Allens

Infrastructure & Transport

Focus: Draft NSW long-term transport plan released

19 September 2012

In brief: With the release of its draft long-term transport plan, the NSW Government has signalled that it will look to the private sector to assist in financing future transport projects. Partner Nigel Papi (view CV) and Senior Associate Lixian Liang report.

How does it affect you?

  • The draft plan identifies potential financing models that could be applied in NSW to attract investment from the private sector in future transport projects, and invites further comments from the public.
  • Comments on the draft plan are being accepted by the NSW Government until 26 October 2012.

Background

The NSW Government has recently released the draft NSW Long Term Transport Master Plan after a consultative process.

The draft plan sets out the NSW Government's proposed response to the transport challenges facing NSW over the next 20 years. These include the construction of new motorways that link existing motorways and the expansion of the public transport network, particularly in Sydney's growth areas.

In the draft plan, the NSW Government signals that it will focus on developing a committed pipeline of transport projects, providing the right market conditions to attract maximum private sector engagement and create an infrastructure market.

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Private sector involvement

PPPs

In the draft plan, the NSW Government commits to actively exploring opportunities to apply PPPs and private financing to transport infrastructure procurement where there are clear value-for-money benefits for taxpayers.

The NSW Government notes that its market sounding for interested parties to build the North West Rail Link demonstrates that there are a range of domestic and global players across a variety of disciplines who have an interest, capability and capacity to deliver transport projects and services.

The new Infrastructure Financing Unit within the NSW Treasury will play a significant role in developing new PPP models that reflect the optimum risk allocation between the public and private sectors.

Given the recent difficulties experienced by the private sector in toll road PPPs, it is likely the Infrastructure Financing Unit will move away from a model where the private sector accepts full patronage risk on toll roads. Alternatives include availability payments (recently used on Victoria's Peninsula Link PPP) and shadow tolling (which remains a popular method of financing toll roads overseas).

Transit joint development

The draft plan describes options with the greatest potential for application in NSW for capturing value from publicly funded investments. One of the options specified is transit joint development (TJD), where the government and private sector jointly develop an area around a transport hub. The NSW Government indicates that this could involve the leasing of air rights to the private sector, fees for constructing station-retail connections and cost sharing arrangements.

TJDs have produced 'win-win' outcomes for the public and private sectors in various cities internationally, including in Hong Kong, Singapore, Tokyo, New York and Washington. It will be interesting to see how the TJDs will be structured in NSW. Private sector interest will be affected by prevailing market conditions and the rental outlook for retail and office spaces.

Existing infrastructure

The draft plan sets out plans that involve the private sector for improving existing infrastructure, including:

  • commercialising existing infrastructure (for example, the Southern Cross Station PPP in Melbourne occurred with the sale of adjacent retail and office development sites, which together offset some of the Victorian Government's project costs);
  • the franchising of Sydney's ferry operations to the private sector, which is already underway; and
  • re-tendering of a number of major contracts and the carrying out of reviews to drive efficiency in contracting, contract administration and business overheads.
Other options

The draft plan also indicated that the NSW Government had received various submissions regarding funding, including:

  • increasing the use of private sector funding and the use of PPPs;
  • increasing the use of superannuation funds;
  • increasing the accessibility of cost effective debt funding for the private sector;
  • targeting key beneficiaries of transport infrastructure to fund projects;
  • developing land above and around rail stations;
  • increasing the use of franchising and other servicing arrangements; and
  • privatising government-owned assets to invest in higher priority infrastructure needs.

However, the NSW Government did not provide further comments in the draft plan on the submissions received.

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Conclusion

The draft plan indicates that the NSW Government is seeking opportunities for the private sector to be involved in financing projects to address the transport challenges facing New South Wales over the next 20 years.

The NSW Government is accepting comments on the draft plan until 26 October 2012.

For further information, please contact:

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