Welcome to the 5% Club

By Nixon Apple

The vested interests and risks in public private partnerships are exposed.

What is the 5% Club? Institutional investors seek a risk adjusted return. For private sector equity that return is what is achieved for listed equities plus 5%. For equity in public infrastructure that return is the long term bond rate plus 5%. ALP state governments and such institutions pushing PPPs (Macquarie Bank, AMP) see it as a win-win situation because governments keep the spending off budget, even though they can do the long term infrastructure projects at close to the long term bond rate. The 5% Club continues to pocket the 5% premium on any equity in the project, a margin on the debt financing, plus management/advisory fees (usually3-4%) thus enabling members of the Club to continue the lifestyles they have established since the mania for privatisation began in the 1980s. All risk free. Apple argues strongly for national infrastructure bonds to finance national and state development projects required over the next thirty or so years. He urges workers to push governments on the following matters to get this agenda on the books of state and federal ALP governments:

1. workers at state level should seek agreement from government on commitments to no privatisation or private involvement (in Victoria they have done this with regard to water.

2. reach agreement with governments on marketing infrastructure/development bonds

3. reach agreement on what if any infrastructure projects are appropriate for private sector involvement

4. reach agreement with Federal Labor on national development bonds

5. insist on a conference involving past and present Federal/state auditors, academics and the general public examining the PPP model, and the proper transparency and risk assessment models that should be incorporated.

(Dissent; no. 9, Spring 2002)