A cop-out or good sense?

Tim Colebatch, November 3, 2006

What are public-private partnerships?

PPPs cover a wide range of contracts in which governments pay the private sector to finance, design, build and operate public infrastructure. The essential feature is that the private sector takes on the Government's responsibilities for a price.

For example?

CityLink. EastLink. The Southern Cross (formerly Spencer Street) station redevelopment. The new County Court building. The Showgrounds redevelopment. The new Royal Children's Hospital. The proposed rebuilding of rundown schools.

Why do governments want to hand these jobs to private developers?

The Victorian Government argues that it allows more projects to be built, encourages innovation, transfers risks (eg, of cost overruns) off the budget to the private sector and can lead to faster completion at lower cost. Critics see the heavy use of PPPs as driven by a fear of taking on significant debt, and hence being labelled by its opponents as financially irresponsible.

If the Government is right, then what's wrong with PPPs?

Critics question whether they really do provide value for money. In reality, cost overruns do end up being paid by governments (eg, at Southern Cross station). The private sector faces higher borrowing costs and must make profits on top of costs, while the whole process costs a fortune in consultants' fees and finance charges. A key issue in Victoria is the secrecy surrounding PPP contracts, which are largely treated as "commercial in confidence". The all-party Public Accounts and Estimates Committee has concluded that it is impossible for the public to know whether it is getting value for money because so little information is released.

What reforms are in train?

Treasurer John Brumby has promised to release more information in future. But critics want an independent inquiry into whether past PPPs have delivered value for money.