Home > Economic policy > Have PPPs matured ?

Have PPPs matured ?

November 5th, 2005

I’ve been involved in the debate over private infrastructure and public-private partnerships for more than a decade, and have accumulated lots of evidence that the public sector generally loses from these deals. One response I get a lot is that the process has matured and that the failures of the 1990s are no longer relevant.

Sydney’s Cross-City tunnel fiasco makes it clear that this is not the case. This deal has all the features that I and others have been criticising for years – secret clauses, restrictions on future planning, closure of alternative routes, crippling penalties for changes and so on. But there’s more. The inclusion of an upfront payment to the RTA, effectively creating a slush fund outside the normal budget process, is an abuse that wasn’t even contemplated a decade ago.

It’s reported Treasury is furious over this and I’m not surprised. They’ve been trying to establish a coherent PPP process, but toll road projects seem to fall outside its scope. But the fundamental problems are, as far as I can see, inherent in the whole concept.

Other recent developments make it clear that we need a moratorium on PPP deals. How can the public interest possibly be protected when any politician or public servant involved in these processes can expect a multi-million dollar sinecure on retirement, provided they don’t upset the applecart? You only have to look at the payrolls of the major players in the industry to see what I mean. Tony Harris, the former Auditor-General who exposed the dodgy accounting behind many of the early schemes is one of the few people involved in the process who doesn’t have a cushy job or consultancy of some kind.

Categories: Economic policy Tags:
  1. Dave Ricardo
    November 5th, 2005 at 16:44 | #1

    “The inclusion of an upfront payment to the RTA, effectively creating a slush fund outside the normal budget process, is an abuse that wasn’t even contemplated a decade ago.

    It’s reported Treasury is furious over this and I’m not surprised”

    It’s the payment that is the problem, but it’s not the payment as such that Treasury is furious about. It’s the fact that the RTA gets to keep the money instead of sending it to the consolidated revenue.

  2. November 5th, 2005 at 17:48 | #2

    Apologies in advance, Prof Q, as this is kind of rude to do on someone else’s blog, but a chapter on PPPs that I wrote for a book a couple of years ago has now been posted at the Evatt site should any readers be interested in following up further on the issues.

  3. November 5th, 2005 at 18:23 | #3

    It may be worth comparing with the 19th century analogue of these things. Private interests were often granted special privileges not in exchange for up front cash but for a continuing encumbrance/imposition in the form of maintaining a particular related service. For instance there were “parliamentary trains”, and I have heard of a horse tram company that was obliged to maintain the general roadway (the costs blew out and it went broke, since non-tram traffic increased and tram traffic suffered).

    Anyway, it shows that the economics and who rips off whom may vary.

  4. stephen bartos
    November 6th, 2005 at 14:15 | #4

    In Australia to date PPPs have been far more of a State than a Commonwealth government phenomenon. That’s for two reasons. One, most of the capital works have been at State level (roads, tunnels, bridges, schools, hospitals, prisons – all constitutionally State matters). Two, the Commonwealth has had a policy that a PPP is an option for departments to consider, but only where it represents value for money. This was a policy for which I was responsible, and always thought was pretty sensible. It did not rule out PPPs, but insisted that they be properly costed. Won’t come as a surprise to John Q., but when you do the numbers properly on many PPP proposals, you discover that they don’t represent value for money. Maybe my advocacy of the value for money approach is why, like Tony Harris, nobody has offered me a lucrative merchant bank or infrastructure provider job yet.

    There are good reasons for PPPs at times – access to expertise otherwise unavailable, possible sharing between public and commercial uses of a facility, better management of project or operational risk (NOT financial risk). But I always had a rule of thumb: if the only thing driving a PPP is the financial deal, then its not a good deal for the taxpayer.

    This makes it all the more worrying that the Prime Minister has now come out promoting PPPs. His statement that “In future, we have asked that when departments or agencies are seeking funding for new investments, or advising cabinet of new spending funded from existing appropriations, they should consider the full range of financing and ownership options, including PPPs” is disingenuous – to date department have considered PPPs. Some of the Commonwealth’s larger projects, in Defence, are already underway on a PPP basis. Although the PM has indicated that value for money is still important, there seems no reason for the statement (it doesn’t change anything) unless the government is intent on abandoning the value for money approach. PPPs were already an option for Commonwealth departments, and routinely considered. It is not as if they are in any way a new discovery, they have been around since well before the current government was elected.

    I’m currently writing an article on PPPs, so looked at Chris’s thoughts with interest. Apologies John for using your site to garner ideas, but I suppose that’s what it’s for really.

  5. November 6th, 2005 at 22:24 | #5

    But I always had a rule of thumb: if the only thing driving a PPP is the financial deal, then its not a good deal for the taxpayer.

    Pretty good rule of thumb, if I may say so stephen.

  6. Kevin Brewer
    November 6th, 2005 at 22:28 | #6

    One of the Dodgy brothers PPPs will be over the next hill going past where I live ( Scoresby Frankston tollway). I was interested to read a note in the paper the other day about I-bonds, a Keating/Hawke thing which enables holders to rip off the revenue and make a killing on tax savings etc. I assume Transurban and the other various PPP’s use the same instruments, which enable them to pay a dividend to their investors before they have built the infrastructure, which seems to me the antithesis of the old notion of investing where one puts capital at risk with the expectation of returns in the future.

  7. Terje Petersen
    November 7th, 2005 at 03:40 | #7

    QUOTE JQ: I’ve been involved in the debate over private infrastructure and public-private partnerships for more than a decade, and have accumulated lots of evidence that the public sector generally loses from these deals.

    RESPONSE: Just a comment on your choise of words. Surely we should be wishing that the Australian public and the taxpayers wallet do not lose out. If the public sector loses out then that may in fact be something to celebrate.

  8. November 7th, 2005 at 23:04 | #8

    There should be a crime of ‘conspiracy against the public interest’, under which anyone, on either side of the negotiating table, who ever again negotiates such a crooked and rotten deal as occurred with the Cross Harbour Tunnel project sides, should go to prison.

    If anyone wishes to prevent a similar threatened rort in Brisbane, please get in touch with the “Communities Against the Tunnels” group at http://www.notunnels.org.

Comments are closed.