Instead of looking to Australian PPP failures, we could follow the example of Sweden and Denmark, reports Nick Smith.
A study of overseas infrastructure projects following the financial crisis shows government involvement is now essential for large-scale urban development to be funded, says Stephen Selwood, chief executive of the New Zealand Council for Infrastructure Development.
In a joint project with Kensington Swann, Selwood was conducting a second study of
northern hemisphere countries, following an earlier investigation in 2006 into the planning, funding and delivery of infrastructure.
The purpose was to benchmark New Zealand's performance and gain lessons on how to fast-forward large scale infrastructure projects in this country, particularly using private public partnerships (PPPs).
Much has changed since the crisis, he reports.
"It's almost impossible to get a risk transfer toll road off the ground - there's no market for it because the private sector has [previously] been too bullish about pricing and tendering," he says of a handful of spectacular failures, such as Sydney's cross-city tunnel and Lane Cove road.
The banks now won't provide funding without significant equity contributions because of "bad experience" and tight credit markets.
"They want the backing of the Government."
"The whole trend of PPPs globally - and this was borne out by all the locations we visited - is to 'service-and-availability PPP' models," says Selwood.
Under this model, the private sector is contracted to Government or local authority to provide a service such as a road, which may or may not be tolled.
A road would then be built, operated and maintained for a set period - typically 30 years or more - for a monthly fee.
"At the end of the term you hand it back in a condition that was set out in the contract," he says.
"The market will come back," Selwood says of pure private sector investment.
But until that time, Government involvement is required to get the necessary funding for any country's infrastructure. Road and rail, in particular, struggle to attract investment, he says.
The use of service and availability PPPs partly explains why infrastructure investment spending in countries such as Scotland, Denmark and Sweden dwarfs New Zealand's investment, despite their being countries of similar size and population.
Critics of PPPs, who cite Sydney's failures, miss the point, Selwood contends. "From the public sector's point of view, the roads were built, the service is being provided, the government effectively took no risk and the original equity owners took all the hit," he explains.
"This is actually what PPPs are about: transferring risk to those who are prepared to accept it. Some will do well and some won't."
