PPPs take a long time to die
In the immediate aftermath of the GFC, I argued that the Public Private Partnerships model then in vogue was broken beyond repair, and that, even after the crisis we would be unlikely to see many more, though we might see deals wrapped up to look like PPPs, but with the public bearing most of the risk.
The recent failure of BrisConnections, the owners of the Airport Link Tunnel in Brisbane was no surprise. The AirportLink deal was one of the last pre-crisis PPPs, when investors were still optimistic enough to buy shares based on absurdly overstated traffic flows. In fact, they bought “partly paid” shares, a startling piece of financial engineering under which shares, trading at virtually zero, carried with them the obligation to come up with a payment of $2/share later on.
Because of the eagerness of private investors, the Queensland government bore little risk in the project. Former Treasurer Andrew Fraser’s description of the project as “a zinger of a deal for the public” displayed his customary tact, but was accurate enough considering the deal in isolation. The problem is that, after this and similar failures, it is highly unlikely that the pre-2008 PPP model can be revived in Australia.
For roads at least, there’s a simple alternative – road pricing based on congestion. I and other economists have been banging this drum for years, but politicians are terrified of even mentioning the idea. At one level, I can understand this – it’s tricky and likely to be controversial – but Queensland governments of both parties have adopted politically suicidal policies, largely motivated by the perception that they will free funds for capital investment.
First, Anna Bligh, along with Andrew Fraser reduced Labor to a seven-member rump with her pursuit of economically disastrous asset sales, exactly the opposite of what she had promised. Now, Campbell Newman has dissipated a huge volume of goodwill with savage cuts to public services, again a wholesale breach of promise, and is now pursuing privatisation. Compared to these electorally suicidal policies, road pricing ought to be a doddle.