Public private Partnerships: What does the future hold?

Internationally, Public and private Partnerships (PPPs) are being used across a wide variety of economic and social infrastructure projects in more than 85 countries. PPPs are a procurement methodology that brings a rigorous risk-weighted approach to major projects using a competitive bid process and private sector expertise and innovation. PPPs are achieving a number of significant improvements in major project procurement and improved public service delivery. This paper considers the prospects of PPPs from the perspective of government clients and their promoters of PPPs and whether current volatility and uncertainty in the capital markets in Australia will affect the feasibility of privately financed infrastructure, and specifically, the PPP method of procurement. A survey of financial advisers and lenders indicates that present market conditions will be placing PPPs under pressure. Future PPPs will be subject to new disciplines - lower leverage, higher reserves, stronger underlying credit credentials, higher debt service coverage criteria and higher cost debt. This will affect both bid depth and state/government risk allocation with lenders expected to take a tougher approach to the support of delivery and operational risks. This suggests some impact on the value for money outcomes for the PPP model in the short-term. The characteristics of PPPs will be reviewed in this paper using national and international sources in order to identify those features that will be essential in this new economic climate. From the literature and views of experts gained form its survey, the authors suggest that present market conditions do not close the door on PPPs, but do provide an opportunity for both government and industry to develop a more refined model that is more appropriate for the new environment. This may require a more scientifically costed approach to risk allocation, state guarantee support, improved underlying credit credentials and a rethinking of patronage risk. It is a shared responsibility. It is also likely to be a further step in the continuing evolution of alternative major project procurement mechanisms.