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Sustainable Queensland Volume 2 Sustainable Queensland Volume 2 Financing Infrastructure: Public vs Private Stephen Gray Sustainable Queensland Infrastructure Mark Ingham Private Capital Finance Stephen Walsh, Ian Macoun et al. SUPPORTED BY CEDA INFORMATION PAPER 88 About this paper CEDA Information Paper 88 Title: Sustainable Queensland Vol 2 ISSN 1832-8814 © Committee for Economic Development of Australia 2007 The views expressed in this paper are solely those of the author and should not be attributed to CEDA. CEDA’s objective in publishing this paper is to encourage constructive discussion on matters of national, economic and social importance. Persons who act in reliance upon the material published do so at their own risk. Cover photography: Surfers Paradise, Queensland, Australia. Courtesy of Tourism Queensland. About the authors Professor Stephen Gray is director of the University of Queensland’s Business School Corporate Valuation Centre. His work on empirical finance, asset-pricing and corporate finance has been published in leading academic and practitioner journals. He is an active consultant and researcher in the areas of valuation, cost of capital, corporate financial strategy, financial modelling, financial risk management, and the creation of shareholder value. He teaches a range of award and executive education courses in financial management, asset valuation, and corporate finance at UQ Business School, and was recently awarded the Prime Minister’s Award for University Teacher of the Year in the Economics, Business and Related Studies field. He holds honours degrees in commerce and law from the University of Queensland and a PhD in financial economics from the Graduate School of Business at Stanford University. Mark Ingham has been at PricewaterhouseCoopers for 13 years, eight years as a Partner. Prior to joining PricewaterhouseCoopers Mark worked with the Bureau of Transport Economics, Civil Aviation Authority, the Australian Competition and Consumer Commission and Queensland Treasury as an economics policy adviser. Over that time Mark’s main focus has been on infrastructure – particularly in the development of economic policy and institutional reform. He has worked in the roads, ports, water and aviation sectors both in Australia and South East Asia. Stephen Walsh is Head of Research at Wilson HTM. He is responsible for running the firm’s Equity Research division which incorporates 22 analysts. Ian Macoun is Chairman and Managing Director of Pinnacle Investment Management. His experience includes Queensland Treasury Corporation; former Managing Director and Chief Investment Officer, Westpac Investment Management; founder, Perennial Investments. The authors have been substantially assisted by the research and professional experience of the following staff – Jason Watters, Jenny Cosgrove, Nathan Lead, Ian Mitchell, Dr. Michael Regan, Dr. Richard Copp. About CEDA CEDA (the Committee for Economic Development of Australia) connects leaders of Australian organisations to promote Australia’s economic development. CEDA’s activities: CEDA holds more than 250 events, seminars and chief executive roundtables each year, and publishes a range of research papers. CEDA’s mission: CEDA’s research and forums identify and explore issues that influence the nation’s long-term economic and social development. CEDA’s reach: CEDA draws its members, which number around 1000, from businesses, universities, governments and the not-for-profit sector. During 2005 CEDA’s economic and business events attracted more than 21,000 people. CEDA’s independence: CEDA advocates policy in the national interest, rather than lobbying on behalf of special interest groups. It is staunchly non-partisan. CEDA’s funding comes from membership, events, grants and sponsorship. Committee for Economic Development of Australia Level 5/136 Exhibition Street Melbourne 3000 Australia Telephone: (61 3) 9662 3544 Fax: (61 3) 9663 7271 Email: [email protected] Web: ceda.com.au Sustainable Queensland Volume 2 Financing Infrastructure: Public vs Private Stephen Gray Sustainable Queensland Infrastructure Mark Ingham Private Capital Finance Stephen Walsh, Ian Macoun et al. SUSTAINABLE QUEENSLAND I Contents Foreword ..................................................................................................................................................v 1 Key Messages ....................................................................................................................................1 2 Financing Infrastructure: Public vs Private ......................................................................................2 Executive summary ..............................................................................................................................2 Introduction ..........................................................................................................................................2 Current value for money framework ......................................................................................................3 Investment decision ..............................................................................................................................5 Methodology to value financial aspects of PPPs and PSCs ..................................................................5 Measuring risk and incorporating risk adjustments................................................................................8 Summary ............................................................................................................................................10 Comparing PPP proposals against the PSC ......................................................................................10 Conclusion..........................................................................................................................................14 References..........................................................................................................................................15 Endnotes ............................................................................................................................................15 3 Sustainable Queensland Infrastructure ..........................................................................................16 Executive summary ............................................................................................................................16 Introduction ........................................................................................................................................17 Section 1: The Queensland Context ..................................................................................................18 Section 2: Issues in achieving sustainability ......................................................................................22 Section 3: A sustainability framework..................................................................................................41 Appendix 1: Queensland Infrastructure Stocktake ..............................................................................44 References..........................................................................................................................................50 Endnotes ............................................................................................................................................50 4 Private Capital Finance ....................................................................................................................51 Introduction ........................................................................................................................................51 Executive Summary ............................................................................................................................51 Chapter One: Queensland’s future infrastructure funding requirements ..............................................54 Chapter Two: What attracts the private sector to infrastructure? ........................................................58 Chapter Three: Private sector funding sources....................................................................................63 Chapter Four: Why should the public sector consider private participation? ......................................73 Chapter Five: Private sector participation – frameworks......................................................................80 Chapter Six: Private sector participation – enabling environments ......................................................84 Acronyms............................................................................................................................................89 Appendix 1: Intent & acknowledgements ............................................................................................90 Appendix 2: Impediments to the formation of PPP’s ..........................................................................91 Appendix 3: Infrastructure Investment in Australia ..............................................................................92 References..........................................................................................................................................98 Endnotes ..........................................................................................................................................101 II SUSTAINABLE QUEENSLAND Foreword CEDA is proud to present Volume 2 of our state-based
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