Asked by
multitech
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News & Current Affairs
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11:35 PM on September 23, 2008
Nidhi Singh's Answer
well,
Public Private Partnership (PPP) projects are promoted as adding value to society. Unfortunately, this high ideal has been lost to short term profit and political expediency to make budgets look artificially good. PPP projects have been taken over by banks and are clearly not delivering their promised benefits to society. PPP proponents promise better management, innovation, and a performance based risk distribution where the private sector through their commercial expertise, take on a high level of project risk.
However, the reality is far from the rhetoric. The Sydney Harbour Tunnel was our first example of PPP not delivering. Motorists saw a rapid rise in toll charges to cover commercial miscalculations. The Sydney Airport Rail is another example of the public purse coming to the rescue of a financial miscalculation, and now with Sydney’s Cross City Tunnel we see the public purse again used to support yet another commercial miscalculation.
On the other hand we do not see PPP projects giving back to the public or the public purse when they make windfall profits.
It is useful to look at the financial structuring of PPP projects. There is a capital investment made at project initiation and usually the project is sold /included in a publicly listed vehicle so that the promoters can obtain an early profit. The project has to be maintained over a period, usually 20 years, and at that point the project reverts to public ownership. For example, on a tollway, the setting of the toll takes into consideration the initial capital costs, interest, and maintenance costs. The only one of these costs that varies over the life of the project is maintenance, which should only change in line with CPI.
Unfortunately, this again has not been the case. Tolls have risen and risen with no justification other than to cover financial miscalculation or to artificially increase profits.
Our Governments are immature in the use of PPP projects and further use of PPP should be stopped until a more appropriate approach is established.
This new approach has to either include the public in benefiting in windfall profits with full financial transparency, or have PPP promoters accept the downside risks as well as taking the upside benefits.
PPP projects are promoted as providing greater benefit to society. The promoters market that the private sector will provide society with a better deal than Government. So let’s take them up on their promises and include the delivery of community service obligations in their contracts.
A similar problem exists when Governments privatise key monopolies. Recent examples highlight this. Commonwealth Serum Laboratories (CSL) was privatised for a meagre sum, it is now worth many times what we, the public, received for it. Now, instead of the Government being able to direct the old CSL to focus on developing vaccines for the potential bird flu pandemic, we see the Government having to go cap in hand asking drug companies to divert funding away from what drug companies see as more profitable areas to public interest issues such a bird flu vaccine. It is time that Government include community service obligation into the companies act for the key monopolies and have companies rewarded / penalised through taxation in respect to the achievement of their community service obligations. It would have been very useful in both the CSL and the Sydney Airport privatisation.
source site: http://www.aipm.com.au/html/me dia_release_public_private_par tnership_ppp_projects.cfm
Answered at
12:07 PM on September 24, 2008
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