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Darrin Grimsey - Ernst & Young - Private investment in infrastructure. Where to from here?
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Darrin Grimsey - Ernst & Young - Private investment in infrastructure. Where to from here?

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Darrin Grimsey delivered the presentation at the 2014 Future of Infrastructure Conference. …

Darrin Grimsey delivered the presentation at the 2014 Future of Infrastructure Conference.

The Future of Infrastructure forum explored state and national challenges which impact the long term economic growth and future of infrastructure development in Australia at this time. It also addressed the latest proposals for changes within Australia's infrastructure.

For more information about the event, please visit: http://bit.ly/FutureofInfrastructure2014

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  • 1. The Future of Infrastructure Darrin Grimsey Partner, Infrastructure Advisory 20 August 2014
  • 2. Page 2 Why PPPs?
  • 3. 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
  • 4. 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
  • 5. 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
  • 6. Page 6 Evolution of the PPP market
  • 7. 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
  • 8. Page 8 PPP Models used in the Health Sector CAPEX Minimisation Legend New Health Delivery Model BiasTowardsOperational BiasTowards Asset Delivery Opportunity Innovation Integration OPEX Efficiency
  • 9. Page 9 Private finance - its role in PPPs Challenges Mature markets Developing markets Liquidity Value for Money Political risk
  • 10. 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 Basispoints 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
  • 11. 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 Millions Private Sector Finance Public Sector Finance
  • 12. 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
  • 13. 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
  • 14. 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
  • 15. 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 NumberofPPPs Value$M Australian PPPs by year Number of PPPs VALUE $M
  • 16. 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
  • 17. 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
  • 18. Thank you