Australian PPP expertise: Victoria a trailblazer again!

A lot to learn from health PPP pioneer State of Victoria

No one doubts the outstanding expertise and knowledge of public health experts down under. The fame and renown of research centres such as Monash or La Trobe Universities have long crossed the borders of Melbourne to epitomize academic excellence.

The pioneering work of the State of Victoria is perhaps less known in the field of Public-Private Partnerships. However, Partnerships Victoria was the first body to issue clear guidelines on the structuring, as well as on the management of these innovative contracts more than twenty years ago.

Other useful documents ranged from standard contracts or quality targets per type of service to ensure that PPPs delivered value for money over the projects’ lifecycle.

With this long-standing expertise in mind, the State of Victoria is now launching a new hospital PPP project, with a twist in the financing which pinpoints the versality of financing modes of complex contracts.

The Request for Expressions of Interest relates to the new Melton hospital -located in the vicinity of Melbourne- for a total of 274 beds and will incorporate a diverse service offering ranging from intensive care unit to maternity and mental health. Partnership Bulletin editor Paul Jarvis highlighted that:

The project, which is set to be 100% powered by renewable energy sources, will be funded by $900m from the Victorian Government.

The emphasis on renewable energy sources is not an innovation per se. This is because most PPPs, and indeed all procurement projects pertaining to infrastructure will require the compliance with increasingly stringent environmental and energy performance-related norms.

And then, let’s render to Caesar what is due to Victorians: renewable energy use and autonomy is an area where they excel, at least as much as PPPs!

The real innovation is elsewhere: the financing mode of the PPP relies entirely on the public authority which budgeted 900 million AUD.

While for the last 30 years project finance was at the heart of the financing of PPPs, based for more than 90% on senior debt, i.e. private funding raised on the market and in very rare cases on corporate finance, here’s a complex contract entirely funded by the public authority.

It is without a doubt the sign of a new phase in complex contracts growth and may hint at a better ownership of projects by public authorities who commission them.

The trend is illustrated worldwide by the growing development of joint ventures across the world, where public and private partners are joint shareholder. One also think about the Local Asset Backed Vehicles (LABVs) where private partners match in cash the value of the land brought by the public sector.

Even LIFT projects in the UK, to strengthen PHC facilities, show a trend to 60/40% of share split between partners. A new era for better partnerships may well be underway!

It also illustrates the maturity of the PPP market in Victoria, with public authorities electing this procurement route based on a performance and innovation rather than the commodity of offsetting the burden of debt repayment (i.e. putting the PPP “off the books”).

We’ll make sure to follow this project which is only at the initial expression of interest stage!