12/11/2008 - 22:00

Private infrastructure plans

12/11/2008 - 22:00


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THE debate over infrastructure provision in WA has taken many intriguing twists and turns since the election of the Barnett government.

Private infrastructure plans

THE debate over infrastructure provision in WA has taken many intriguing twists and turns since the election of the Barnett government.

The main focus has been on the Royalties for Regions policy and questions about just how much money will be spent on regional infrastructure.

Just as intriguing is the discussion about the respective roles of the government and the private sector in infrastructure provision.

The business community is still seeking clarity on these matters.

Premier Colin Barnett and Nationals leader Brendon Grylls have endeavoured to smooth over differences in their interpretation of the Royalties for Regions policy.

Most people understand the policy to mean 25 per cent of minerals royalties will be devoted to regional infrastructure, over and above the amount allocated in the budget's forward estimates.

A big caveat acknowledged by Mr Grylls is that regional infrastructure spending may be reduced below that level if the global financial crisis and economic slowdown puts the state's triple-A credit rating at risk.

Just as important, the reality of government and budgeting means the Nationals' ambitious aspirations may suffer death by a thousand cuts.

A deferral here, a small cutback there, redefining some of the existing programs. All of these may combine to produce an outcome that is not as clear-cut as the policy taken to the electorate at the last state election.

Looking beyond the broad allocation to regional infrastructure, Mr Barnett has outlined his top priorities and most get a tick of approval. The stage 2 expansion of the Ord River irrigation area has been on the drawing boards for a decade and the former Labor government had no legitimate excuse for not getting this underway.

Proceeding with the Northbridge Link, boosting housing in the Pilbara, especially for its indigenous population and improving transport links around Perth airport, are also highly commendable projects, especially if the latter is combined with serious spending by the airport's private owner.

The biggest question mark hangs over Mr Barnett's plan for government spending on the Oakajee port project.

The former Labor government ran a transparent tender process that resulted in a private sector consortium being selected to build this port and the associated rail links.

Mr Barnett has failed to adequately explain why the government needs to get involved in a project the private sector says it is willing and able to develop.

There is a time for governments to be hands-on to ensure projects get underway; but governments also need to know when it is time to take a step back.

Mr Barnett's surprising intervention in Oakajee sends a confusing message to the private sector, which is also looking for guidance on the state government's approach to public private partnerships.

The Labor government in WA was out of step with most of its counterparts in other states, which have accepted PPPs as a legitimate mechanism for delivering public infrastructure like hospitals, schools, Tafe colleges and social housing.

WA has one notable exception. The new District Court complex in the city was developed and continues to be run by a private sector consortium and, while there have been teething issues with the building, its development was on time and on budget.

There have been suggestions that the global credit crunch will make it difficult for the private sector to fund big-ticket infrastructure projects.

That notion should have been put to rest by the financial close last month of the InfraShore consortium's redevelopment of the Royal North Shore hospital in Sydney.

The consortium is led by banking group ABN Amro, which will underwrite 100 per cent of the project's funding and construction company Thiess, which expects to generate revenues of $721 million in the design and construction phase and $409 million over the 28-year operational period.

This follows similar projects in other states, such as the $946 million redevelopment of the Royal Children's Hospital in Melbourne by a consortium comprising Bovis Lend Lease, Babcock & Brown and Spotless Group.

A study released earlier this year by Victoria's treasurer John Lenders concluded that the private development and operation of the children's hospital would save taxpayers $70 million.

WA treasurer Troy Buswell has advocated the increased but selective use of PPPs to develop social infrastructure. Specifically, he named the development of a new Princess Margaret Hospital, at an estimated cost of $640 million, as a prime candidate.

Mr Buswell made that commitment when he was opposition leader. As treasurer he remains supportive of PPPs but his leader, Premier Colin Barnett, has not shared his thoughts on the subject.

The common public perception of PPPs is that they simply provide a means for cash-strapped state governments to get expensive projects off their balance sheet.

That is an illusory benefit. The big gain comes from having one group involved in the design, construction and operation of the infrastructure.


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