PPPs prove a worthwhile option

09/07/2009 - 00:00

The private sector should be given more opportunities in infrastructure provision.

PPPs prove a worthwhile option

THE budget pressure facing the state government has added one more reason for public private partnerships to be given serious consideration as an efficient means of delivering infrastructure in Western Australia.

The merit of PPPs has long been discussed in WA, with Treasury issuing a policy paper during the Gallop government outlining how they could be used, and one notable project - the District Court - delivered using this model.

Despite all that, the concept has not gained traction in WA to the extent it has in other states.

One reason was the buoyant state of government finances in WA. This meant that, until this year, there was little if any financial pressure on the state to consider alternative procurement models.

Another reason was resistance from unions, especially the powerful Liquor Hospitality Miscellaneous Union, which is worried that its members working in places such as hospitals and schools could be shifted from public sector employment to the private sector.

I suspect a third reason is that many people equate PPPs with economic infrastructure such as toll roads, and their perceptions are coloured by troubled projects like Brisconnections.

The reality is that PPPs have successfully delivered a wide range of social infrastructure, underpinned by a very simple principle of market economics.

If one consortium is responsible for funding, designing, building and operating the infrastructure, usually for 25 to 35 years, they have a very powerful incentive to get it right.

It's instructive to look more closely at PPPs in other states to see just how widely and successfully they have been used.

Last month, the Rann government called for expressions of the interest from the private sector to build a new Royal Adelaide Hospital at an estimated cost of $1.7 billion.

This will be the latest of several major hospital projects to be delivered via PPPs.

The Victorian government got the ball rolling in 2002 when the Progress Health consortium, led by banking group ABN Amro and Multiplex, was contracted to build and operate Casey Hospital.

Since then, a consortium led by Bovis Lend Lease, Babcock & Brown and Spotless Group has been contracted to redevelop the Royal Children's Hospital in Melbourne.

The financial woes facing Babcock & Brown have taken one major financier out of the market but recent experience shows there are plenty of other groups keen to bid for projects.

Early this year, when there was grave concern the global financial crisis would stymie private funding of big-ticket infrastructure projects, a consortium led by ABN Amro and Thiess was contracted to redevelop the Royal North Shore hospital in Sydney.

The provision of schools is another area where PPPs have been popular.

In April, Queensland treasurer Andrew Fraser announced that seven new schools would be designed, built, funded and maintained by the Aspire consortium, led by Leighton and Commonwealth Bank.

Similar schools projects have already been delivered in NSW and Victoria, while SA recently selected the Pinnacle consortium, led by Commonwealth Bank and building firm Hansen Yuncken, as its preferred bidder for developing six new schools.

Elsewhere in the education sector, Brisbane's Southbank TAFE was successfully redeveloped as a PPP while Victoria has selected the Plenary Research consortium to develop a biosciences research centre at La Trobe University.

For many of these projects, Labor governments have overcome union concerns by arranging for maintenance and support staff to continue as public sector employees under the direction of private managers.

The end result has been wide acceptance of, and support for, PPP delivery of infrastructure projects.

Having said that, the WA government should not make a simplistic, ideological commitment to PPPs on the premise that the private sector is necessarily more efficient than the public sector.

And there is no sign of that happening.

Instead, Treasurer Troy Buswell seems to be advocating a framework where PPPs are one of several procurement models that can be evaluated for different projects.

That is to be welcomed, as a way of ensuring infrastructure is delivered in the most efficient manner possible.


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