Home' Future Building: The Australian Infrastructure Review : Volume 4 Number 1 Contents 54 futurebuilding Volume 4 Number 1
Peter Harris AO
For superannuation, other aspects of infrastructure
that might be considered in order to improve its
attractiveness include things like:
• how to x demand risk: particularly low early-life
take-up, which is exempli ed by toll road projects
but not limited to them. Most infrastructure, due
to its lumpy nature, is at risk of poor early take-up,
if it's priced. If you get it for nothing, it probably
doesn't matter, but if it's priced it's at risk of poor
• illiquidity: the second thing in superannuation
that strikes me as being quite important. Because
with few buyers at any time for very large projects
-- and, of course, very few buyers if you are
subsequently forced to sell -- deep pockets are
required; it's a thin market. We need to address
Fortunately, in this area I think the market is
showing signs of solving these problems itself.
As funds obtain scale, similar to the Canadian
funds we have seen here as active buyers, they can
retain the in-house expertise necessary to overcome
these information uncertainties; and explain them
better to boards for investment cases.
They can undertake their own demand
assessments, rather than relying on others, and the
concept of creating portfolios of infrastructure, rather
than single infrastructure assets, can address, in part,
the liquidity issue.
These, on their own, may not be silver bullets,
but they have the dual merits of not being regulated
solutions, and also of not shifting risk back to the
I mention risk at this point because I think it is
fundamentally important -- particularly in discussion
PPPs are a partnership concept that I have seen
through our public transport contracts in Victoria, a
number of large water projects in Victoria, and even
the NBN--Telstra contracts, which have elements of
PPPs at the high level.
PPPs are not really something to target in their
own right; there are many circumstances in public
infrastructure where they will not be suitable.
But they are at their best where they offer clear net
bene ts beyond those of traditional public funding.
That sounds like a very simple motherhood statement,
but, in applying it, the bene ts of PPPs tend to apply
the most where risk sharing or risk allocation is the
principal subject under consideration. The more
dif cult it is to de ne the nature of an infrastructure
investment and design it effectively, the more likely it
is that a PPP will be a helpful device.
Moreover, PPPs apply particularly where those
concepts can be well expressed in contract, because
if they can't by de nition, you'll nd it very dif cult
to run a PPP. They must also be well expressed in
potential pricing structures.
Looking at risk, PPPs are often good at improving
risk management in the design phase. Adding a
private partner early creates an incentive for the
nancier and the builder, if the tender process will
allow, to advise on how to ensure that the project is
deliverable at the chosen cost and time frame, to nd
ef ciencies and to remove contingencies.
The result of this is quite evident. There are
studies, both in Australia and overseas, that support
the idea that PPPs experience lower cost overruns
and nearer on-time delivery than alternative systems.
PPPs also demand comprehensive whole-of-life
costing. Whole-of-life costs need to be crystallised
and potentially funded, because if you are an
investor, you want to know that the thing is going to
be maintained throughout the period in which you
are expecting to get your money back.
This whole-of-life costing concept is a very
welcome development for those of us who have run
infrastructure agencies; we are used to begging for
maintenance funds. The idea that you can crystallise
and contract them up-front is very attractive.
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