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problems
Early problems
Because of the focus on avoiding increases in public debt, many private
infrastructure projects in the early 1990s involved provision of services at
substantially higher cost than could have been achieved under the standard model
of public procurement. The central problem was that private investors demanded
and received a rate of return that was higher than the government’s bond rate,
even though most or all of the income risk associated with the project was borne
by the public sector.
A number of Australian studies of early initiatives to promote private
investment in infrastructure reached the conclusion that, in most cases, the
schemes being proposed were inferior to the standard model of public procurement
based on competitively tendered construction of publicly owned assets (Economic
Planning Advisory Commission (EPAC) 1995a,b; House of Representatives Standing
Committee on Communications Transport and Microeconomic Reform 1997; Harris
1996; Industry Commission 1996; Quiggin 1996).
One response to these negative findings was the development of formal procedures
for the assessment of PPPs in which the central focus was on "value for money"
rather than reductions in debt. The underlying framework was one in which value
for money was achieved by an appropriate allocation of risk. These assessment
procedures were incorporated in the Private Finance Initiative and its
Australian counterparts from the late 1990s onwards.
Subsequent debate
Although the general view that governments should seek "value for money" has
been widely accepted, there have been continuing disputes over whether the
guidelines designed to achieve these goals are appropriate, and whether they
have been correctly applied in particular cases. Much of the discussion has been
based on debates over the UK Private Finance Initiative.
Specific cases
While some PPP projects have proceeded smoothly, others have been highly
controversial. Australian examples include: Airport Link, the Cross City Tunnel,
and the Sydney Harbour Tunnel, all in Sydney; the Southern Cross Station
redevelopment in Melbourne; and the Robina hospital in Queensland.
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