PPPs and upfront cash – part 2
I’ve been thinking about the upfront cash payments that are apparently part of most recent PPP contracts signed by the RTA in New South Wales. In essence, the government is borrowing money at the average cost of capital imputed to the project (I’d guess this is at least ten per cent), paying fees to the consortium for the privilege and repaying the loan by increasing the allowable monopoly toll. As Chris Sheil said in comments on the previous post, this takes us back to the good old days of selling taxes.
These arbitrary payments undermine claims that PPP contracting has matured and that everything is now to do with value for money and optimal risk allocation. THe purported official rationale I saw was to “ensure that taxpayers are not out of pocket”, which is redolent of the kind of cash-based accounting mentality that got us into the private infrastructure mess in the first place. This is an illustration of the fact that we’ve never got past the kind of deal-driven rent-seeking mentality that has characterised these boondoggles all along.
Aside: There’s some dispute over whether tolls are taxes. I say they are, since they are not closely related to the value of the good or service being used. Road users pay through specific road user charges such as vehicle registration, some component of fuel taxes and general taxes. In addition, users in some parts of the system are required to pay tolls while users in other parts of the system are not. Thus tolls are more akin to a tax (in the Australian context, usually an arbitrary tax, unrelated to congestion) than a market price.