One of the major challenges facing nearly every government is how to provide the billions of dollars of infrastructure development and maintenance required to meet the changing needs of the community. This situation is not unique to Victoria.
Over the past 15 years, many governments (including the Victorian Government) have increasingly used the public private partnership (PPP) model to involve the private sector in financing, designing, building, and maintaining public infrastructure, including in some circumstances, providing related services. Forty-four countries have implemented or are in the process of implementing various models of PPP projects.
To encourage a more competitive market, the Victorian Government has sought to encourage other Australian jurisdictions to join together in developing a national PPP market. Some convergence has been achieved, and actual and potential PPP projects totalling $20 billion have been identified by governments.
The Victorian Government has entered into 16 PPP contracts worth about $4.5 billion to provide new or modernised infrastructure for public services. While the vast majority of public infrastructure remains traditionally procured, PPPs now comprise approximately 10 per cent of all public sector investment.
There have been some common sets of principles attached to most of these PPP projects but all have differed in their approach to issues such as the allocation or transfer of risk, obligations of the state, the period of the contract, ownership arrangements when the contract is completed, and the range of associated services to be provided by the private consortia, for example security management and IT services. In addition, the deal structure can be unique, very complex and can involve significant financial assistance from the government.
The extent to which PPP arrangements deliver their claimed potential depends on the specification of performance criteria, financial modelling, unanticipated events, and the nature of the relationship between the government and the private partners in the consortia. There is currently little disclosure of reviews of PPPs, either by government or by private sector partners, and limited evidence as to whether these arrangements have genuinely delivered on the promise of value for money.
Experience with PPP projects, in Victoria and in other jurisdictions, has shown that there have been both successes and failures. The policy has, not surprisingly, attracted considerable comment from the media and some academics, and has proven to be controversial.
Given that many PPP projects have encompassed infrastructure and facilities that provide essential services for the community, and the policy has important financial and social implications for the state, the Public Accounts and Estimates Committee of the 54th Parliament resolved to commence this inquiry.
That Committee considered that the inquiry would provide a valuable opportunity to explore the strengths and weaknesses of PPP projects and to examine the policy and legal frameworks and practices that may influence future projects.
The inquiry was also considered desirable because PPP processes raise complex issues about protecting the public interest, accountability and governance.