Too Early To Say if Clem7 Going Broke

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Clem7 is a PPP toll road in Brisbane. ABC News reports that:

An independent report out today claims RiverCity Motorway is making $870,000 a month but having to pay $8 million a month in interest on its $1.3 billion debt.

RiverCity chief executive officer Flan Cleary says he has not seen the report but he questions the figures.

He says it is too early to say if the group is going broke.

“We’re six weeks into a 45-year concession,” he said.

“Obviously our traffic numbers are disappointing and we’d like them to be a lot higher, but it really is just too early to say where we are.

“We’ve got two years before we have to meet any bank covenants and we’ve also got four and six years before we have to do any refinancing.”

About 24,000 motorists are using the Clem7 each day, but the company had aimed to have about 60,000 drivers using the tunnel at this stage.

As I keep saying, all of the risk with PPPs ultimately ends up with the rate and taxpayer.

Govt fast-tracking PPPs to make up ‘lost decade’

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Bill English’s views on PPPs and their supposed benefits are reported in the Herald:

New Zealand is a decade behind other countries in using public-private partnerships to accelerate, manage risk, and get value for money from big national infrastructure investments, says Finance Minister Bill English.

English used a speech to the New Zealand Council for Infrastructure Development in Wellington this morning to confirm the Government’s intention to make extensive use of so-called PPPs, in which private investors share in both the risks and commercial upside of building public infrastructure.

The Government would remain the primary funder, with Australian trends showing an 80/20 split between government and private funding in PPPs….

……As a “late starter” with PPPs, New Zealand had the opportunity to adopt world best practice and learn from others’ experience, especially Australia, to catch up a “lost decade” in which PPPs had been shunned for political reasons.

A key advantage of PPPs was their capacity to share the large design, patronage and construction risks inherent in any major infrastructure project, English said. He hoped that Australian experience would allow “a more sophisticated debate” about the use of PPPs than had so far occurred in New Zealand.

We see no acknowledgement here of the disadvantages associated with PPPs.

For the full article in the Herald, click here.

The Bogus Benefits of PPPs

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Gordon Campbell has an excellent analysis of this idealogical burp in the Herald from Deloitte coporate finance partner Paul Carrow.

PPPs just have to cost more because of:

  • the increased up front legal costs of contracting the risk of failure
  • the costs of private firms having to borrow funds instead of the government borrowing at the cheapest interest rates available
  • the costs of ensuring a profit for the private partner
  • etc

And the risk still ultimately falls back on the taxpayer if essential services collapse because the contracts weren’t drafted with enough profit for the private operator. Its all a crock designed to make money for the extra layer of PPP consultants, banks and lawyers.

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Rudman on Electrification and PPPs

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Brian Rudman comments on the Minister of Transport’s decision to investigate a public private partnership for electrified trains, and finds that Sydney’s example may not be one to follow:

That contract is running months behind deadline and the New South Wales Premier is very grumpy. The Sydney tender process proper started in August 2004, presumably after months of intricate, contract design work. The successful consortium was finally announced in November 2006.

Hailed as Australia’s biggest PPP scheme, the Reliance Rail consortium agreed to deliver 626 carriages within six years, the first to start appearing in 2010. The deal included a 30-year maintenance contract. The NSW Government says it’s worth $3.6 billion, however the Sydney Morning Herald last month calculated the true figure, once financing costs and the bill for maintenance over 30 years are included, at $9.5 billion. Nearly a third of that figure will go in interest payments and the like.

The full article here is well worth a read.  I’ve also resurrected an article from way back in 2002 by John Shaw, former board member of Transit, on the folly of public private partnerships.

PPPing the Roads

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by John Shaw, former Transit Board Member

In a recent paper Christopher Sheil of the University of NS Wales talked about editors of the Australian Financial Review being “PPPed out”. He went on to say that that it may be a deliberate strategy, by supporters of PPP, to make the topic so complicated and boring that raising public awareness of the implications of PPP will be an uphill struggle.

This paper is only a brief description of how new roads are financed and built now; what PPP (Public Private Partnership) is all about; the pros and cons of PPP; which current roading projects are candidates for PPPing and some proposals.

How are roads built now?

The public sector raises the money either directly from taxes/rates or borrowing, organises the design and construction contracts and operates the road after construction.

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