While in some States of Australia the sale of public assets
slated to fund the next wave of public infrastructure is now off
the agenda, the demand for high quality public sector services
remains and continues to increase.
The community also still expect governments to create
new jobs through the development of new public infrastructure,
particularly in transport, health and education. All the time while
focusing on lowering debt levels and minimising future
A RENEWED NEED FOR PUBLIC PRIVATE PARTNERSHIPS?
Many market participants are bearish about the prospect of new
projects in the current fiscal and policy climate. But perhaps
PPPs, with some 'retro' tweaks, are the perfect answer to
matching government revenue and spending and getting infrastructure
In recent years there has been an increasing move to Government
making significant capital contributions during construction or
shortly after completion. The driver was to reduce overall
financing costs and was a response to a fear of liquidity shortages
and the high borrowing costs in wake of the global financing
Rarely was the capital contribution needed to bridge a private
sector financing gap, other than for the largest projects.
With financing costs now approaching more normal levels and the
feared liquidity crisis not eventuating, it may be time to wind
back the clock to the days where PPPs were fully financed by the
The model can be further adapted by using longer project terms,
anywhere from 25 to 50 years.
The services and infrastructure provided by PPPs ultimately need
to be paid for by Government. But adapting the model in these ways
should enable Government to more closely align expenditure with
This approach involves a PPP model which:
focuses on social infrastructure such as schools and hospitals
but may also be adapted for public transport projects such as light
rail, passenger rail and metro rail;
involves new 'greenfield' projects;
requires minimum or no Government capital contribution;
involves longer tenure (anywhere from 25 to 50 years) with
lower individual service payments;
focuses on periodic market testing of reviewable services to
ensure value for money over the longer term and to lower the
overall risk and therefore cost of the project; and
involves asset renewal obligations and technology upgrade
requirements to keep the services and infrastructure modern and
The extended use of service payments rather than a significant
Government capital contribution mitigates the Government's need
to borrow significantly. It also offers increased risk transfer
benefits, and long term employment opportunities for
In an environment where Government Owned Corporations will
continue in Government hands, the lower, longer term service
payments can be matched with the continuing revenue streams which
will be provided by these organisations.
While the contingent financial liability of the Government is
not necessarily reduced by the extended use of service payments,
this may be counterbalanced by the benefits arising from the better
use of cash flow and a reduction in the Government's need to
borrow a large (upfront) amount.
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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