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The Forum > Article Comments > How to make a partnership pay its way > Comments

How to make a partnership pay its way : Comments

By Edward Blakely, published 8/3/2006

Public-private partnerships need not be ugly.

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May I make two suggestions to Professor Blakely and other readers in order to view this problem in a new, more realistic light?

1) Go to the nearest video/DVD hire store and grab a copy of "The Corporation". After viewing this excellent film one will be left with no doubt about why corporate power is always used for the benefit of the already wealthy and not for the average Jo Bloggs no matter what safeguards are installed. If the rules don’t benefit the wealthy elite they just get them changed.

2) Grab a copy of "The End of Suburbia" the film that clearly demonstrates that the age of cheap and abundant oil, thus road traffic, among other oil or other fossil fuel dispensed utilities, including most of our food production, is almost over.

Peak oil, is gunna change everything and governments world wide and locally have no plan B for this obvious impending crisis that will be as serious if not more serious than global warming.

Professor Blakely may be standing just a little bit too close to the blackboard, like many other too narrowly focused professionals, or those who rely on funding from the public purse or the corporations. He may be unwilling or not able to look at the big picture.

“Peak oil” - Google it - its gunna change everything.
Posted by Bucko, Wednesday, 8 March 2006 10:00:33 AM
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Prof Blakely draws an analogy with PPPs and chattel leasing. Elsewhere he says that investors don't want to take the risk. In a chattel lease the risk is shifted to the lessee and away from the owner. In a PPP the risk is shifted almost entirely away from the investor (as noted) and on to government. It's worth the reminder that government is US, the taxpayers. We end up bearing the risk.
PPPs are laregly tax-break driven anyway. So taxpayers are in a lose-lose situation. They lose a third time if, as has been the case on tollways and the Aiport rail in Sydney, the PPP is overpriced. PPPs enable governments to retain their AAA credit ratings at the expense of taxpayers. A modest amount of public investment would be a vastly more equitable way to fund much-needed infrastructure. The Commonwealth Government surplus could be trimmed to provide benefits to those who have contributed it.
PPPs have been made fashionable by the globalised finance sector. They are of great benefit to it but precious little to anyone else. A debate on public finance and the national interest is required, not a narrow focus on the tax system.
Posted by Remote centreman, Wednesday, 8 March 2006 11:30:27 AM
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It is disgraceful that someone who claims the title of Professor should mount this argument. The safeguards he proposes should occur whatever the source of funding. All things being equal large infrastucture projects can be funded much more cheaply through government borrowings at the much lower interest rates which governments can command. To argue that P.P.Ps just need the safeguards (which we used to have but which were removed at the request of the private investors) to be successful, is to ignore the main point which has been proven many times. PPPs cost more because their borrowings demand a higher interest rate than Government borrowings. It is intellectual dishonesty to pretend otherwise.
Posted by Bull, Wednesday, 8 March 2006 12:26:45 PM
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This article is complete nonsense. There is not really any problem with the Cross City Tunnel. It is well built and the tolling works well and 30,000 motorists are prepared to pay $3.56 each way to use it.

The problem is with the Iemma Labor Government. It agreed to reduce the capacity of one of the busiest roads in Sydney in return for a large cash payment and I believe this is an act of corruption. The road was built with public money and is heavily utilised. There is no reasonable argument for closing it.

The author’s suggestions about private schools are equally implausible. His idea that private schools should not be allowed if they discourage enrolments in nearby public schools would be incredibly unpopular.

Maybe he should consider the concept of Freedom of Choice. Maybe the tunnel doesn’t go where the motorist wants to go. Maybe they can’t afford the toll. Maybe the local government school has become rundown and parents don’t like it.

Government by coercion was the theme of both the Soviet Union and Nazi Germany. It has no place in Australia.
Posted by Rob88, Wednesday, 8 March 2006 12:41:56 PM
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In my experience problems with PPPs include government being more interested in the “announcement” effect than the long-term net benefits of the project; and that those negotiating on the government side both lack the necessary contractual skills and have lower incentives to get the deal right than do their commercial counterparts. Both these factors tip the balance away from the public benefit towards the private benefit.

As for the government “improving the fees by closing off alternative routes,” etc, it is hard to see how such sweetheart deals which reduce competition will ever be in the public interest. I’d like to see the cost-benefit analysis of the Sydney tunnel.

The “four simple actions” you propose would clearly address the above issues. However, in my experience State government politicians would never set up a truly independent board, would never relinquish their capacity to meddle if they see a potential political gain from doing so. As for long-tern strategies, few politicians work to such horizons.

PPPs were under consideration when I joined the Queensland PS in 1991. To date there is one in place, the Southbank TAFE, which concerned insiders tell me was a dog.

That said, I support the concept as a general principle. There will often be potential advantages in having infrastructure built and operated by the private sector. Queensland has just gone the other way however, with government-owned Queensland Rail buying a national freight network. Premier Beattie said that “If QR is to survive, prosper and continue to contribute healthy dividends back to Queensland taxpayers, it must look beyond traditional state borders.” Given that QR’s latest (and better than usual) return on assets of 6.7% is well below the 9.5% standard weighted average cost of capital for companies with similar capital structure, one might well argue that Queensland’s taxpayers would be best served by selling QR and investing the money where higher returns are available.
Posted by Faustino, Wednesday, 8 March 2006 2:42:54 PM
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Bull, the cost of finance depends on the attached risk. Government borrowing costs are fairly low on average because most of their activities are fairly low risk. When engaged in risky activities such as the tunnel, they need to apply a similar risk premium to the private sector.

The potential benefits of PPPs include drawing on the greater expertise and greater incentives for efficiency of private sector financiers, builders and operators. The problem is the limited capacity of goverments and public servants to negotate and monitor apropriate contracts.
Posted by Faustino, Wednesday, 8 March 2006 2:50:55 PM
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