Evolving greenfields

Australia has been one of the pioneers in delivering infrastructure projects using the PPP model, with some of its first projects dating back to 1988. It is described by a number of market participants as “the world’s most active PPP market” and that level of activity looks set to continue in 2017.

Last year was a good year for Australia’s public coffers and for new infrastructure projects. In September, Victoria sold Port of Melbourne for A$9.7 billion ($7 billion; €6.76 billion) while New South Wales divested Ausgrid for A$16.2 billion. All in all, state governments managed to raise over A$20 billion through privatising assets in 2016.

The state governments are planning to use the proceeds to fund some of their large-scale, complex greenfield infrastructure projects through a process known as ‘asset recycling’. For instance, part of the record A$9.7 billion Victoria collected through selling the Port of Melbourne’s 99-year lease will go towards removing 50 level crossings in the city, as well as to build regional and rural infrastructure projects.

Thanks to the success of the country’s PPP programme over the years, Australia has managed to attract many of the world’s major developers to its shores – though intensifying competition has seen expected returns tighten in recent years, according to Peter Munns, who leads John Laing’s primary renewables investments in Asia Pacific.

Federal and state governments, however, are continuing their efforts to structure the country’s PPP projects in ways which provide better certainty and clarity for investors and developers. As a result, the federal government updated the National Guidelines for PPP projects in October 2015, followed by a set of new requirements from the Victorian government last November.

Still, while Australia is deemed attractive due to its stable regulatory framework, a politically volatile environment in certain states has led some schemes – whether they are publicly or privately procured – to falter.

One example is Victoria’s A$5.3 billion East West Link, a PPP, cancelled last year after the Labor government won the election in 2014 on a pledge to scrap it. While the government ended up paying over A$1 billion in cancellation costs, the move “did not inspire investors’ confidence”, comments Simela Karasavidis, a Melbourne-based partner
at global law firm Pinsent Masons.

However, she argues that political negotiations over infrastructure projects in Australia are not much different from what happens in other developed democracies, where infrastructure assets are often considered strategic.

In December, the Victorian government proposed to build the long-discussed North East Link, another road project in Melbourne budgeted at A$10 billion, though it said work would start only if the Labor administration is reelected in 2018. The East West Link could also make a comeback in the future: the federal government still has A$3 billion earmarked for it should Victoria one day decide to build it.

Long as it may seem before these two projects hit the market, Australia is not short of big-ticket transport schemes in 2017, starting with the Melbourne Tunnel, Melbourne Metro, Sydney Metro City and Southwest and the western package of the Outer Suburban Arterial Roads (all PPPs except for Sydney Metro City).


Healthcare is another key theme for next year: New South Wales is currently procuring the redevelopment of five hospitals under an operator-led PPP model in order to deliver on its A$1 billion state election commitment. “Only hospital operators with a proven track record of successfully delivering health services will be considered for partnerships,” explains NSW’s Minister for Health, Jillian Skinner, in a statement.

Malcolm Macintyre, a director at Capella Capital, says that the approach is consistent with NSW’s focus on service outcomes and is seen as a “natural evolution” of the PPP model given recent experience in convention centres, light rail and prisons. He adds that the state government was looking to procure service outcomes beyond just the delivery of hard infrastructure through this approach.

The push towards commissioning and contestability improvement has been the focus of the operator-led model, which could well be the format to follow in the next year or so, comments Bruce Riddle, principal and APAC sector lead of social infrastructure at advisory firm Advisian.

While large-scale transport infrastructure projects continue to be the focus in the states of NSW and Victoria on the back of a robust project pipeline, the opportunity for new PPPs may well lie in the social infrastructure sector as new projects, including schools and healthcare facilities, are required to support urban development and population growth that these transport projects enable, Riddle concludes. ?