Public Private Partnerships

The Victorian government announced a number of major infrastructure projects late last year that are likely to play a vital role in the future economic performance of the state.

Top of the list is the East West link, connecting the Eastern Freeway with the Western Ring Road. But there is also the $1.6 billion investment in expanding the capacity of the Port of Melbourne, the development of the Port of Hastings, the Melbourne Metro rail project, the additional rail line between Dandenong and the city, the expansion of Avalon to become our second international airport and the third runway for the Melbourne Airport.

All of them are important to addressing the projected growth of Victoria’s population, the growth in regional Victoria and in closing the gap in service standards in public transport, schools, hospitals and libraries.

But they also need a new approach to Public Private Partnerships. Given the relative inefficiencies of governmental infrastructure, it is understandable that there is cynicism on any governmental role in infrastructure. However, this should not mean that government cannot play an effective role in promoting a world-class infrastructure system.

Victoria has the opportunity to show the private sector that it understands the importance of efficient private sector investment as central to commercially viable infrastructure. But if it adopts the approach of an infrastructure venture capitalist, infrastructure is doomed to fail.

The Federal Coalition’s policy at the last 2010 election advocated for a greater private involvement in Infrastructure. This policy can be enhanced, especially with appropriate concessional tax treatment.

But it is a sound basis for an instructive government to play a crucial role in an efficient public private partnership approach where large scale infrastructure projects are run by the private sector, but funded through government securities. The call by the President of the Business Council of Australia, Tony Shepherd, for long-term (30 years) guaranteed indexed bonds is also worthy of consideration. He believes they would be attractive to mums and dads and super funds and this may well be the case.

Time is ticking…