The modern Public Private Partnership (PPP) model of privately financing public infrastructure had its genesis in the Sydney Harbour Tunnel (SHT) project in the mid 1980s1. While initially focusing on economic infrastructure, PPPs have been used over the last decade to procure social infrastructure assets and associated non-core services.
Considering NSW and Victoria have now been using the PPP model of procurement for more than 20 years, a clear evolution of policy and practise can be traced. The public sector has developed the necessary skill base to procure infrastructure by way of PPP, with the private sector becoming increasingly innovative and adding significant value to public procurement. This has seen dynamic changes to the way Industry and Government interact.
In NSW the introduction of the UK PFI social infrastructure policy was adopted through a Green Paper in 2000, which led to NSW Treasury publishing the first Working with Government: Guidelines for Privately Financed Projects (WWG) in November 2001.
NSW has procured schools, hospitals, prisons and social housing in a short period of time since the release of the first WWG in 2001. The NSW Schools I & II projects are viewed by many in Industry and Government, as being an example of social infrastructure PPP best practice.
Social infrastructure PPPs have unique budget and accounting implications. NSW Treasury adopts a budget rule, a framework which is also adopted in Victoria. The budget rule separates the investment and financing decisions. By adhering to the budget rule, the Government dispels the common misconception that PPPs are an alternative to Government borrowing. That is, PPPs are not used as a means of extending the State's budget constraint. While private finance may be used to initially construct the infrastructure, it will ultimately be funded by Government through ongoing payments over the life of the contract.
The Government has learnt to deal with risk allocation flexibly, as it is an extremely complex issue for social infrastructure PPPs, and a driver of value for money. Risk allocation requires the need for a well thought out engagement strategy, particularly at the Request for Detailed Proposal stage. NSW and Victoria have learnt that a good engagement process aids in aligning the public and private sectors understanding in optimising outcomes, resulting in an efficient allocation of risk.
In recent years, the financing of PPP projects has become complex. This can be partly explained by the skills a consortium acquires with the Australian investment bank driven model, and also reflects the development of new financial instruments in the market. The Global Financial Crisis is impacting on the financing of PPPs, which will likely see the PPP model adapt to the changed financial market circumstances.
Since the SHT, PPPs have been able to evolve to changing influences. Although PPPs have received a great deal of scrutiny in recent years, they have been able to adapt to the requirements of users and tax payers. Government has introduced a number of safeguards to reassure the public that PPPs will only be entered into when they are in the public interest, and provide the people of NSW with value for money.
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1 Working with Government: Guidelines for Privately Financed Projects gives a discussion of the difference between a pure PPP style project and a PPP that involves private financing, called Privately Financed Projects in NSW.