an important part of developing a certain pipeline for national infrastructure renewal. It aims to provide incentives for the states to invest in infrastructure renewal – and incentives to the private sector to expand its own infrastructure role by purchasing established infrastructure assets. Announced in May this year, the Initiative has already attracted significant interest from state governments and the business community.
To sum up, governments will continue to play a key role in delivering infrastructure well into the future, but productive infrastructure is too important for its development to rely solely on government efforts alone.
We will continue to look for additional opportunities to bring the private sector to the infrastructure table in greater strength and numbers.
Decisions around the most appropriate delivery model for any infrastructure project must balance the objects of delivering better value and providing high quality infrastructure. Whilst each project’s delivery model should be based on the particular financial circumstances and risk profile, the Australian Government considers PPPs a valuable option in meeting these objectives.
The Hon Warren Truss
Deputy Prime Minister
Minister for Infrastructure and Regional Development