The Three Ps of Infrastructure

Public Private Partnerships have proved themselves a model for getting road infrastructure projects completed with a minimum of fuss and with a smaller burden on the public purse. The cost of which is transferred directly to the road user, every time they use it.

Infrastructure responsibilities are enormous. Road maintenance account for up to half of local council outflows. Yet bridges, tunnels and freeways have usually been majority funded from larger state and federal coffers.

Almost all bypass roads built in Australian capital cities in the last decade have followed a BOT model. Private capital is given rights to the toll revenue for the costs of construction. With the road then falling into public hands well into asset's twilight years.

This has proved a disaster for any investor who ventured into this asset class. Core to any project viability, is estimated ridership. Both of the two multi-billion dollar PPP tunnel operators in Brisbane Australia have fallen into receivership by wildly over estimating the number of cars passing through. A third toll tunnel now under construction is wholly funded by the Brisbane City Council.

Australia has a long history of deferring costs for big ticket infrastructure on to others. The New South Wales government defaulted on the Crown during the Great Depression in the years after the Sydney Harbour Bridge was opened.

Singapore and London have chosen a much more cost-effective albeit a politically risky route in taxing overall congestion. This has proved wildly successful in keeping the downtown streets flowing freely. In London's case, the roads in the city are far more congested over the weekend, when the tax is not levied.

Which highlights the Achilles heel of individual toll roads across the big cities. Ridership is skewed toward those who are simply time poor. Leaving roads meandering through the city streets marginally less congested. Clearly an integrated strategy for tolling those who are needlessly contributing to downtown congestion, incentivising them into using the superior, tolled bypass.

A post GFC landscape has seen PPPs, fall dramatically. Contracts with more conservative arrangements are effectively shifting risk back to government ledgers. Which still presents a risk to the people if the tolled infrastructure can't lure passengers. That's not to say toll routes are worthless. The Ontario Teachers Pension Fund snapped up a lucrative toll operator Transurban that runs a tunnel through Western Sydney.

Clearly private ownership of important public infrastructure is here to stay. But governments need to step up to reducing capital risk, not simply by taking it on. But by having an integrated approach to ensuring that the assets operate at their designed capacity. This way they can effectively fulfil their public good.