PPP use in Australia can be broadly separated into two periods: pre-2000 and post-2000. The establishment of Partnerships Victoria within the Victorian Department of Treasury and Finance in 2000 marked a watershed in PPP implementation and development. This reform resulted in a number of significant outcomes. First, the term 'public private partnership' was formally adopted to cover the range of PPP models that had previously been separately identified by acronyms.[6] Second, the delivery of core state-subsidised hospital and corrective services was removed from private sector provision in PPP arrangements.[7] Third, Victoria began developing a suite of comprehensive PPP-specific steering mechanisms. These mechanisms were based on the United Kingdom's ('UK') private finance initiative ('PFI') model[8] which established a set of procedures to govern the pre-contractual decision making stage leading to the signing of a PPP contract, and monitoring and oversight in the construction and operating stages.[9] PPP policies in other Australian jurisdictions are based on the Victorian policies. In 2005, the federal and all State governments formally agreed to harmonise their approach to PPP development and implementation.[10]
Common to all PPPs is an arrangement where a private consortium contracts with a public sector agency to finance, design and construct (or refurbish) a facility under a time and cost-specific contract. Following construction, which is undertaken and financed by the consortium, services are provided under a long-term contract. A revenue stream is used to repay debt, fund operations, deliver contracted services and provide a return to investors. Payments are not made until the asset is commissioned and operational.
The Victorian Government recognises two distinct PPP models that are characterised by different payment scenarios based on demand for services.[11] The chief differences between the two PPP categories are the source of the revenue stream and the nature of government guarantees.
The first PPP model has been in use since 2000 and closely resembles the UK's PFI model (also known as 'social' privately funded projects ('PFPs') in New South Wales ('NSW')). Under this model, core public services (health, correctional, educational) are delivered by government agencies and associated ancillary services (maintenance, fittings, furniture, equipment, grounds etc) by the consortium. In these arrangements, the government assumes demand risk, guarantees a minimum revenue stream, and pays directly for service provision. Deductions occur if the consortium does not meet specified performance standards. The service elements of contracts are usually subject to recontracting at five-year intervals, providing governments and consortia with the opportunity to finetune the service component to ensure that it meets current market conditions in terms of cost-effectiveness.
Characteristic of the second PPP model (which includes toll roads and utilities) is the transfer of revenue risk to the consortium. In these arrangements, there is no direct government revenue guarantee. In the case of toll roads, for instance, the revenue stream is received directly from motorists. These projects are known as 'economic' PFPs in NSW because the provider theoretically faces market risks, such as traffic and revenue risks. However, also in these arrangements, governments effectively underwrite an agreed real rate of return on investment through lengthy terms, toll escalation arrangements, and undertakings to minimise existing and future competitive public transport options, for example, through 'traffic calming' measures. This ensures that the tolls cover the cost of the asset, its financing, maintenance and the consortium's operating costs.[12] A variety of hybrid models are used to capture different demand and risk scenarios, and project types.