Australian success with PPPs provides insight

Australian success with PPPs provides insight for the Waterview project in Auckland

Media release
Monday 11 February,2007

A recent report into the comparative benefits of public private partnerships compared with traditional procurement has found that "PPPs provide superior performance in both the cost and time dimensions, and that the PPP advantage increases (in absolute terms) with the size and complexity of projects."

The report undertaken jointly by The Allen Consulting Group and the University of Melbourne found that:

"PPPs demonstrate clearly superior cost efficiency over traditional procurement, which can range from 30.8 percent
when measured from project inception, to 11.4 percent when measured from contractual commitment to the final outcome."

This analysis is useful as it provides a benchmark of best practice that we can use to assess the viability of a PPP for the Waterview project in Auckland, says NZ Council for Infrastructure Development chief executive Stephen Selwood.

"The model will only be used for Waterview if the business case stacks up and provided it can be demonstrated that a PPP will provide better value for money than traditional procurement. This is the key task of the joint public and private sector Steering Group that has been appointed.

"The Australian experience will assist the steering group determine the key issues to be considered, Selwood says.

"In particular the report addresses the common misconception that PPPs need to achieve massive cost savings to overcome the disadvantage of having a higher cost of capital than government funded projects.

"The report finds the notion that traditional government procurement creates a 'risk free' project is "deeply flawed".

"The difference between the private and the public sector borrowing is that private sector capital markets explicitly price in the risks of a project into its sources of finance. This is not the case in the public sector. Instead, taxpayers implicitly subsidise the cost of the project by bearing the risk of cost overruns, time delays or performance failures, which are not priced into the Government borrowing rate.

"The best procurement option is the one which maximises overall value for money, taking into account all economic social and environmental effects, over time. This is what the various processes to evaluate the Waterview project are designed to determine. The Austalian exeprience will be helpful in that regard", Selwood says.

For more information contact Stephen Selwood on 021 791 209

Copy of the report can be downloaded here>

Further information about PPPs is availbale here>

ENDS

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