Private investment in public infrastructure has evolved significantly over the pas decade. In its submission to the Committee, the Department of Treasury and Finance noted the relevant policies over this time and provided comprehensive documentation about its current Partnerships Victoria policy.54 Principal guideline documents on government PPP policy have included:55
• Infrastructure Investment Guidelines for Victoria - Public/Private sector partnership (issued by Treasurer Tom Roper in May 1991);
• Infrastructure Investment Policy for Victoria (issued by Treasurer Alan Stockdale in June 1994); and
• Partnerships Victoria (issued by Treasurer John Brumby in June 2000). On 3 August, 2006, the government issued an updated edition of the Overview document which provides a high-level summary of the key principles of Partnerships Victoria and explains the range of guidance material available.
Much common ground can be found in each of these policy documents. All investment guidelines from 1991 to the present day claim to be designed to expand Victoria's asset base. All guidelines define infrastructure in its widest sense to include economic, social and other facilities for public use. While the earlier two sets of guidelines were aimed explicitly at new and existing infrastructure, the more recent Partnerships Victoria guidelines are much broader and refer to the purchasing of infrastructure based services in terms of outputs.
All three sets of guidelines recognise a wide range of possibilities for private sector involvement. Earlier guidelines had no explicit limits on their application, but those of 1994 and 2000 were oriented to projects in excess of $10 million. All sets of guidelines identified that project proposals may come from either the public or private sector, and that special legislation to govern the partnership may be enacted if required or warranted in particular circumstances.
Differences can also be found in these guidelines. The Department of Treasury and Finance advised the Committee that the 1991 guidelines reflected a strong financial need and the challenge of difficult economic times.56 The overriding concern was 'to achieve off-balance sheet financing which would not be caught by the global limits set by the Australian Loan Council'.57 The objective of bringing forward the provision of infrastructure was achieved, but 'often through inefficient arrangements, some of which were later unwound at high costs to the taxpayer'.58 These guidelines were also very broad and more of an overview to private sector investment options, rather than being detailed guidance. They did, however, specify that all projects must undergo social and economic evaluation of benefits and costs before being approved, with an emphasis on the net present value criterion as the test for viability.
The Audit Review of Government Contracts, which reported to the current government in 2000, commented on the 1994 guidelines as follows:59
The former government had a clear commitment to engaging the private sector in its programs. An important step in that process was the publication in 1994 of an 'Infrastructure Investment Policy for Victoria', setting out how it intended to engage the private sector in the provision of infrastructure and related services. This statement set out how the public sector would seek and develop project opportunities with the private sector. The establishment of a Privatisation and Industry Reform Division within the Treasury was also of central importance in overseeing the very ambitious privatisation program, centralising the skill base and ensuring greater consistency in the treatment of issues.
However, the review also concluded:60
• with its central focus on fiscal issues, the former government placed less emphasis than it should have on the environmental and social impacts of its policies; and
• unnecessary secrecy surrounded the sale of key assets and major contracts. The report makes a number of recommendations designed to ensure that in future Victoria is a model of open and transparent government.
The Department of Treasury and Finance put to the Committee that the financial and economic outcomes have become more robust over the period of these three sets of guidelines.61
The most recent policy guidelines established for Partnerships Victoria seek to involve private parties through competitive bidding and appear to be more discriminating. This policy is built on the experiences of the Victorian Government and the Blair Government in the United Kingdom. In the Department of Treasury and Finance's view, 'there is now a clear quest to achieve value for money in the public interest and there are improved skills, experiences and techniques employed in the quest'.62 The essence of the Partnerships Victoria approach is that government is not buying an asset. It is buying services at agreed quality, quantity, costs and time lines and reduces payments if these are not delivered.63
The Department of Treasury and Finance put to the Committee that the objectives of Partnerships Victoria are:64
• to maximise the level of infrastructure spending through a responsible use of resources in both the public and private sectors;
• to ensure that infrastructure and related ancillary services are provided in accordance with best practice, and where appropriate, to relevant international standards;
• to promote growth and employment opportunities to the whole of Victoria;
• to deliver significant and improved services to the community;
• to encourage innovation in the provision of infrastructure related ancillary services;
• to maximise the social and economic returns from government expenditure;
• to pass on the benefits of Partnerships Victoria to customers, business and the Victorian community; and
• to clearly articulate accountabilities for outcomes.
The Department of Treasury and Finance also advised the Committee it will have regard for 'industry development, investment, recruitment and skill development transfer' in undertaking a Partnerships Victoria project.65 The department indicated that the following principles underpin the government's approach:66
1. projects should focus on specifications of the end result rather than on the means of delivery;
2. Partnerships Victoria projects must have government approval prior to formal private sector involvement;
3. the allocation of risk and commercial arrangements should deliver best outcomes for Victoria.
4. performance measures should be established to ensure service quality meets the needs of the community and that outcomes are transparent;
5. private participation is to be subjected to competitive tendering processes;
6. an emphasis on transparency and disclosure will occur, while also acknowledging the need to protect commercial confidentiality where appropriate;
7. conduct of the public sector should always be such that confidence and probity of the partnership model is maintained;
8. standardised approaches should be used where possible to reduce transaction costs; and
9. incentives to all parties should encourage high level performance.
The following five features of the Partnerships Victoria model are evident:
• the private sector provides public infrastructure and related ancillary services with the government retaining responsibility for delivering core services;
• value for money must be demonstrated;
• a range of possible partnership models are accommodated within the Partnerships Victoria policy;
• a rigorous procurement policy involving transparent tendering has been established for all agencies; and
• Partnerships Victoria projects will be rigorously assessed against several public interest criteria.
Guidance on how to follow these five directions has been provided in the Partnerships Victoria Guidance Material, which provides a framework for integrating private investment into public infrastructure. This material aims to assist policy decisions (including risk allocation and contractual issues) to assess whether infrastructure should be funded through traditional public arrangements or through private financing.67
It outlines how the policy has evolved, from the traditional idea of governments contracting with the private sector to procuring defined service level specifications infrastructure as well as related ancillary services. It argues that the government, by purchasing defined services rather than assets, is released from responsibility for the asset, which provides greater strategic flexibility and focuses on the quality of the services being delivered.68 Importantly, these guidelines address the questions of whether the government should deliver any parts of the process, whether the involvement of the private sector will deliver value for money, and whether the project will satisfy the public interest criteria.
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54 Department of Treasury and Finance, submission no.35, p.4
55 ibid.
56 ibid.
57 ibid., p.7
58 ibid., p.7
59 Audit Review of Government Contracts, Contracting, Privatisation Probing and Disclosure in Victoria 1992-1999, May 2000, vol.1, p.18
60 ibid. vol.1, p.2
61 Department of Treasury and Finance, submission no.35, pp.4-5
62 ibid., p.7
63 ibid., p.8
64 ibid., pp.8-9
65 ibid., pp.8-9
66 ibid., p.9
67 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Overview, July 2006, p.4
68 ibid, p.5