25/03/2010 - 00:00

State support puts PPPs in the picture

25/03/2010 - 00:00

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INCREASED use of public private partnerships has become a defining feature of the state government’s infrastructure program, but behind that label sits a wide range of procurement models.

State support puts PPPs in the picture

INCREASED use of public private partnerships has become a defining feature of the state government’s infrastructure program, but behind that label sits a wide range of procurement models.

In the past two months, the state government has announced plans for six PPPs in the health, corrective services and water sectors.

In an interview with WA Business News, Treasurer Troy Buswell indicated there would be many more opportunities for the private sector, but no guarantees.

“I would imagine that with most major infrastructure projects, we will engage with the private sector, including through PPPs, but it won’t be appropriate in all cases” he said.

Mr Buswell confirmed that WA would consider following the lead of other states, which have used PPPs for new schools, but had not yet looked in detail at this option.

“Other states have bundled schools together, it’s something that we certainly need to look at,” he said.

Mr Buswell also disclosed that the state could share some of the funding risk with the private sector, if that led to a better outcome.

“I’m happy to consider co-funding; I’ve never looked at PPPs as an easy way to get funding,” he said.

Instead, Mr Buswell said PPPs offered the state a better way to manage project risk during the design and construction stage, and an opportunity to leverage off the private sector’s ability to innovate.

They also offered an opportunity to benefit from more efficient service delivery by the private sector.

“There is no better example of that than in the prisons,” Mr Buswell said.

Acacia Prison, run by English company Serco, has been ranked as one of the state’s most efficiently run prisons.

Encouraged by this example, Corrective Services Minister Christian Porter announced earlier this year the state was planning to use the private sector to run its planned Young Adults Prison.

Similarly, the government is planning to use the private sector to run its proposed Midland Health Campus.

“It’s probable that Midland will be not dissimilar to Joondalup or Peel,” Mr Buswell said.

Joondalup Health Campus is run by ASX-listed company Ramsay Healthcare, while Peel is run by private company Health Solutions (WA). In both cases, the health campuses offer public and private hospital services on the one location.

Mr Buswell acknowledged that the term PPP meant different things to different people, and in practice the government needed to be flexible.

“It’s a case of finding the best possible solution for each project. Is there a one-size fits all? No,” he said.

In its purest form, the term PPP applies when a private consortium is responsible for designing, funding, building and operating infrastructure for a set period, typically 25 to 30 years, before handing it over to the state.

Perth’s District Court building, completed two years ago, was developed in that manner by the Western Liberty consortium, led by banking group ABN Amro and construction company Brookfield Multiplex.

The government’s stance has predictably won praise from lobby group, Infrastructure Partnerships Australia.

“The use of PPPs will cap costs and deliver better designed, better built and better value projects,” IPA executive director Brendan Lyon said.

Just as predictable has been the criticism from the Labor opposition and the unions, which have argued that service standards will suffer as private operators seek higher profits.

Labor governments in NSW, Victoria, Queensland and South Australia evidently don’t agree because they have pursued a raft of PPPs across the health, education, prisons, water supply and roads sectors during the past decade.

Hence, the handful of PPPs announced this year by the WA government represent a catch-up with other states.

One of the biggest PPP opportunities in WA is the development of Perth’s new children’s hospital at the QEII Medical Centre.

The government last month committed to spend $23 million for detailed planning work and expects construction to start in 2012.

It also announced that two multi-storey car parks with about 3,300 bays will be developed as PPPs.

Based on experience in other states, where there have been more than half a dozen hospital PPPs over the past decade, there will be no shortage of contenders for this work.

The two short-listed consortia currently bidding to develop the new Royal Adelaide Hospital illustrate the potential.

The SA Health Partnership comprises Leighton Contractors, Macquarie Bank, construction firm Hansen Yuncken, and facilities manager Spotless.

The competing Torrens Health Partnership includes Bilfinger Berger, Lend Lease, Royal Bank of Scotland, and ISS Health Services.

In the water sector, the WA government has announced that a PPP will be used for its Mundaring Weir upgrade, which includes a new water treatment plant and is estimated to cost $300 million.

The Water Corporation is believed to be evaluating PPPs for two other projects, at east Rockingham and in the west Pilbara.

In the justice sector, a big opportunity is the $232 million Eastern Goldfields Regional Prison.

Mr Porter said in January the private sector would design and construct the prison but a decision on the method of custodial service delivery had not been made.

The potential to use PPPs in the schools sector is illustrated by the experience in other states.

One of the most recent deals, announced last year, was the Queensland government’s selection of the Aspire Schools consortium, led by Leighton Contractors and Commonwealth Bank, to build and operate seven new schools.

Aspire Schools will undertake the financing, design, construction and maintenance of the schools for 30 years, while core school and education services will be provided by the Department of Education and Training.

Leighton subsidiary Broad Construction will undertake the project’s design and construction, while Leighton Services will provide day-to-day operation and maintenance.

Like several other PPPs around Australia, the deal has been structured so that many of the support staff (cleaners, grounds maintenance and janitors) will retain their employment by the state government, while they will be managed by Aspire Schools.

The $1.1 billion Aspire project will be the first PPP to be financed using Queensland’s Supported Debt Model.

This involves the private sector funding the development and construction phase, seen as the risky end of the project, and the government funding most of the longer-term operational phase, when the risk profile is much lower.

 

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