Public-Private Partnerships can deliver more liveable cities

by Richard Fechner, Group Executive Manager at GHD Advisory, part of consulting firm GHD

Last month, Australia’s ‘Population Clock’ quietly ticked past 25 million people. Remarkably, we’ve added more than one million people in the last two and a half years and the ABS, as keeper of the clock, forecasts our population reaching 26 million ‘in about three years’ time’.

Sydney has recently surged to more than five million residents and Melbourne is now nudging the same figure, largely fuelled by overseas net migration around 80,000 people per annum settling in each city, respectively.

Most politicians agree that population growth is a nice problem to have. But it puts pressure not only on roads, rail, healthcare and education; but also increases demand on water, wastewater treatment, energy, public and private property, warehousing and distribution, and the local environment.

Keeping our cities moving, and liveable, requires a thoughtful approach from all levels of government, with the main challenge being the pace of infrastructure delivery and the associated disruption and opportunities.

Faced with an electorate sensitive to council rate rises or tax hikes, governments have largely embraced the promise of public-private partnerships (PPPs). And while the quantum of PPPs across all states has risen and fallen dramatically since 2000, New South Wales, Victoria and Queensland, in that order, with their respective infrastructure construction booms, have been the most ardent proponents of private funding.

However, there are many barriers, including limited long-term planning, technical or design constraints, political instability, heated public opinion, and unsustainable financing practices. Making the most of PPPs requires innovative partnership arrangements to manage risk and reduce complexities.

If the private entities will own or operate the asset for the long term, they should have incentive to create designs and outcomes that go beyond the brief and create additional benefits for the bidder – and for the wider community.

The concept of ‘asset recycling’, supported by Commonwealth incentives, has offered a way to reduce risk, freeing up capital for governments to re-invest in a greenfield development. Using this approach, a government entity develops a project using design and build input from the private sector. When the asset is completed, it is long term leased to the private sector over a tax-effective term.

Proceeds from the lease (perhaps 50 to 100 years often paid in one installment) then fund the next wave of infrastructure projects.

Maintaining transparency and simplicity is essential – not only for ethical reasons, but also to change assumptions on the reallocation of risk, should significant delays or cost overruns occur. Complexity could further shrink by separating contracts so that hard-build infrastructure is split from technology systems, and operations and maintenance, enabling different companies to focus on what they do best, and reflecting on the respective lifecycles of the elements.

While the private sector tends to provide greater service efficiency, communities have higher expectations for PPP projects and are likely to pounce on profit-making entities for any shortcomings or disruption in delivery. So, it is important to acknowledge that infrastructure projects are not just financial instruments, but an important way to facilitate and accelerate investment to support social and economic activities.

Local councils and states understand the stresses their infrastructure is under and should be given a guiding hand in matching local needs with global investor and our superannuation funds’ demand for infrastructure assets.

For communities, there is an opportunity to realise the benefits of new hospitals, schools, bridges or water treatment plants with better service, while also boosting local employment, without the impost of higher rates or additional taxes.

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