Government Matters

The Future of Public-Private Partnership Guidelines

In December 2008, Infrastructure Australia (IA) released the draft of the final volume of its National Public-Private Partnership (PPP) Guidelines.

The Commercial Principles for Economic Infrastructure guideline will become policy across Australian jurisdictions and apply to projects where the private party bears market risk and revenues are derived from third party users.

But with the advent of the global financial crisis, it seems highly unlikely that current model PPPs will be possible in the foreseeable future as private finance has become far too expensive. While IA’s guidelines are high-level enough to have continuing relevance, Australian governments will need to re-think these principles in light of the current, and deteriorating, economic climate.

Australian governments, particularly the Queensland Government (given the unprecedented amount of economic infrastructure required in the State), will be faced with claims from the private sector that government will have to bear more risk than in periods of substantial economic growth (in which PPPs evolved).

In Queensland, “the worsening budgetary position will force the government to explore more partnerships with the private sector to fund infrastructure programs”. The government will need to re-assess the guidelines to achieve two aims; firstly, to encourage private parties to engage in infrastructure projects and secondly, to adequately protect itself from claims about increased risk under PPPs. These two aims cannot co-exist easily.

Project identification should be rethought, with a possible shift of focus away from large-scale PPPs (like toll roads) to more manageable projects. The government will also face the challenge that tendering and probity processes for any new PPPs reflect the current market, and do not place too great a demand on would-be private sector parties.

Contract drafting and management will be the most important factor in future PPP projects. In times of financial prosperity, private parties are more inclined to assume greater obligations and risk under project agreements. The private sector will argue that these agreements can no longer be overly protective of government; they must become more flexible to encourage private investment and confidence.

Future project agreements may include ‘good faith’ clauses, more carefully drafted performance standards, and very cautious use of indemnities, liability caps and liquidated damages. Drafting project agreements will require more careful consideration of market conditions, relying on commercial incentives for the private party rather than strict or standardised guidelines.

The flipside of a need for flexibility in contracting is greater risk. IA’s guidelines aim to ensure detailed standards in the PPP process to protect the government party; standards that may no longer be practicable. However, this does not mean that the government cannot realise PPPs without major concessions and risk. In the future, governments should focus on the specifics of each PPP project agreement and ensure that it is both flexible enough to ensure effective private party participation, and strong enough to protect against increased risk. There is likely to be a shift away from umbrella guidelines towards considered project management in each case.

Right to Information – New Legislation and Culture Concerns

Key provisions of the Act include a new section stating that ‘the primary object … is to provide a right of access to information under the government’s control unless, on balance, it is contrary to the public interest’ and that ‘the Act must be applied and interpreted to further [this] object.’ Section 21 provides the legally enforceable right to information while, under s48, an agency or Minister must undertake certain steps to decide whether disclosure of information is contrary to the public interest. This legislative duty requires decision-makers to consider a number of (non-exhaustive) factors for and against disclosure, ensuring greater transparency in the RTI decision-making process.

Despite the legislative safeguards, FOI (or RTI) resistant culture within government agencies could undermine the object of the Act. The experience of the Freedom of Information Act 1992 demonstrates that innovative legislation can be progressively undermined by the attitudes of those applying it. FOI resistant cultures may be a legacy of traditional Westminster notions of official secrecy or a product of the modern “continuous election campaign” or a combination of the two. In any case, areas of the new Act are vulnerable to such attitudes.

Failure to adequately apply the public interest balancing test set out in s48 could weaken the Act and the underlying government policy. The factors in the legislation must be considered carefully to ensure the appropriate release of information and to protect agencies from appeals. Similarly, agencies must abide by the new time limits for processing applications and requirements for contacting applicants.

The government’s challenge will be to meet its extra-legislative commitments for improving agency attitudes to FOI, including reforming the role of the Information Commissioner and communication from government leaders encouraging cultural change and recognition of the new regime. The public sector should be aware of this momentum for change following the release of the draft legislation.

The new legislation provides a robust framework for access to government held information; but, ultimately, the success of any FOI regime depends on the willingness of government officers to direct and apply it according to its object. An FOI tolerant culture within the public sector is of the highest importance.

Climate Change Update

The Federal Government has released exposure draft legislation for the Carbon Pollution Reduction Scheme.

The exposure drafts of 6 new bills were released on 10 March 2009, with the CPRS Bill 2009 being the central legislation. The 392 page CPRS Bill provides the framework for the trading scheme and implements the complex policy positions outlined in the December White Paper, including: liable entities, scheme caps, allocation of emission ‘units’, assistance programs and how the scheme will be regulated and administered.

From the outset, it is obvious that subsequent regulations will be critical to the operation of the scheme as they are to set the National Scheme Cap and Gateway as well as deal with a multitude of other issues under the proposed Acts. The government has invited public comment on the bills; submissions can be made until 14 April 2009 via http://www.climatechange.gov.au/.

Infrastructure Australia – An Overview

Following the recent announcement of the Federal Government’s $42b stimulus package, all eyes should be firmly fixed on Infrastructure Australia (IA), due to release a list of priority national infrastructure projects in March. With such weight of expectation, now is an opportune time to briefly explain what IA is and does.

Infrastructure Australia, established about twelve months ago, is a statutory authority within the Federal Department of Infrastructure, Transport, Regional Development and Local Government. The Infrastructure Australia Act 2008 establishes IA, and states that the primary function of IA is to provide advice to the Minister, Commonwealth, State, Territory and local governments, investors in infrastructure and owners of infrastructure. However, the story so far suggests that IA will primarily provide advice to the Commonwealth Government.

Under sections 5 and 6 of the Act, the Minister may give directions to IA about the performance of its functions, with which IA must comply. Therefore, the members of the authority can be subject to significant administrative direction. IA is made up of a Chair and 11 other members: nine of whom are nominated by the Commonwealth; five of whom are from the private sector; one of whom is from local government; and three of whom are nominated on the agreement of the States.

The Act also establishes the Infrastructure Coordinator (currently Mr Michael Deegan) who leads the Office of Infrastructure Coordination within the portfolio. In October 2008 Mr Deegan gave evidence before a Senate Estimates Committee, informing the hearing that the budget of the office is $7.5million and that there are approximately 45 staff working in Sydney (many of whom are seconded from other Australian governments).

At the Estimates Hearing, Mr Deegan was asked about the procedures in place to ensure integrity in the assessment of infrastructure projects, given that IA has staff from other governments certain to make submissions. Mr Deegan assured Senator Nick Minchin that IA’s staff will “not [be] assessing their own state’s submissions” so as to maintain integrity and prevent the staff being placed in compromising positions.

Recent News

Lend Lease Clinches UK PPP Deal

Bovis Lend Lease’s UK PPP business Catalyst Lend Lease has won a City of Birmingham contract worth $2.7billion to build 89 schools in the city over the next 25 years. Catalyst Lend Lease was founded by Bovis and the Bank of Scotland in the 1990s to bid for projects under the UK Private Finance Initiative (PFI) and in UK PPP markets.

ACT Passes FOI Amendments

On the 11 February, the ACT Legislative Assembly passed amendments to the territory’s Freedom of Information Act 1989 proposed by the opposition and supported by the Greens. The amendments remove the use of conclusive certificates to deny access to information (a reform that the Federal Government has also committed to, with a Bill currently before Parliament). The ACT opposition stated that the amendments were proposed because of the government’s refusal to release information on education policy.

Commonwealth FOI Report Tabled

On 4 February, Special Minister of State Senator John Faulkner tabled the 26th Annual Report on the operation of the Commonwealth Freedom of Information Act 1982. Senator Faulkner wrote, in his introduction to the report, that draft legislation for FOI reform would be introduced in 2009 and would include the establishment of a federal FOI Commissioner.

Recent Appointments

High Court of Australia

Justice Virginia Bell was appointed to the High Court in February, making her the third female Justice on the bench along with Justices Susan Crennan and Susan Keifel.

Former High Court Justice Michael Kirby (whom Justice Bell replaced) has been appointed as a distinguished visiting fellow at the Australian National University.

Climate Change Ambassador

Ms Louise Hand has been appointed as Australia’s Ambassador for Climate Change and head of the International Division of the Department of Climate Change. Ms Hand is to play a key role in global negotiations on climate change policy.

Infrastructure Australia

The current membership of Infrastructure Australia includes:

• Sir Rod Edington (Chair)
• The Hon Mark Birrell
• Mr Jim Hallion
• Mr Phil Hennessy
• Dr Ken Henry
• Mr Anthony Kannnis
• Mr Terry Moran
• Prof. Peter Newman
• Ms Heather Ridout
• Mr Ross Rolfe
• Dr Kerry Shott
• Mr Garry Weaven