The Committee received little evidence from the private sector on the public interest tests, although Dr Arndt229 discussed the concept of public interest in narrow terms of government controlling services.
The then Executive General Manager of Project Development, Transfield Pty. Ltd., also advised the Committee that in his experience, the private sector adapts well to requirements relating to the concept of public interest and the broader social, rather than just economic, goals.230
The objectives of the Partnerships Victoria policy appear to the Committee to be generally consistent with protecting the public interest. Risk allocation philosophies and value for money tests also appear to aim at this protection, although the real test is not so much the aim as the performance of projects implemented under these policy guidelines. The absence of independent evaluations of privately financed infrastructure in Victorian means that it is not currently known whether the public interest has been protected in many of these PPP projects.
Specified objectives underpinning the policy, such as 'maximising the level of infrastructure spending …' or 'establishing long term mutually beneficial partnerships with the private sector' as noted in Chapter 2 would find few critics. The Committee does, however, have reservations about the Partnerships Victoria strategy being the only way, or indeed the best way, of achieving these policy objectives because it may take several years before difficulties and problems become apparent.
One central matter of public interest that appears to underpin the private financing of public infrastructure is the government's broader policy platform of low public debt. The Committee was advised that 'the idea that problems with public debt can be resolved by encouraging the private sector to undertake infrastructure investment is superficially appealing'. However, given that often 'private infrastructure initiatives have been associated with a series of guaranteed government payments', this has had 'exactly the same economic and fiscal effects as the repayment of interest on a debt'.231 Furthermore, Professor Quiggin advised the Committee that 'the crucial issue in assessing a government balance sheet is not the level of debt per se but the government's net worth'.232 Thus, although the use of long term leases has become particularly popular in reducing reported levels of public debt, the government's obligation to make payments under such leases is effectively equivalent to the requirement to make interest and principal repayments on public debt.233
To assess the best manner of funding public infrastructure, the Committee considers that other funding alternatives are now worth examining, in addition to both the private financing and 'traditional' public financing contractual arrangements. The Committee considers that the government should approach the National PPP Council to undertake a review of other options available to governments to fund infrastructure assets and services.
New potential arrangements worthy of investigation could include bonds, venture funds, pooled development funds and encouraging superannuation funds to invest in specialised infrastructure or property trust. The Committee is aware that Industry Funds Management Pty Ltd, a significant superannuation fund incorporating a range of smaller union based and workplace superannuation funds, has invested in the Spencer Street redevelopment through acquiring a controlling interest in ABN Amro's security in the project. This investment will give the fund access to the cash flow from the government over the next 30 years as well as commercial rights within the Southern Cross Station.
Superannuation assets in Australia now stand at $844.6 billion234 and these funds are looking for secure longer term investments. Funding of government infrastructure by the superannuation funds is one alternative that should be explored by the National PPP Council.
The Committee considers that in assessing any public interest matter, the Victorian public sector must have the necessary expertise to effectively manage PPP projects. To this end, the government should ensure it has sufficient in-house expertise to provide high level advice about these complex arrangements and to provide the strategic management skills to monitor and evaluate the outcomes of these projects. It is essential that the public sector does not become dependent on external advisers to undertake these tasks because there is a potential for conflicts of interest when a small group of advisory firms are providing advice to both government and tenderers. In all major projects, central to the question of protecting the public interest is the reliance the community places on Ministers and public officials, rather than on external advisers who may have vested interest, to act in the interests of the community.
The Committee noted with interest the following comments made by two senior consultants working on PPP projects:
A partner with Deloitte was quoted in a recent media article:235
There's a need for complete transparency in these projects, where you invite an independent third party in on behalf of the taxpayer - the auditor-general or another group - to scrutinise the process and ensure there are no conflicts of interest between the parties involved.
And a partner from Freehills told the Committee:236
… Australia … is a pretty concentrated market and you will have heard from others about how concentrated the construction market is, with a very small number of substantial players. That is simply a fact of life we have to deal with. It means that Chinese walls are inevitable because there are relatively few players in each relevant piece of business …
… Mitcham-Frankston was the first situation in which a government said there can be no common advisers in that situation. In other words, what the government did was effectively interfere in the market for advisers and so they said to financial advisers, law firms, including mine, 'You cannot act for both these bidders' because, as it has turned out, there are two related consortia bidding in Mitcham-Frankston. That's a prohibition that is only on the advisers. It is not a prohibition that the request applied to the bidders themselves. Why make the distinction? ...
… I think my point is that this sort of issue is better left to the probity contracts, the Chinese walls and the way in which the market behaves, including a strong monitoring regime, again. There would need to be, if there ever were, common advisers. If an investment bank had two competing teams advising relating bidders, it would have to deal with those Chinese walls itself. The government would have to impose probity requirements and they would have to be monitored. But to prevent two separate divisions of Macquarie Bank doing competing tenders is selectively focusing on some suppliers and not others and potentially depriving the government of even better competition …
The Committee is aware that the Department of Treasury and Finance has issued a guidance note about managing conflicts of interest with advisers engaged in providing assistance with PPP projects.
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229 Dr R Arndt, transcript of evidence, p.31
230 Mr H Fischer, (then) Executive General Manager, Project Development, Transfield, transcript of evidence, p.69
231 Professor J Quiggin, submission no.25, p.17
232 ibid.
233 ibid., p.19
234 Australian Prudential Regulation Authority, Superannuation assets near $850 billion, media release, 12 April, 2006
235 J Lewell, Partner, Deloitte, quoted in 'Partners in time', The Age newspaper, 7 August 2006
236 Mr W Napier, Partner, Freehills, transcript of evidence, pp.23-24