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Infrastructure

Infrastructure development and the effective engagement of private public partnerships (PPPs)

Infrastructure is priority topic for CEDA, given the backlogs, complexities, risks and regulatory processes that can characterise infrastructure investment. A recent example of the challenge to the PPP model has arisen because of the effective closure of private and international debt markets post the GFC in September 2008 and the only gradual opening since that time. This made private sector finance contributions to PPPs problematical. On the positive front, and as shown with the desalination plant PPP in Melbourne, there are transitional models where a higher proportion of risk is taken by government, and where subsequent capital gains are captured by government when projects are transferred into private infrastructure funds. This example that CEDA Research has advanced demonstrates that well structured infrastructure PPPs can in fact be debt-reducing once refinance occurs at lower capital costs, despite government initiating expenditure and taking construction risk.

There are, however, many cautions regarding PPPs. When the project preparation is not to the standard required, when poor projects are selected or when there is careless project evaluation of no cost-benefit analysis, there is well-demonstrated scope for poor PPPs and other forms of government investment or privatisation to fail, worsening debt situations and leaving the government exposed. CEDA looks to facilitate policy and planning dialogues in this area as Australia tackles what is widely deemed to be a backlog in infrastructure. In addition there is a further need for investment in infrastructure as population expands in metropolitan areas and as our resources sector continues to grow, backed by strong long-term demand from China and India for our mineral resources.

Much of Australia's infrastructure is at a crossroads. Following two decades of under-investment, vital elements of the nation's infrastructure are in serious disrepair, if not crisis. A major piece of research from CEDA was instrumental in elevating the issue on the national agenda.