PUBLIC PRIVATE PARTNERSHIPS IN THE ACT

August 29, 2001

An article just printed in the Public Sector Informer - Canberra Times 28/8/01 provides a brief comment on the operation of the ACT's unique Joint Venture public private partnership in the new ACTEW / ActewAGL model.

The article was written by Paul J Perkins, Chief Executive of ACTEW Corporation Ltd.

"It is Canberra's own model, a hybrid of public private partnerships within one organisation for multi-utility service delivery", Mr Perkins said.

Other countries have tried management forms to provide infrastructure delivery such as privatisation in Thatcher's Britain, New Zealand or Victoria under Premier Kennett. More recently modifications have emerged such as with Partnerships Victoria under Premier Bracks which seek to create public private partnerships with the focus on services.

"In the ACT, ACTEW represents a uniquely structured PPP. It gives great promise on delivery of all the policy imperatives confronting government as they grapple with capital rationing, efficiency improvement, conflicting priorities and cross-jurisdictional competition, not to mention the application of national competition policy and community demands for improved environmental and consumer regulation", Mr Perkins said.

The ACTEW model applies best practice commercial principles of strategic positioning, risk sharing and partnering. It promises to serve ACTEW well as it seeks to work within a competitive market system.

A copy of the article may be found below;

THE POWER OF ONE: The ActewAGL Hybrid

The ACT's unique joint-venture public private partnership applies best practice commercial principles.

It's Canberra's own model: a hybrid of public private partnerships within one organisation for multi-service delivery.
ACTEW entered into a joint venture with AGL less than 12 months ago, generating high emotions and political discord, but a recent survey of community attitudes to ACT Government services showed the highest customer satisfaction for electricity, gas, water and wastewater services.

The July Public Sector Informer included a briefing on public private partnerships as a new model for infrastructure delivery, and outsourcing public sector services. ACTEW represents a uniquely structured PPP which gives great promise on delivery of all of the policy imperatives confronting Governments as they grapple with the capital rationing, efficiency improvement, conflicting priorities and cross-jurisdictional competition, not to mention the application of national competition policy and community demands for improved environmental and consumer regulation.

In fact, ACTEW Corporation, Canberra's unique multi-utility has emerged as a holding company involved in four (4) types of PPP: full partnership with AGL (50:50 asset sharing) in the electricity and gas market; alliance contracting in the sensitive areas of water and sewerage services; strategic investor in the new TransACT broadband communications initiative; and promoter and vehicle for Canberra-led environmental business with China.
The early commercial success of last year's decision to introduce AGL's expertise to the utility businesses in the ACT has already been demonstrated. The overriding objective was to reduce risk exposures in the emerging competitive energy market. However, a model was needed to maximise synergies during a drawn out transition to competitive markets. We also needed to achieve acceptable models for ACT and federal regulators..

Full privatisation of the services was unacceptable to our community and was rejected by the ACT legislative assembly. We also looked at some form of marriage between ACTEW and Great Southern Energy in NSW, but that idea failed because it was going to be difficult working multi-utilities across two jurisdictions. Finally ACTEW offered to take on the challenge alone, seeking some form of public private partnership (PPP).

The principle was accepted in the Legislative Assembly and AGL was selected as ACTEW's partner in a 50/50 joint venture as the operating company, while ACTEW Corporation became a holding company. All electricity and gas assets were vested in the joint venture partnerships but ACTEW retained ownership of the water and sewerage system and all balance sheet debt.

The water and sewerage business is run under contractual arrangements in two phases. Phase 1 is a transitional period of up to four years in an Alliance agreement to establish true costs and risks associated with the business, with most risks in this time borne by ACTEW. In Phase 2, a utility services agreement (USA) will be implemented for a 20 year period with appropriate risks shared with the ActewAGL joint venture.

In financial terms, there will also be taxation benefits available to the holding company which were not considered under full government ownership. Overheads are also be shared across the electricity, water and gas utilities, giving us economy of scale benefits not otherwise available to smaller regional business operations.

The Canberra model has emerged in the face of growing community disquiet with ideology driven "one size fits all" reform approaches initiated first via Thatcher's privatisation in Britain and then pursued with vigour in New Zealand, and more recently by the Kennett Government in Victoria.

The recently developed "Partnerships Victoria" approach seeks to address these issues with a key emphasis on services and the provision of physical infrastructure. The ACTEW model shows the application of both in one entity; full asset, profit and risk sharing in energy related segments, and alliance contracting with asset and risk retention by ACTEW in the case of the more sensitive environmental businesses of water and sewerage.

The ACTEW model may appear complex but it applies best practice commercial principles of strategic positioning, risk-sharing and partnering. Each PPP above attempts to match risk exposures and community aspirations to suit the stage of development of the business initiative and the market's maturity. They will continue to evolve over time, increasingly mobilising private sector investment and freeing up capital for government social investment.

Author : Paul J Perkins, Chief Executive, ACTEW Corporation