Value from major infrastructure projects and alternative assets
Major infrastructure projects & alternative assets
An estimated U.S. $40 trillion is to be spent worldwide on infrastructure projects before 2030.
Emerging economies are putting significant transport and energy infrastructure in place to sustain growth while developed economies are both upgrading existing infrastructure and investing in ‘softer’ infrastructure — notably, education and healthcare
But it is increasingly difficult for public sector bodies to fund these projects. Society has higher expectations of infrastructure assets and public services, and citizens are more likely to question how money is spent.
This has led to an increase in Public Private Partnerships (PPPs) and a wider range of delivery mechanisms to bring private experience and public money together.
Public Private Partnerships (PPPs)
PPPs are agreements between the government and private sector to deliver specified public services over a long period (20-30 years). Don’t be confused by the term ‘Private’; these partnerships are about better delivery of public services. We propose that New Zealand should adopt a name such as “Public Service Partnerships” (PSPs). This places the focus on what these partnerships are about –more and better public services.
In New Zealand, the government has indicated it is interested in using PPPs to deliver some infrastructure-related services and has recently challenged departments to rethink the way they deliver public services.
What are the common challenges of PPPs?
Despite working together more closely in recent years, the public and private sectors still have different agendas and ways of working. Reconciling those two approaches can be challenging.
Common problems include:
- long timeframes that are measured in years, not months
- the patience needed to maintain commercial focus throughout the life of a project
- refinancing, contract variations and disputes.
There is a limited pool of skills globally for the implementation of major projects, particularly within the public sector. KPMG member firms' experience of dealing with issues on projects across sectors and around the world is important to help make deals happen.
So what should I do?
PPPs must be properly structured. There is evidence that they can be more efficient and produce better value for money than traditional procurement. The private sector’s efficiency outweighs the public sector’s ability to borrow money cheaply. PPPs tend to result in greater competition and increased innovation; more attention is paid to costs across the whole project lifecycle.
The key words are ‘properly structured’. Getting the planning right from the start has a major bearing on any project’s outcome: from outlining a tender proposal to choosing a preferred bidder, from contract negotiations to the financial close, any number of issues can arise.
A mutual understanding between the public and private sector representatives on either side of the deal is essential, as is ongoing management of the project once it is up and running.
How can KPMG professionals help?
- Public sector — advising on structuring and managing the procurement of infrastructure programs.
- Private sector — bid advisory around the financing, structuring and managing of major infrastructure projects.
- Secondary investors — advising on seeking maximum value from existing infrastructure and alternative assets.
PPPs – the opportunity for New Zealand
Other countries have adapted the principles of the PPP approach to their legal frameworks, infrastructure needs and societal expectations. This is exactly what we should do in New Zealand. As a slow follower, we are in a position to adopt and adapt the proven parts of the PPP approach and reject the parts that don’t meet our needs.
In this document we outline lessons learnt from other countries and suggest what a New Zealand version of the PPP approach should look like.
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