Aussie PPP lessons

Aussie PPP failures offer a lesson
4:00 AM Monday Jan 25, 2010
Construction on the Lane Cove Tunnel project in 2007. The project has turned off investors.

Promoters of public-private partnerships (PPPs) in New Zealand say the structures of prominent project failures in Australia are not being contemplated here.
Commentators in Australia warn that investors have been turned off by the collapse of the Lane Cove Tunnel project in Sydney, after the earlier collapse of the Cross City Tunnel project, and it may affect the ability of Australian governments to raise funds for public infrastructure.
PPPs are being contemplated in New Zealand, but mostly for so-called social infrastructure such as prisons and schools, rather than for toll roads.
The failed toll-road projects in Australia have been compared with other financial booms that have gone bust.
Consortiums were allegedly chosen on the basis of upfront payments to government and were overly optimistic about traffic volume and valuations.
Arguably, roads and tunnels that were not needed were built, providing organisers with large fees.

Stephen Selwood, chief executive of the New Zealand Council for Infrastructure Development, said there was almost no appetite in New Zealand for the sort of structure used for the Lane Cove Tunnel, or even in Australia now.
Lane Cove was a demand-risk toll road. Consortiums effectively competed for the right to levy a toll with upfront payments to government in the structure of the bids.
The structure arguably incentivised bullish behaviour in the private sector.
Toll roads were still possible in New Zealand, and one was being considered for the Tauranga Eastern Motorway.
But the model of the Government levying the toll and taking the risk on traffic demand was more likely. This was known as a service-and-availability PPP model.
"The private sector carries the risk for construction, operation and maintenance of the road and is paid for the provision of that service and gets its return over time in the form of service payments," Selwood said.
"The private sector still lends to the project, carries the risk on the project and gets paid for delivering an open road, if you like."
He said the latest project in Australia, Peninsula Link in Melbourne, was a service-and-availability PPP with no toll. He doubted that investors would be put off by the project failures in Australia.
Source: NZ Herald