darrin grimsey - ernst & young - private investment in infrastructure. where to from here?

The Future of Infrastructure

Darrin Grimsey

Partner, Infrastructure Advisory

20 August 2014

Why PPPs?

PPPs are required to meet infrastructure demand

Global growth is driving demand

for more Infrastructure

GDP

3% pa

Global

Imports

18T

Global

Population

Growth

116% pa

Urbanized

Global

Population

by 2030

85% $60 - $70 trillion of investment

needed in infrastructure by 2030

$60T

$45T

$15T Estimated

Available

Investment

Required

Investment

Investment

Shortfall

SOURCE: World Bank Economic Data

B20 Taskforce recommendations

Policy Recommendations

1. Importance of infrastructure in national growth plans

2. Infrastructure pipelines

3. Global Infrastructure Hub

4. Transparent procurement and approvals processes

5. Foreign direct investment

6. Availability of long term financing

Barriers to Private Investment Globally

1. Project selection

2. Weak project preparation

3. Unstable investment environment

4. Lack of transparency

Australia is an active PPP environment

Northern Beaches

Hospital PPP

Palmerston Hospital

Toowoomba Bypass

PPPs in procurement

Potential PPPs

North-West Rail Link

Melbourne Rail Link

Waurn Ponds

East-West Link S1

South Road Corridor

Schools PPP

Sydney Light Rail

Moorebank Intermodal

Perth Light Rail

New Generation

Rollingstock

Transmission Gully

WestConnex

F3/M2

Social housing

Ravenhall Prison

Airport Rail Link

Auckland East Prison

East-West Link S2

New Schools PPP

Sydney Airport

QLD Prisons

Children’s Hospital

Evolution of the PPP market

History of Health PPPs in Australia Case Study

1992

Port

Macquarie

1996

Joondalup

1997

Latrobe

1998

Mildura

2008

Royal

Women’s

2011

Royal

Children’s

2016

Bendigo

2015

VCCC

NRAH

2013

Royal

North

Shore

Northern

Beaches

2021

Sunshine

Coast

2014

Fiona

Stanley

Midland

(Back to BOOT)

Availability-based PPP (property models, output models and back to BOOT)

Casey

BOO / BOOT

2002

2002

Establishment of PV

in VIC DTF

Establishment of IA

and PPP Guidelines

2008

Orange

2009

Newcastle

Mater

Long Bay

Prison &

Forensic

PPP Models used in the Health Sector

CAPEX

Minimisation

Legend

New Health Delivery Model

Bias Towards Operational

Bias Towards Asset

Delivery Oppor tunity

Innovation

IntegrationOPEX

Efficiency

Private finance - its role in PPPs Challenges

Mature

markets Developing

markets

Liquidity

Value for Money

Political risk

Private Financing for Health PPPs Debt markets - pricing

Debt margins – Australian PPPs pre and post GFC

0

50

100

150

200

250

300

350

400

450

Bas

is p

oin

ts

Pre-GFC

Post-GFC Pricing Levels

► Higher than pre-GFC

► Many projects having margins in excess of 200 basis points

► Debt margins in FY13 expected to remain relatively stable

Mature markets The post-GFC market – the changing mix of public & private finance

29.2% 70.8%

Public sector finance

Private sector finance

Proportion of Private and Public Sector Spend to Date

-

500

1,000

1,500

2,000

2,500

Millio

ns

Private Sector Finance Public Sector Finance

PPP Models Globally

► The Australian PPP approach has long been influenced by

developments in other markets

► PPP market developed – 1990s

► 9 out of 124 Countries

► 149 Projects

► Birthplace of the PPP concept – 1992

► 13 out of 124 countries

► 240 projects

UK / Europe PFI is Dead – Long Live PFI

UK PPP History

► Public Finance Initiative (PFI) - 1992

► Australia is heavily influenced by this PFI model

► Criticism of the PFI Model

► PFI 2 Model - 2012

► Greater accountability and transparency

Canadian PPP Model State Sponsorship of PPPs

Canadian PPP History

► First introduced in Canada in the

1990s. Around 10 – 15 PPP deals

per year in Canada

► “PPP friendly” legislation

► Active Bond Market

► Canadian Pension Funds

► Standardized approach to creating

PPPs

Canadian

PPP Market

Strong deal

flow

Faster & more

standardised

procurement

Small-med

projects

Large defined

benefits super funds

looking for long

term projects

Bid cost

contributions

Capital

contributions

Greater Govt debt

pricing risk pre

FC using

benchmarks

Capital market

participation

Australia PPPs by a different name

Australian PPP History

► Long history of PPP projects

► Privatizations in utilities

► Victoria a key driver in PPP

development

► Partnerships Victoria

► Australia is now a foremost

heavyweight in the APAC region in

project finance

0

2

4

6

8

10

12

14

16

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1987 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Num

ber o

f PP

Ps

Val

ue $

M

Australian PPPs by year

Number of PPPs VALUE $M

The Future of PPPs Commissioning and Contestability

Commissioning

► Governments face increasing costs and shrinking

budgets.

► Consumers are demanding better public services

► Governments must innovate

► Commissioning is a natural progression PPP

evolution

► New ways to leverage value and improve delivery

of projects

Contestability

► The Government tests the market to ensure the

best approach to project delivery

► Different service delivery models should be

considered

From To

Government choosing User choice and control

Doer Enabler

Siloed Collaborative

Contract managers Relationship managers

Program managers Outcome managers

Control Influence

Conclusion

PPPs will fund our Future

► Governments must think outside the box

► Funding the infrastructure of tomorrow will

require collaboration

► PPPs have a proven track record of

delivering maximum value

► Governments must be willing to evolve as

well

Thank you

darrin grimsey - ernst & young - private investment in infrastructure. where to from here?

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