Download - Darrin Grimsey - Ernst & Young - Private investment in infrastructure. Where to from here?
The Future of Infrastructure
Darrin Grimsey
Partner, Infrastructure Advisory
20 August 2014
Page 2
Why PPPs?
Page 3
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
Page 4
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
Page 5
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
Page 6
Evolution of the PPP market
Page 7
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
Page 8
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
Page 9
Private finance - its role in PPPs Challenges
Mature
markets Developing
markets
Liquidity
Value for Money
Political risk
Page 10
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
Page 11
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
Page 12
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
Page 13
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
Page 14
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
Page 15
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
Page 16
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
Page 17
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