Aus & NZ: Downer says PPP pipeline slowing

16 August 2018 - 12:00 am UTC

Downer Group said it is targeting a number of rail PPPs across Australasia, but none of the formal bids will be during 2018 and in some sectors the flow of deals is slowing down.

At the same time the infrastructure and mining services company is grappling with the troubled Royal Adelaide Hospital PPP and has forecast no revenue from that concession for 2019.

“On strategic bids, there are rail opportunities in a number of long-term PPPs that we are looking at and they cost a lot of money, but we are looking at those more in ’19 than ’18,” chief executive, Grant Fenn told analysts at its 2018 annual results on Thursday (16 August).

These include the Auckland Light Rail project. The NZ government is conducting market sounding on this and has said it will welcome private sector investment.

Downer is one of two consortium to lodge final bids in June for the NSW Regional Rail PPP to replace more than 100 aging trains operating in regional areas of the state and between state capitals.

But the company’s annual results said the volume of PPPs “in social infrastructure and integrated services contracts appears to be slowing”. ​​​​​

Victoria’s Premier, Daniel Andrews, on Wednesday flagged he would be announcing “the biggest infrastructure, road, rail, hospital and school agenda that this country has ever seen” in the lead up to the state election in November.

But he signaled a shift in emphasis to public funding prompted by anger over big profits at private energy companies at the expense of consumers.

“The scales need resetting, privatisation and deregulation has gone too far,” he said.

Downer’s Spotless business – which it acquired in 2017 – has numerous maintenance contracts in PPPs, including a facilities management subcontract with Celsus on the Royal Adelaide Hospital (RAH).

The SA Health Partnership consortium that won that was forced to pay penalties due to delays and construction faults. In February, it managed to extend AUD 2.4bn of bank debt for the project for another two years. The original bank group of 15 was expanded to 29 bank and institutional lenders, according to Inframation Deals.

Fenn said it is still in the midst of negotiations over “commercial and operational issues” with Celsus and the South Australian government, but these should conclude in September. But he made it clear the company was booking no profit from the PPP in 2019.

“We have just said that it is zero – break even,” he said. “We have assumed that there are no earnings from RAH for the whole year. We are in the middle of negotiations and we think that is the right thing to do at this point.”

As reported, it is understood Downer decided not to bid on the Surburban Roads Upgrade PPPs for which EOIs closed on Wednesday.

Downer reported that if it failed to reach agreement or receive a favourable outcome in arbitration on the contract it would incur operational losses up to September 2022 of about AUD 93.8m calculated at 30 June 2018.

While the company reported a 65.1% rise in total revenue to AUD 12bn, statutory net profit after tax fell 36.8% to AUD 117.9m.

Downer