A range of arguments has supported the private financing of public infrastructure. Such arguments have varied from macro (in terms of debt reduction and a commitment to balanced budgets) to micro concerns (in terms of project 'value for money').
The arguments for private investment in public infrastructure include:
• the government has access to a broader range of funding options;
• project delivery is earlier than might otherwise be possible through traditional procurement methods;
• risks are transferred to the private sector which is better able to manage risks than the government;
• whole-of life costing factors in maintenance of assets;
• whole-of-life costing (where public private partnership arrangements encompass not only the design and construction costs, but allow for ongoing service delivery, operational, maintenance and refurbishing costs over the life of the asset, or for a determined period of years) allows the private company to recoup capital costs and allows for an adequate return on capital;
• the partnership approach encourages competition and provides incentives for bidders to develop innovative designs and solutions to meet the specifications for the public infrastructure; and
• infrastructure developed by the private sector can also incorporate commercial activities, which can be used in part to defray the cost of services provided to the government.
The arguments against the use of private finance for public infrastructure include:
• accountability to the public and Parliament for public expenditure may be weakened under PPP models;
• the long term nature of the contract reduces flexibility with policy and budget funding;
• questions arise around the value for money from PPPs because of the higher borrowing costs of the private sector;
• the public sector has adequate capacity to finance infrastructure without any private sector financing;
• financiers have, in some cases, made enormous profits through re-financing;
• it is very difficult for governments to adequately structure contracts for future unforeseen events and risks, especially over the long term;
• PPP infrastructure contract costs are more expensive than the traditional provision of infrastructure due to additional transaction and management costs, paid to legal and accounting firms;
• because some aspects of risk are not transferable, the justification for private sector investment is diminished.
The Committee is aware that many of the arguments both for and against the use of private funds for public infrastructure parallel those arguments for and against the privatisation of public sector services and the contracting out of public services used over the past few decades.
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42 ibid., p.9
43 J Broadbent and R Loughlin, 'PPPs: Nature, Development and Unanswered Questions', Australian Accounting Review, 14(2) 4-10, 2004, p.335
44 Department of Treasury and Finance, submission no.35, attachment B