Australia needs courageous leaders at all levels of government who are willing to accept risk and embrace innovative financing methods in order to meet challenges associated with long term infrastructure needs, a lawyer who specialises in infrastructure and public private partnerships (PPPs) says.

Maddocks partner Simela Karasavidis said governments at federal, state and local levels faced challenges in financing long term public asset requirements, including excessive bid costs bought about by undue delays in procurement processes, in some cases limited expertise (especially in local government and smaller government departments) and the mismatch between the short term focus of the electoral cycle and the delayed nature of benefits associated with new infrastructure.

Simela Karasavidis

Simela Karasavidis

Karasavidis said state-based procurement vehicles such as Major Projects Victoria are useful in dealing with know-how constraints, but added that policy makers must work to streamline procurement process and set out clear purchasing timetables. Most importantly, she said, they must be proactive in raising public awareness about the need for individual projects and bold in backing projects of strategic importance.

“It’s a broad minded government of the day that thinks ‘you know what – we need this for the long-term benefit of our constituents,” Karasavidis said, referring to the electoral cycle challenge.

“For example on the ports (in Victoria), wherever you stand on the political spectrum, it is clear that something has to be done – be it Hastings, Bay West or whatever. We need a government which stands up and says ‘look we’ve done the feasibility, it might take years to get the business case in line, but we’ve started.”

“We need more of those risk taking governments – particularly for large transformational projects.”

Karasavidis’ comments come as dual challenges associated with recognised infrastructure deficits and (in some states) the need to restore fiscal balances spawn growing interest in non-traditional methods of public asset project financing.

New South Wales, for example, has re-embraced the previously unpopular PPP model and is seeking to hive off electricity assets to help pay for transport projects.

In Victoria, meanwhile, a Property Council report last month outlined 14 alternative financing mechanisms used in developments around the world and assessed their suitability for different types of projects as part of the $50 billion worth of new infrastructure investment it says the state will need over the next 10 years.

Asked about awareness regarding some of these methods, Karasavidis said mechanisms such user charges, asset recycling programs and the granting of land rights to developers in exchange for constructing public infrastructure are well established and understood, but other methods have not been used down under and are not well known.

She added that important lessons can be drawn from projects on which some of the mechanisms referred to in the report have been used and that governments should engage with market leaders and their own departments to fully understand available financing options and that as much as possible is done to raise public awareness and political support for the development.

In terms of the last point, one major project Karasavidis worked on in the Middle East, for example, had broad industry and lower level government level support but failed to get final sign off due to lack of support at the highest level of government.

Finally, Karasavidis says 2008 represented a pivotal moment where desperate times spawned a flourishing of innovative ideas and funding models as the GFC hit and funding dried up, particularly internationally.

In England, for example, 1,500 homes in six housing commission apartment blocks were heated at minimal cost by simply capping and piping heat from a nearby hospital, while the establishment of the Carbon and Energy Fund allowed many individual hospitals to pay for energy infrastructure upgrades using future savings from power efficiency gains for the first time.

While acknowledging not all of these are needed in Australia, Karasavidis said such examples demonstrate how creative thinking can lead to options outside of traditional approaches and funding mechanisms.

“Could you imagine, you could do the same thing with the (Royal) Children’s Hospital (in Melbourne)?” she said, referring to the UK hospital example above. “They’ve got their own off-grid CHP plant.  It would be very interesting to explore if you could cap and utilise the surplus heat generated by the Children’s Hospital to deliver carbon reductions and low cost energy to residents of the Flemington high rises.”