The Victorian State Government announced on 2 May 2013,
significant reforms to its Public Private Partnership (PPP) policy
to support infrastructure growth in Victoria (Policy). The Policy
is aimed at encouraging private sector investment in critical
infrastructure by providing an alternative to full private
Typically, unless there are financial market constraints,
construction of PPPs is financed in its entirety by the private
sector and repaid by the public sector over the concession life.
Under the new Policy, the Victorian Government will make a capital
contribution to some projects in order to reduce the amount of
money the private sector is required to borrow, thus decreasing the
overall cost of the project.
Under the Policy, a partial capital contribution may be made by
Government in two ways:
As milestone payments during construction (eg for mega projects
where the full private capital to fully finance construction cannot
be raised); and/or
As a lump sum payment once construction is complete to achieve
The Victorian Treasurer, Michael O'Brien, said that under
the Policy the Government would make a capital contribution to
projects where there are liquidity concerns or there is an
opportunity to optimise the amount of risk capital, effectively
leveraging the lower cost of government borrowing. Assessment
criteria such as risk allocation, cost, complexity and the need for
innovation and competition would be applied to projects on a case
by case basis. To date, the Government has proposed contributing
money to the AUD630 million Bendigo Hospital, which will be built
as a PPP. It is expected that contributions of this nature will
increase as a result of the Policy.
Alternative approaches to financing public infrastructure have
already proved to be successful in encouraging investment in other
jurisdictions, both within Australia and internationally. The
Queensland Government has included a lump sum payment to be made
once construction is complete on the Gold Coast Rapid Transit
Internationally, the Canadian Government successfully launched
the "P3 Canada Fund" in 2009 which is a PPP fund that
provides alternative financing. The P3 Canada Fund is a merit-based
program, designed to incentivise consideration of PPPs in public
infrastructure procurements. Under the P3 Canada Fund, funding
support (in combination with any other direct federal assistance)
of up to 25 percent of the project's direct construction costs
may be provided. Significantly, there has been an increased number
of project proposal submissions since the establishment of the P3
The new Victorian PPP Policy also includes a mechanism under
which Victoria will trial payment of partial bid costs for PPP
projects. The Policy is outlined in a revised Partnerships Victoria
Requirements document available here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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