21/01/2010 - 00:00

Labor raises PPP bogey when it suits

21/01/2010 - 00:00


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SIMPLISTIC politicking is damaging the opportunity for an informed debate over the merits of public private partnerships.

Labor raises PPP bogey when it suits

SIMPLISTIC politicking is damaging the opportunity for an informed debate over the merits of public private partnerships.

In 2002, when Eric Ripper was treasurer, he released a report that highlighted the opportunity for using private public partnerships to deliver community infrastructure.

“Partnerships with the private sector may deliver better value for money with some projects,” he said at the time.

“For instance, the private sector may finance, build and own a government building and provide the security and maintenance services, while government departments focus on what they do best – delivering the community services.”

Mr Ripper’s statement said projects best suited to partnerships with the private sector included roads, railways and ports, office accommodation, health and justice facilities, schools and training institutions.

Roll forward to 2010; Mr Ripper is opposition leader and his tune has changed.

Now he is railing against the possibility of using a PPP to develop the new Midland Health Campus. Why the about-face?

The story started last week with an ABC report quoting Health Minister Kim Hames, who said a PPP was one option for the 300-bed hospital to be built at the old Midland rail yards.

The $360 million facility would replace Swan District Hospital.

“There are long-term savings to be made because there are predictable costs,” Dr Hames was quoted as saying

“They are paid according to occasions of service.”

Dr Hames’ comments should not have surprised anyone, for several reasons.

First, Treasurer Troy Buswell has said on a number of occasions that he would look at PPPs for future infrastructure projects.

Second, state governments across Australia have accepted PPPs are an appropriate mechanism for delivery of some infrastructure projects, from motorways and social housing to desalination plants, schools and hospitals (see table).

Third, WA already has a form of PPP in the health sector. Dr Hames reportedly said the Midland project could be modelled on the Joondalup Health Campus, which comprises a public and a private hospital on one site, with both operated by private company Ramsay Health Care.

None of that has swayed Mr Ripper, who said the Barnett government’s “secret plans to privatise the construction and operation of Midland’s public hospital raise serious concerns for the quality of public health care in Western Australia”.

Despite his previous advocacy of PPPs, and despite his Labor colleagues in other states using hospital PPPs, Mr Ripper claimed the WA government was making “ideologically motivated decisions that will change the nature of hospital services in our state”.

Mr Ripper said the proposal to outsource the day-to-day operations of the hospital to a private company through a PPP would inevitably have implications for the quality of healthcare, facilities, maintenance and staff at the hospital.

“It is always difficult for the government to ensure the standard of services the public expects when they don’t have direct control of the hospital’s operation,” Mr Ripper said.

“We’ve already seen difficulties at privately run hospitals.

“The much needed expansion of the Joondalup Health Campus has been delayed due to protracted negotiations between the government and the private operator.”

Mr Ripper said he also had concerns for the long-term job security of staff currently employed at Swan Districts Hospital.

“In a bid to sell its plan to privatise Midland Hospital, the Barnett government will no doubt offer assurances to staff currently employed at Swan Districts,” he said.

“The reality is the government can’t guarantee the longer-term job security of these workers once their employment is managed by a private operator.”

The motivation for Mr Ripper’s statement may lie in a very similar statement issued on the same day last week by the LHMU, formerly the miscellaneous workers’ union.

The LHMU, which is headed by Dave Kelly, dominates Labor’s left faction and has a powerful influence on the party.

The only union that rivals its influence is the shop assistants union. Headed by Joe Bullock, the ‘shoppies’ dominate Labor’s right faction and are best known for opposing retail trading deregulation.

LHMU assistant secretary Carolyn Smith didn’t mince her words, saying: “History and the experience of other countries have taught us that these partnerships do not work, resulting in poor patient care and appalling working conditions and pay for the people who’ll work there”.

Ms Smith signalled a complete lack of faith in the ability of the private sector to deliver a quality service.

“Private operators will be there for one reason only – to make a profit – and that means that corners will be cut and jobs will be lost. There will be less vital hospital support staff like cleaners, caterers, orderlies and enrolled nurses around, they will be paid less and given less equipment and supplies to work with.”

This statement ignores the commercial and clinical success of many privately run hospitals around Australia.

It also ignores the ability of governments to negotiate service level agreements with the private consortia that design, build, own and operate these facilities for periods of up to 25 or 30 years.

As well as questioning service quality and job security, Mr Ripper had another string to his attack bow. He claimed that doubts have emerged as to the financial benefits of PPPs, particularly in the wake of the global financial crisis.

“Investors in PPPs in other states have suffered significant losses and PPPs are now looking increasingly overrated,” he said.

Well, let’s test that hypothesis by looking at the experience in other states over the past year.

It’s true that investors in some PPPs have suffered losses, but isn’t that what happens in the private sector?

Despite these losses, most famously for the BrisConnections group, private consortia have managed to raise funds for their projects.

In Victoria, the Aquasure consortium has agreed to fund, build and operate a $3.5 billion desalination plant in Victoria.

This consortium is led by Macquarie Group and investors backing the project include Industry Funds Management, the group that manages union-led industry super funds

In Queensland, the Aspire Schools consortium, led by the Commonwealth Bank and Leighton, has agreed to a $1.1 billion deal to fund, build and operate seven new schools.

In South Australia, two consortia are in the hunt to fund, build and operate the new Royal Adelaide Hospital.

There is an important qualifier surrounding the ability of the private sector to raise capital for PPP projects.

Increasingly, state governments have agreed to step in and provide some of the risk capital for new PPP projects.

That erodes one of the traditional selling points of PPPs but does not take away from the fact that the private sector is keen to invest in long-term social infrastructure projects.

At an operational level, the plans for the new Royal Adelaide Hospital are fairly typical.

Under the partnership, the public sector (SA Health) will continue to operate the hospital and provide all core clinical services, staffing, teaching, training and research, while the private sector will finance, design, construct and maintain the new hospital building.

This model has been employed in most states and goes a long way to addressing many of the operational concerns raised by Labor and the LHMU.



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