Source : Business Times – 20 Sep 2009
Sports Hub limbo has some wondering if such partnerships work
The $1.87 billion Sports Hub, to be built on the site of the current National Stadium at Kallang, has not exactly been the poster boy for public-private partnership (PPP) projects.
More than two years after an elaborate, pomp-filled closing ceremony involving a friendly football international between Singapore and Australia – billed as the Grand Old Dame’s last match – the National Stadium remains standing and continues to host events.
For a gamut of reasons, most recently delays in finalising funding from financial institutions, the Sports Hub’s completion date has been pushed back repeatedly from 2010 to 2011, 2012 and now 2013.
This has left many wondering whether it should have been built the same way other major infrastructure projects are – with funding from the Government.
A PPP is a long-term (usually 15 to 30 years) collaboration between the public and private sectors to deliver infrastructure and services.
The private sector – usually a consortium comprising firms from a range of industries – designs, builds, finances and operates the facility.
In the case of the Sports Hub, the winning bidder Singapore Sports Hub Consortium will then ‘rent’ the facility back to the public sector, and receive an annual sum over the project’s 25-year lifespan.
Revenue from events through ticket sales will be shared with the Government.
According to PPP expert Satyanarayan Ramamurthy, an executive director at KPMG Corporate Finance, a key benefit of the model is the optimal allocation of risk.
He said: ‘Allocating appropriate risks to the private sector, which has the expertise to better manage them, can reduce the overall project costs for the Government.’
The public sector – and correspondingly taxpayers – will be insulated if the Sports Hub’s $1.2 billion construction cost rises because prices of raw materials or labour costs go up. If the Government was behind the project, it would also not enjoy any budget certainty.
Take what is happening to the organisers of the 2012 Olympic Games. When London submitted its Olympics bid in 2005, it estimated the 80,000-capacity Olympic Stadium would cost £280 million (S$644 million). A year later, that figure ballooned 77 per cent to £496 million.
The British government also more than doubled the budget for building the Games venues to £9.3 billion that same year, sparking fears of spiralling costs.
The main challenge surrounding PPPs is the complexity of assessing risks that may arise five, 10 and 20 years down the road.
Mr Ramamurthy said: ‘It is difficult for a contractual arrangement to accommodate variables over a span of 20 to 30 years.’
In the case of the Sports Hub, no one could have foreseen the world economy being hit by arguably the worst recession in decades so soon after the Government announced the project in 2005.
Whereas the Government would have tapped its massive war chest to fund the project, thus ensuring continuity, the private sector does not enjoy the same privileges.
There have been successful PPP projects concluded here in the past, however.
The first was in 2003, after a $200 million contract was awarded to SingSpring to design, build, finance and operate a desalination plant in Tuas to supply water to the Public Utilities Board for 20 years.
Other PPP projects include an Ulu Pandan Newater plant and an incineration plant at Tuas.
Getting the private sector to stay involved in the project, from the planning process all the way through to long after the venue is finished, also ensures that corners are not cut at any point.
Said specialist PPP company Plenary Group’s chief executive Keith Martin: ‘Builders will be incentivised to get the most cost-effective materials that can last long-term, instead of going for the cheapest material that may last for just a few years.’
A PPP also ensures the venues do not become soulless, pointed out SingaporeSailing and Singapore Rugby Union president Low Teo Ping.
The former veteran private banker, who has worked at both UBS and Citigroup, said: ‘Rather than not having any obligations once the facility is completed, it is in the consortium’s interests to think long- term and ensure a sustainable line-up of programmes for continuous profits.’ For instance, the Stade de France is still making money more than a decade after hosting football’s showpiece event.
Statistics show that the number of PPPs around Asia is increasing.
A recent survey of 14 Asian countries found that PPP opportunities will peak in mature economies like Singapore and South Korea between next year and 2015.
Developing Asian countries are expected to provide increasing PPP opportunities from 2016 to 2025.
Mr Ramamurthy noted: ‘There still remains a strong continued interest in governments for using the PPP model…as it often delivers value for money.
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