Public-private partnership lessons

By and - , Build 132

Public-private partnerships (PPPs) have become an accepted option for government and industry engagement on venue projects. Lessons from international and local venue PPP projects will be useful in Christchurch and elsewhere.

Sydney Olympic Park SuperDome, now Allphones Arena, had government support.
Sydney Olympic Park SuperDome, now Allphones Arena, had government support.

CHRISTCHURCH WAS ONE of the most important conference and convention destinations in New Zealand, capturing about a quarter of the market. Now, with the convention centre demolished, a replacement venue has been included as an anchor project in the new city blueprint.

Funding large-scale venue projects is problematic as they usually require large capital investment upfront and incur high on-going maintenance costs. They are also unlikely to be financially viable – although they provide wide social and economic benefits, the revenues generated do not offset the construction and operating costs.

This means government needs to look at alternative funding mechanisms and innovative service delivery models.

Many advantages of PPP model

PPPs can provide viable options and have become accepted in New Zealand now that projects with whole-of-life costs over NZ$25 million are required to include the PPP procurement option.

These partnerships are viable for large-scale venue development because:

  • private finance alleviates budgetary constraints on government
  • the public and private sectors bring complementary skills to PPP arrangements
  • they offer an integrated solution to the provision of venues
  • packaging design, construction and operation provides a channel for whole-of-life costing, resulting in better value for money.

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Learning from others

Internationally, PPPs have been used extensively in developing venues although the models vary.

For the John Labatt Centre project in Canada, for example, the private sector was involved in design, construction, financing, maintenance and operation.

At the Melbourne Exhibition Centre, the public sector provides core services around organising events and bringing in business, while the facility management rests with the private sector partner.

With the National Stadium project for the Beijing 2008 Olympic Games, a state-owned enterprise and a private sector partner formed a joint venture company to carry out full-package services.

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Cost – looking at the broader picture

International and local experience in PPP venue development highlights the challenges. The business needs to be justified, and both site selection and community engagement is important.

Hong Kong’s AsiaWorld-Expo project, for example, had an initial cost-benefit analysis suggesting it was not financially viable as profits would be insufficient to pay back investment in a reasonable timeframe. However, the social and economic benefits it would bring meant it was confirmed.

PPPs do not always seem economically viable, and a cost-benefit analysis at project level and wider social and economic level can show the wider significance of the project.

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Location, location, location

Site selection is a concern for venue projects – the performance of convention centres is closely connected to the area’s attractions and dynamics. The location should align with the government’s long-term urban development plan and strategic direction.

In Christchurch, the location was considered in the city’s new blueprint, siting the venue close to business centres and integrated with public transport.

Community support is particularly important when embarking on venue PPPs in New Zealand. For Auckland’s Vector Arena, consultation with sports, entertainment and business leaders and communities confirmed the need for an arena and its location.

As the Treaty of Waitangi allows iwi to claim compensation for historic ownership of land, the Auckland City Council obtained the land for Vector Arena by leasing from a Maori Board. Likewise, decision-makers in Christchurch will need to address the Treaty of Waitangi requirements on venue development, and consultation with iwi is vital.

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Attracting tender talent

Additional challenges influencing PPP venue development include tendering, financing, capacity and risk factors. For AsiaWorld-Expo, the government went on an international roadshow, promoting the project and soliciting solutions. Similar action is recommended for Christchurch.

Effectiveness and efficiency in tendering has been important in the past and will be for Christchurch’s new venue. The AsiaWorld-Expo and Vector Arena experiences suggest that allowing enough flexibility for private sector bidders to propose innovative solutions is essential if bidders are to come up with higher-quality submissions.

The tender evaluation should primarily be based on the private consortium’s ability to develop the facilities and run the business instead of the lowest cost.

The high capital costs and on-going operating and maintenance expenses of venue projects mean financial arrangements have captured plenty of attention. The government contributed most of the construction investment for the AsiaWorld-Expo to make it financially viable. Government financial support in venue projects can also be seen in Vector Arena and the Sydney SuperDome. This model gives more credibility to venue projects and reassures prospective bidders.

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Spreading the risk

The extent to which risks are transferred to the private sector is a central issue. Transferring most of the design, construction, operating and maintenance risks to the private sector partner improves success in venue PPPs. The private sector may boost business performance by cooperating with event organisers, increasing marketing inputs and setting up other businesses such as restaurants and cafés.

On the other side, governments are required to retain risks beyond the control of the private sector such as political risks, land acquisition and obtaining approvals to maintain the attractiveness of the intended project.

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Articles are correct at the time of publication but may have since become outdated.

Sydney Olympic Park SuperDome, now Allphones Arena, had government support.
Sydney Olympic Park SuperDome, now Allphones Arena, had government support.