Lawyers in the Public Private Partnerships (PPPs) field are waiting for governments in the region to commit to projects they have flagged as the sector struggles to reach pre-financial crisis levels.
According to Corrs Chambers Westgarth partner John Walter there are fewer projects on the board than has been for some time. However, there are projects in the pipeline which could come online at any moment, if governments are able to make a commitment. within their fiscal constraints.  

Walter says governments here and abroad are disinclined to commit to PPP projects as they will be incurred as debt on their balance sheets. “Very few governments want to increase debt levels, because they want to have the capacity to stimulate the economy if need be,” he said. “The difficulty is they have to do it in a way which does not give rise to the same fiscal demands on the government as it has in the past.”

However, Blake Dawson partner Simon Irvine says he has seen a resurgence in the appetite for PPPs from governments. “Most governments are keen to secure projects on this basis (PPP), the pipeline is pretty healthy, but things are being done in a different way to before the crisis from an investment perspective,” he said.

Fellow Blake Dawson partner Joanne Evans Joanne says that in Australia it is mainly the state governments that undertake these projects and they generally have low levels of debt as a proportion of gross state product.  “In fact if you look at the recent NSW Government budget, they are looking to increase debt specifically for investing in infrastructure,” she added.

In recent months a number of large scale PPP projects have been announced involving a number of offshore investor, such as the A$1 billion Gold Coast Rapid Transit project, which Corrs acted on.  “We have certainly seen more international investors coming in recently, particularly with the more complex projects.” says Evans. However, the domestic procurement market is an ongoing issue for foreign investors interested in bidding for projects here, according to Evans. “The Australian procurement process is very long and comparatively expensive. In other jurisdictions it is more relaxed and less costly to make a bid. I think more needs to be done to reduce the cost and barriers and make it more competitive,” she said.

Walter says the governments also need to look at more innovative ways of engaging the end users of infrastructure to limit their debt exposure. “If there is a separate source of payment then the issues of taking these projects on their balance sheets and issues around that will not arise,” he said. “The issue is fiscal constraint. While the governments are very prepared to undertake the planning work, there have not been many commitments to large scale projects.” Indeed, according to Infrastructure Partnerships Australia the backlog of infrastructure projects across the nation is estimated to be A$770 billion.

According to Walters Australia is not alone in the predicament of having many projects but limited capability to sign up to PPPs. However, to address this issue countries such as Indonesia and Peru have taken new approaches to PPPs to ensure the projects get done. He cited a toll road in Indonesia where various sections of the road are being funded by different investors as an example of how different government are finding different solutions to the same problem. "Indonesia is another market with a lot of PPP, but they operate in a very different way," he said.

Although, this is not what Irvine has observed. He says that while a majority of governments in Asia, such as Singapore, have said they are very interested in PPP schemes, they have not yet got very far with them.  As with Australia, a lot of countries in the region have very serious fiscal risks issues which make it harder to get PPPs off the ground, he says. “But if the likes of India or Indonesia ever get it right there will be a lot of opportunities there for Australian investors,” he added.

Related stories:
Identifying risks the key to unleashing infrastructure projects: Blake Dawson 27 July 2011

Gold Coast PPP to send positive message to the wider market 14 June 2011