From turnpikes to toll-roads: a short history of government policy for privately financed public infrastructure in Australia

ABSTRACT

Australia has been a world leader in the use of privately financed public infrastructure projects (PFPI), otherwise known as public private partnerships (PPPs), since their first use in the modern-PFPI-era commencing in 1980. This article argues that Australian PFPI has evolved through four key phases and tracks the key inflection points in debate. Critical dimensions in these phases include the enabling policy apparatus, tax status, competitive tension, risk transfer, accounting treatment, value-for-money, government guarantees and hybrid finance. It suggests that the evolution of PFPI policy can be attributed to political tendencies, responses to public scrutiny and advances in technical approaches.

KEYWORDS:

• Public-private-partnerships
• P3
• PPP
• PFI
• history
• policy
• Australia

JEL CLASSIFICATION:

• B21
• D73
• D72
• H1
• H25
• H41
• H483
• Z18

Acknowledgements

With thanks to Julie-Ann Campbell, Andrew Anson, Reggie Martin, Kieran Phillips, Matt Dixon and Nathan Lambert who provided assistance with primary research. Substantial thanks is owed to Professor Graeme Hodge and Associate Professor Paul Strangio who read numerous drafts and whose suggestions improved it. Thank you to Eva Maree Zwalf for typographical and presentational assistance.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Although there is no common definition of a modern PFPI, I use the term “modern era” to describe PFPI activities that have taken place from 1980 onward. As the paper notes later on, similar schemes have been used throughout history, and indeed back to ancient times. In this context, the term “modern-era” distinguishes such earlier projects from those initiated after 1980.

2. As I explain later, this is almost certainly unfair to its antipodoean pioneers who commenced the earliest PFPI projects prior to that.

3. Whiteside (2018) argues that Australia, Canada, the UK, US and New Zealand were early adopters of NPM.

4. This view often seems drowned out by more negative and combative commentary in the literature.

5. Hodge and Greve (2007, as cited in Hodge et al. 2017) note that there is a substantial school who argue that partnering is simply a language game to describe what is by any other definition a commercial transaction between buyer and seller. Quiggan (2006) argues similarly.

6. There is some evidence that in the 1980s, attitudes to project finance began to change with the federal government playing a role in facilitating private finance for public infrastructure. This is referenced in Booth (2000) and also the Federal Government Budget Papers, 1983–84 (Australian Government Publishing Service 1983).

7. Regan (2006) notes that in NSW there had been some use of “asset financing” for public transport, motor vehicle fleets and built assets prior to this.

8. It is also argued that the avoidance of public debt was a key driver for adopting PFPI by the UK’s Major Government which is often regarded, fairly or unfairly, as the father of modern-era PFPI projects. Whiteside (2018) has argued this was also the case in Canada also.

9. That is not to say that all tax-advantages were removed. Many tax-minimisation strategies have been employed by PFPI-consortia and others involved in the development of PFPI and continue to be a source of attention for the Australian Tax Office and legislators.

10. According to Regan (2006) and Forward (2006) the modern-era of PFPI in Australia is widely regarded as having commenced with the signing of contracts for the Sydney Harbor Tunnel project by the Wran Government of New South Wales in 1985. English (2006), however, appears to recognize the Ayers Rock Resort project as Australia’s first modern-era PFPI. This is a more accurate perspective. The Northern Territory Government also undertook the Northern Territory Gas Pipeline project in 1985, another very early PFPI (BITRE 2017).

11. The Victorian Accelerated Infrastructure Program included the Melbourne Magistrates Court, Train/Locomotive Leases and the St Vincents Hospital Redevelopment.

12. Indeed, the Sydney Harbour Tunnel project came about as a result of an unsolicited proposal from its eventual developers.

13. In hindsight, it is questionable whether either the Latrobe Valley Regional Hospital or the Port Macquarie Base Hospital would meet the definition of a modern PPP, in that the transaction did not involve the long-term lease of infrastructure. Nonetheless, the Latrobe Valley Regional Hospital was considered a PFPI project based on Victoria’s aggressively pro-market stance at the time.

14. Queensland did undertake one PFPI project in the late 1990s but like others before it, did so without a governing policy apparatus.

15. The phrase “optimal risk transfer” is of course highly ambiguous, but was rhetorically taken as being that risk taken on by the party best placed to manage it.

16. The adoption of the public-sector comparator was not without difficulty. In 2003, the Victorian Government noted that the discount rate it adopted in the PSC for three major PFPI projects was too high given the projects’ risk-profile (PAEC 2006). As noted by Zwalf, Hodge, and Alam (2017), even the smallest difference in the discount rate can be critical in determining if the project is approved as PFPI or as the public sector alternative.

17. Whiteside (2018) argues that Canada’s PFPI program was similarly influenced by VFM from the early 2000s onwards.

18. Concerns have been raised that these specialist units are also policy advocates and evaluators of PFPI (Boardman and Hellowell 2016; Whiteside 2018).

19. It appears that the only two jurisdictions not to adopt a policy framework for privately funded public infrastructure were Tasmania and the Australian Capital Territory.

20. Notably however, Australia’s own national government, was a noted sceptic of PFPI during this period, with its then finance minister, Hon Nick Minchin, saying he saw few opportunities for PFPI, when the majority of states were embracing them (Webb and Pulle 2002). Notwithstanding this, the Commonwealth undertook a substantial “sale and lease back” program of its own office accommodation between 1996 and 2001 (Scarman and Kooymans 2006).

21. One key difference was the distinction made by governments between economic and social infrastructure with the former being infrastructure that is capable of producing revenue (such as a toll-road) and social infrastructure being infrastructure that is not (such as a school). The South Australian government chose to exempt economic infrastructure from PSC evaluation (Page 2008).

22. These tax advantages had allowed state governments to use infrastructure payments as a tax deduction in certain circumstances but were withdrawn in the early 1980s.

23. A sidenote to this of course is that any review of PPP tenders reveals a core group of PPP market actors are frequent participants in PPP tenders.

24. Globally this is not uncommon, with Canada’s provinces, for one example, employing varying discount rates also (Zwalf, Hodge, and Alam 2017).

25. The UK Government also trialled hybrid finance with the pressures in credit markets resulting from the global financial crisis being a key driver of this change. Grimsey and Lewis (2017) argue however that the question of finance and ownership is somewhat irrelevant with the real raison d’être of PFPI being the provision of a stream of services.

26. The United Kingdom’s National Audit Office (2009, in Zwalf 2017) for one example, is noted for expressing skepticism about the veracity of the PSC as an accurate and non-biased indicator of VFM, saying “too much weight is placed upon subjective judgments of risk, which can easily be adjusted to show private finance as cheaper.”

27. In an international context, Boardman and Hellowell (2016) have observed that two of the primary motivations for governments to embark on privately funded public infrastructure are, one, the accounting treatment and, two, the ability to deliver a project in the short term but pay for it over the long term.

28. For one recent example, see the case of Victoria’s desalination plant, which has been regularly criticised for government paying availability charges regardless of usage.