CPDS Home Contact Professionalism: Chronological Summary

30 May 2008

Patricia Karvelas
The Australian

Conflicts of Interest with Private Sector Involvement in Infrastructure Funding

If Infrastructure Australia is expected to identify specific projects which might attract government commitment, there seems to be every reason for concern about the potential for conflicts of interest which your recent article discussed - and this problem is by no means limited to an advisory groups such as Infrastructure Australia.

My interpretation of your article: Infrastructure Minister (Anthony Albanese) rejected suggestions that high powered industry representatives who make up half of 12 member Infrastructure Australia (IA) would have a conflict of interest. Members would be expected to step aside when board was considering a project in which they might have a pecuniary interest. Projects might have public or private funding or be PPPs. Federal Treasurer said IA and new $20bn Building Australia Fund showed government was serious about overcoming infrastructure bottlenecks. Fund would be used for roads, rail, ports and broadband. IA will submit guideline for PPPs to COAG in October and a list of priority projects by March. Opposition (Warren Truss) said that IA would slow down the process of uncorking bottlenecks - being unable to look at existing ALP promises, and being unlikely to produce decisions before 2010 (Karvelas P., 'Planning body revealed', Australian, 20/5/08).

There is a real potential conflict of interest related to any private sector influence over infrastructure decisions that involve government support for private investment (see Distorting / Corrupting Government for general comments on this risk).

This can be illustrated in practice by current efforts to develop 'solutions' to traffic congestion in Brisbane (see Brisbane's Transportation Monster), which appears to involve a combination of:

  • a scheme which basically involves new freeways through tunnels to join links in the city's major road network, and upgrading of public transport networks;
  • apparently aggressive financial engineering in committing to super-expensive tunnel projects by setting initial tolls that are too low to be viable, and reliance on large growth in traffic volumes and tolls in an environment in which a global 'peak oil' event is likely to make historical rates of traffic growth unrealistic;
  • conflicts of interest between potential investors in such projects and those who promote PPPs (whose returns are largely independent of the viability of those investments - like the position of the institutions who arranged subprime mortgages in the US);
  • a potential revolving door between the public and private sectors, which raises risks that public sector actors may profit from favourable decisions through a later change of career; and
  • non-transparent decisions by the state government to exclude the possibility of developing a Brisbane west bypass - the effect of which must be to concentrate traffic, maximize surface level congestion and thus force the public to use the super-expensive road tunnels.

It may be that this process is 'straight' and it might even reflect good judgment. But this is not necessarily so. Any process involving private sector influence over public sector decisions which have implications for commercial returns risks the same sort of abuses that are associated with the US's military industrial complex. The situation can be even worse for infrastructure where the private sector's concern is with profits derived from the community directly (by tolls and as investors) rather than from governments. In such cases the interests of the community may be even less likely to be adequately considered.

John Craig