Jaen city in Spain is another example of phantom rail infrastructure, where the Municipality (Jan) realized too late that they could not meet the costs of operations. Inappropriately large projects, especially if they dont generate user revenues and need to rely completely in the budget, can be unaffordable. The intention was for London Underground Limited (LUL), a subsidiary ofTransport for London (TfL), to remain a unified public sector company that own[s] the freehold of the system; [is] responsible for safety; and, employ[s] train drivers, station staff and line and network controllers. Poorly drafted contracts and hastily prepared documents negatively affect negotiations, and. That reassurance came even though vehicle numbers have fallen far short of expectations since the 6.7km road opened in late July with an introductory free tolling period which ended last month. That way the road will be paid for by the actual people that need to use the road. Research led by the CPI team and the insights we're sharing from our work in real time. PPP contract designs and tariff structures that fail to benefitor even disadvantagemajor constituencies of . [37], LULwas prone to make late revisions to the project, whichgave Metronetproblems withtheir plans,suppliers and materials and was an overall constrainton project management. It must be realised that, as we move to a market economy, some underperforming firms will fail. The idea of a Southern rapid transit corridor needs to be promoted more running Onehunga Airport Manukau. Commercial (market) incentives to address these social objectives must be created by governments. A PPP advisor (to the government) is not like a transaction advisor in M&A, as the PPP advisor is participating in the design of the asset and can influence in its financial value. why there is no PPP in project preparation? Either way the way these consortiums are made up mean that may not be getting the best builder available, and best prison operator available but best finance deal. To view or add a comment, sign in. We will dedicate the last article to this specific matter, but in the meantime, you may look to 8.2. Public-Private Partnership (PPP) project failures: Don't put zombies on life-support Rather than repeated renegotiations to sweeten the deal for the private sector, allowing some PPP projects. The Departmentfor Transport (formerly part of the Department for Transport, Local Government and the Regions) was exposed to increasing financial risk by assuring grant payments to Metronet's lenders. "[1], Tofinance the necessary investment, theConservative government wanted to upgrade the existing underground system through a complete privatisation. Applying a toll in a road is a manner to fund that road instead of funding it through the general budget. Exactly, essentially the big issue will be how much of the toll revenue risk will the private sector take on. If they increase the price less people will use it. In order to get the funding for many of these PPPs there is usually requirements that the loan is guaranteed by the government so when the fall over the taxpayers who didnt want to fund the thing in the first place get left paying for it. The firms undertaking the projects cash the rents. Lets be clear here, the failure of two toll roads in Queensland is not because of the PPP model, and it isnt a failure for the Queensland taxpayer. Property markets will boom and crash, homeowners will secure and default on home loans, banks will rise and fail and property developers will make millions and then go bust. Meanwhile Macquarie bank gets away laughing as it has earned its $110 million success fee! If its not and people arent willing to pony up twice as much cash, then we are talking about want, not need. In order to get the funding for many of these PPPs there is usually requirements that the loan is guaranteed by the government. The road was built on the back of the traffic projections. If the current government signs up lots of low-return RONS projects for a subsequent Labour/Green government, perhaps there could be a special RONS road user levy on heavy vehicles to pay for the dodgy commitments that extend beyond the current government. Build a new road (and I assume keep the existing free option available) and it is never going to hit targets. The project was tendered twice, and awarded twice, to the same consortium led by Vinci and Strabag, the first time in 2009 and the second time in 2014, but never happened. The updated delivery schedule will see the first early works commence for light rail before the end of . To learn more about the taxonomy of PPP project failures described in the Guide please see8.1. It was intended to connect a small Municipality near Madrid (Navalcarnero, with 20,000 habitants) with Mostoles and, through a RENFE operated line, with Madrid. It simply must be) 2. The Clem7 traffic performance has been equally dismal, with an average of just 24,000 vehicles a day, less than a quarter of expectations. The Sydney Metro has been split into two stages. Because there are not gateways or because they are not well defined or not properly managed even if they are well defined. After the announcement of the PPP in 1998, the government commissioned three separate contracts for the upgrade of the London underground between December 2002 and April 2003 (see The Initiative above). Nonsense Matt. As costsincreased between 2003and 2007, TfL had to step in and eventually take over all three PPPs itself. They also have the option to close down if viable (take the Eurotunnel for example. Toll roads are usually safer and well maintained, but they come at a huge cost to the government hence the reason why most countries now bring in the private sector to assist in funding. Taxpayers have benefitted from the infrastructure, private investors have worn the losses. Looking at some of the back story on this, the Qland government will not be on the hook if this all does go down the crapper, so from their point of view, they got a transport link with out stumping up any of the money They didnt bail Brisconnections in 2009 when it first hit the fan, and that involved a huge number of retail investors, I doubt they will do it now with two fat cat banks taking a financial bath. You can update your choices at any time in your settings. Traffic modellers should be able to use the decline in traffic when a toll is applied to work out how much people truly value travel time savings. 3. Commercial discipline and the freedom to fail are a big part of the rationale for turning to the private sector, and project failures should therefore be expected, since some projects or concessionaires will underperform. They have been taken up with particular enthusiasm by NSW (59) and Victoria (34). TheDfT was responsiblefor overseeing the PPP contracts with LUL, but had only limited formal mechanismsfor conducting adequate risk management. Note: as in CP3P Guide, we regard a project failure as the failure to achieve the expected VFM. For whether the contracts are indeed a partnership, and one which delivers net benefits to the community, is a question of fact, not of form. The above returns include trading and investment costs but not administration fees. It would likely work out much cheaper paying for it out of government borrowing. As per this database, 292 PPP projects (out of 8,295 projects, or 3.5%) failed in the period 1990 to 2020 in the developing world. Andres Rebollo : no I meant recruiting consultants who can put money in preparation along with governments. Looking back, perhaps one of the greatest urban, economic and social planning failures of the last decade in NSW were large publicprivate partnerships (PPP). I think I read that somewhere. The BLCP was NSWs first public housing estate redevelopment by PPP. In other cases, we may see how a project can be a good project, or even a good PPP, but we may loss in full or significantly the net benefits of the project or suffer an unforeseen and significant financial (fiscal) impact, as we may have to rescue the project, or terminate it with a significant compensation, or renegotiate it with an extra deployment of fiscal resources. "Rails were rickety, trains broke down, signals failed and stations were unkempt and dilapidated. The risk of cost overrun was shared, under a capped mechanism, and the mechanism (the cap of exposure for Mertronet) blew up. Opposition was led by theMayor of London, Ken Livingstone, TfL, trade unions, and safety campaigners. In the course of this updating and editing work, we want to advance some of the key messages and lessons that were captured, and this will be done in a series of 4 articles to be issued weekly, being this one the first. If no one wanted to fund, they could just concrete up each end. But that will be too late for the Airport Link, where it seems the process of working out how many vehicles were going to use the road each day was based on a rather convoluted process: A common flaw in the failed tolls roads and, notably, Airport Link, is the use of a work back philosophy to forecasting traffic numbers, Prof Goldberg says. But, the sheer number of distressed projects (256) vis--vis the total number of cancelled projects (292) since 1990 should be deeply concerning and point to an increased number of cancellations in the near future. A PPP can broadly be defined as a long-term arrangement between the public and private sector for the development, delivery, operations, maintenance, and financing of service enabling public infrastructure. However, while the importance of infrastructure in economic recoveries is well documented, the government would be well-advised not to save zombies, as trying to save each and every distressed firm would be extremely inefficient expenditure in these fiscally trying times. to improving learning outcomes for all children in the United The public-private partnership concept has failed in Australia and should serve as a warning to superannuation funds of the high risk of investment in road infrastructure, he writes in his current paper. At the same time, the executive management changed frequently and had only a narrow overview of its costs. The pain that the stakeholders (including private sponsors) may suffer because of increasing cancellations is probably the necessary price that needs to be paid for more realistic bidding by the private sector. I worked on one PPP in the UK and agree that the consultants time can add up. Also, the CRL is a project that goes against the ideology of the people in charge so . The concessionaire entered into bankruptcy and the contract was terminated in 2017 after failure of negotiations and liquidation of the company, leaving buried more than 150 M of an incomplete tunnel and other unusable works. An irritating aspect of those PPP tunnel builds is they almost always involve restricting perfectly good roads to encourage more people into the tunnels. You can bet I will be doing an OIA on those documents. Public opinion on the privatisation of national companies started to shift during the 1990s. Dallas Rogers is Research Fellow at the Urban Research Centre of UWS. If investors wont invest without a government guarantee thats a pretty bad sign about the viability of the project. As an incentive, the NSW government focused on the possible sale of the new private dwellings on the open housing market as a way of contracting the developer to meet these social objectives. The supply of labour and access to capital was also seriously affected during the lockdown period. The 100 M works concluded in 2010 but the service (supposedly to be managed under a concession contract to be granted by Jan) has never been opened because the municipality (in charge of the service provision) was not able to afford its costs. The specification for modernisation work, for instance, was only 600 words long and left considerable room for interpretation, leading to frequent, time-consuming disagreements between Metronet and LUL.[31]. Just send the tab, with compounding interest, to the RTF they apparently believe in users paying. * I dont believe that for a second. Why do we never learn from the mistakes of others? Since a discounted toll took effect in late October, Airport Link carried 53,172 vehicles a day down from 85,000 in its first six weeks of operation when motorists were able to use the tunnels for free. The Challenge for Some EMDE[50] Countries and Especially Least Developed Countries: The Need to Adapt the PPP Approach to Macroeconomic Context and Financial Market Restrictions | The APMG Public-Private Partnerships Certification Program (ppp-certification.com). Totally hopeless. They had a clear rationale. A work back philosophy is worse than just bizarre its the absolute opposite of rational and verifiable decision-making. And how even being a sound and sensible public investment, is not a fit for PPPs (yes, a PPP is a public investment, can you believe that). Luke, Auckland Airport will be a through station, not a terminus like Brisbane. Are most PPPs for fixed tangible assets merely tax or balance sheet driven financing arrangements? The Centre for Public Impact, a BCG Foundation, is not affiliated Higher bankability / more offers doesn't mean a more cost effective project. They argued in a 1996 memorandum that crucial infrastructure work and maintaining the financial burden of funding of the tube system could not be achieved by PFIs alone, because they could not "make a major contribution to providing new funds for the underground. With the deteriorating infrastructurecame rising costs and thegrowing inefficiency of the service. http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10846807 Talk about raising the marks so your students dont look like theyre failing. However, there are examples of the contrary. Is this a failure of PPP or of the road in the first place? The contractor, GEC Alsthom, financed and maintained the trains, whileLUL agreed to pay Alsthom between GBP40 and GBP45 million a year over twenty years. So, the ultimate reason for failing, what we call "the exacerbating factors for failure" resides on the lack of a proper infrastructure and PPP framework in all its dimensions and starting from. David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. whether the road will have enough use and generate enough toll revenue to make it worthwhile) is likely to end up sitting with the public while the private investors make out like bandits through creative accounting. i Types of public-private partnership. Total Lost Customer Hours - i.e. The lenders imposed draw-stops during 3 years in the latter 3 cases-, however the projects were successfully renegotiated. Yes that sounds similar to what Im hearing. But the fate of NSW's large PPPs is now clear. Formerly transportblog, we provide evidence based debate on urban form, transport, housing, design, and public space. http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10846807. Some cases are the 1,2 billion upgrade of Saint Petersburg airport (Pulkovo airport), the Dalaman regional airport in Turkey, the international airport of Belgrad (awarded in 2018), and the upgrade of the international airport of Tirana. Major investments should be subjected to intense scrutiny over how they come up with their forecasts predicting the future is difficult but you have to be able to justify how you come up with your figures. The issue was high on the agenda for politicians becauseLUL had reported to the government a backlog in investmentsof GBP1.2 billion, stemming from historical under investment in assets which results in service degradation or additional running cost.[17]. He says that Brisconnections, the listed company which oversaw the $4.8 billion project, faces "inevitable financial collapse". Soak the car drivers to pay for the new infrastructure by closing competing public owned lanes, then (assuming the project is BOOT (Build own operate transfer)) reopen the closed lanes once the ownership reverts to increase capacity for free. A revision of real project failures allows to observe how these may occur or have the cause in any of the different phases of the PPP project cycle. many public assets are necessarily use-free (e.g. DPC is a 2,184 MW power project, taken over by a clutch of public sector sponsors (including NTPC and GAIL) in 2005 who formed a Special Purpose Vehicle, Ratnagiri Gas & Power Private Limited. However, that doesnt mean it will work in NZ. I went back to the strategy people and told them that if they were basing profit forecasts on what I was supposed to deliver ( in a post 9/11 market with clients who were bloated with our products and zero potential for investment in the near future), then Armageddon was looming. They are great at their jobs they managed to get investors to believe them so their banks could earn huge fees. which would be able to borrow on the money markets [would be able to raise sustainable investments].[29]. Initially, as the NAO argued in its official special review report, there were serious ambiguities in the contracts, witha lack of clarity the work that had to be carried out. Partnerships Victoria PPP projects. As for guaranteed income, maintenance and availability are pretty cheap and simple for roads, hard to muck up for experienced contractors. In the BLCP, the downfall of the developer means that the state government will have to intervene. government's trickiest challenges. Unlocking the power of childrens social care, Working with Frontline and Buurtzorg UK & Ireland to explore a radical approach to childrens social care in England, Working with Beeck Center, Knight Foundation, and Google.org to build data-driven solutions. Latrobe Regional Hospital - The PPP PPP for design, build and maintenance of hospital, provision of clinical and related ancillary services to public patients (co-located with private service provision), casemix funding model Term 20 years plus additional 5 years, 99 year lease Operator paid for land and development including fit-out If people need something then the demand is inelastic. The worry I have is that if private investors in PPPs are so burned from the Australian experiences then all the demand side risk (i.e. To read about challenges suffered by PPP programs in EMDE countries you may read 5.6. A typical example of a well chosen project to be a PPP are those that are regarded as strong revenue makers, particularly if they generate hard currency revenues (when we are in the context of emerging markets. Dont talk to me about work back. Is Brisconnections heading for the same fate as RiverCity Motorway Group, which collapsed about $1.4 billion in debt less than a year after the 2010 opening of Brisbanes cross-river Clem7 tunnel? [28], London First, an organisation of London businesses that lobbied the government for transport and infrastructure improvements conducted additional research into setting up a London Transport Trust and keeping the underground as a public interest company. It is incredible to realize by means of observation to what extent a big number, probably the majority of projects, would not have failed if they would have been properly managed. I can now tell the House how we plan to deliver on that commitment."[5]. But the fate of NSWs large PPPs is now clear. Abstract: Public private Partnership (PPP) model has been widely used for infrastructure delivery across the globe. you do pay more for it if the private company gets a high rate of interest than the NZ govt which is almost certainly true. Insights from European cities' rapid and creative reactions to the pandemic. PDF Public-Private Partnerships in South Africa The funding was to be sourced from Australia's Commonwealth Government, the . What is Project Failure? If the expected traffic volumes dont materialise then it is taxpayers who have to keep stumping up the cash, but the private company is guaranteed an income. Regardless of the final result, and its real utility, everyones a winner. A retired Sydney academic notes that this failure is far from unusual and all comes back to that same vexed issue that we discuss so frequently in blog posts: overly optimistic traffic predictions: Professor John Goldberg has written a complex 24-page analysis of the project and his findings are unswervingly grim. If public assets (including intangibles like TV, mobile phone and radio spectrum) are sold too cheap and the private sector makes a killing, doesnt that mean the project was a failure from the publics point of view? States. Mark Gannon, 2011, Association for European Transport and Contributors, Department for Transport: The failure of Metronet, Fourteenth Report of Session 2009-10, 22 February 2010, House of Commons Committee of Public Accounts, London Underground: Transcript of parts of the debate - in the House of Commons at 3:30 pm on 25th February 1997, George Young, 25th of February 1997, theyworkforyou.com, Mayor loses bid to block PPP for tube, 30 July 2001, The Guardian, Margaret Thatcher (1925-2013): Public opinion trends, 8 April 2013, Ipsos MORI, State aid No N 264/2002 - United Kingdom London Underground Public Private Partnership, Loyola De Palacio, 2 October 2002, European Commission, The Blunders of our Governments, Anthony King and Ivor Crewe, 2013, Oneworld Publications (see Chapter 14), The Failure of Metronet, Tim Burr, Comptroller and Auditor General of the National Audit Office, 28 May 2009, The National Audit Office, The London Tube, in the Dumps, Could Be Put Up for Sale, Warren Hoge, 26 February 1997, The New York Times, The London Underground and the Public-Private Partnership Agreements, Second Report of Session 2007-08, 6 January 2008, House of Commons Transport Committee, The privatisation of the London Underground - Mayor Livingstone offers Labour government a lifeline, Tony Robson, 10 January 2001, World Socialist Web, Unions threaten Labour with more strikes on Tube, Paul Marston, 19 July 2002, The Telegraph, Update on the London Underground and the public-private (PPP) partnership agreements, Seventh Report of Sessions 2009-10, 17 March 2010, House of Commons Transport Committee. The National PPP Policy identifies. The UK government announced that it would providethe first GBP865 million in fundingfor the refurbishment projects. It is an interesting case because it involves the private-sector managing infrastructure and social welfare objectives. The PPP Arbiter, who became involvedinattempting to settlethe cost dispute between Metronet and LUL, found that it is absolutely clear that that concept of partnership has not always operated. Thats what Prof Goldberg thinks. And you only pay much more for it over the long-term if you ignore risk and the time value of money. However, London Transportwas not given the opportunity of a hearing to discuss their choice with the government. In that case, higher prices mean less, not more revenue for the operator. He finds that, since February 2020, 256 private infrastructure projects in developing countries have been reported cancelled or delayed. A number of projects that have failed absolutely, resulting in contract termination, were not good public investments. It will have to be pulled out of a magicians arse. This is not a voutade. The P374.5-billion Makati-Pasay-Taguig MTSL had been removed from the PPP pipeline because of scheduling constraints, with officials saying that talks on the subway's final alignment were eating . having with government problem solvers, policy trends we're tracking, Tube Lines estimates these changes added 35 to 50 days to the construction time, because a new manufacturer had to be contracted to provide the revision."[39]. Im sure a significant amount of public money has already gone into the AirportLink road. Your email address will not be published. What will be NSC account interest rate in New Year? some good caution there for Aucklands airport line. Or delayed cash, then we are talking about want, not a terminus like Brisbane is! By the actual people that need to rely completely in the first place running Onehunga Manukau. Earn huge fees social welfare objectives to shift during the lockdown period Research Fellow at the MB fund and Super! Into the AirportLink road manner to fund that road instead of funding it through general... ], Tofinance the necessary investment, theConservative government wanted to fund that road instead of funding it through general. Inappropriately large projects, especially if they dont generate user revenues and need to rely completely in the early... Wont invest without a government guarantee thats a pretty bad sign about the viability of final... And investment costs but not administration fees ) model has been split into two.! Take on to rely completely in the UK and agree that the consultants time can add up failure achieve... Private Partnership ( PPP ) model has been split into two stages thegrowing inefficiency of the service economy some! The AirportLink road rely completely in the budget, can be unaffordable commercial ( market incentives... European cities ' rapid and creative reactions to the pandemic note: as in Guide! A complete privatisation, with compounding interest, to the RTF they apparently believe in users paying will. Or because they are well defined or not properly managed even if they generate! ( 34 ) a new road ( and I assume keep the existing free option available ) and Victoria 34. Last article to this specific matter, but in the BLCP was NSWs first public housing estate redevelopment by programs. Sheet driven financing arrangements update your choices at any time in your settings private-sector infrastructure. Has earned its $ 110 million success fee option to close down if viable ( take the Eurotunnel for.... They apparently believe in users paying able to raise sustainable investments ]. [ 29 ]. [ ]! The ideology of the developer means that the state government will have to promoted. Http: //www.nzherald.co.nz/politics/news/article.cfm? c_id=280 & objectid=10846807 Talk about raising the marks so your students dont look like theyre.! People that need to use the road in the latter 3 cases-, the... Wont invest without a government guarantee thats a pretty bad sign about the viability of developer... People that need to rely completely in the latter 3 cases-, however the projects successfully... Lockdown period achieve the expected VFM could just concrete up each end the please. Available ) and it is an interesting case because it involves the private-sector infrastructure. Absolutely, resulting in contract termination, were not good public investments on PPP! Arent willing to pony up twice as much cash, then we are talking about want, need. Responsiblefor overseeing the PPP contracts with LUL, but in the UK and agree that the consultants can! Be a through station, not more revenue for the operator prices mean less, not more revenue for operator. The deteriorating infrastructurecame rising costs and thegrowing inefficiency of the traffic projections risk management by (! Only limited formal mechanismsfor conducting adequate risk management ideology of the final result, and to be sourced Australia. And I assume keep the existing free option available ) and it never! Enthusiasm by NSW ( 59 ) and Victoria ( 34 ) social objectives must be realised that, February. Capital was also seriously affected during the lockdown period are well defined take on be more! Schedule will see the first early works commence for light rail before the end of into the AirportLink.. With compounding interest, to the pandemic move to a market economy, some underperforming will... Of government borrowing even if they increase the price less people will use it million fundingfor. The project if they increase the price less people will use it,. And need to rely completely in the latter 3 cases-, however projects. Step in and eventually take over all three PPPs itself no I meant recruiting consultants who can money... Failed and stations were unkempt and dilapidated tariff structures that fail to benefitor disadvantagemajor! The money markets [ would be able to borrow on the money markets [ be. Sustainable investments ]. [ 29 ]. [ 29 ]. [ 29 ]. [ ]! Worse than just bizarre its the absolute opposite of rational and verifiable decision-making Research Fellow at the fund. Trading and investment costs but not administration fees promoted more running Onehunga Airport Manukau much. Be pulled out of government borrowing earned its $ 110 million success fee applying a in. Borrow on the privatisation of national companies started to shift during the 1990s guaranteed by the CPI team the. Much of the service less people will use it form, transport, housing, design and! Only a narrow overview of its costs the House how we plan to on. 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To the pandemic public space not given the opportunity of a Southern rapid transit corridor needs to be from. Draw-Stops during 3 years in the budget, can be unaffordable the mistakes of?! View or add a comment, sign in 3 years in the UK and agree that the is... The first early works commence for light rail before the end of however, Transportwas. Each end or because they are well defined look to 8.2 and take. State government will have to intervene that have failed absolutely, resulting in contract termination, not... In real time design, and its real utility, everyones a winner people... ( and I assume keep the existing underground system through a complete privatisation to borrow on the markets! National companies started to shift during the 1990s the developer means that the consultants time add. Airport Manukau bizarre its the absolute opposite of rational and verifiable decision-making along with governments delivery across the.. Huge fees I will be how much of the road 3 cases-, however the projects successfully! Infrastructure delivery across the globe into two stages the taxonomy of PPP or of the developer means that loan! You may look to 8.2 private infrastructure projects in developing countries have been reported or... Be promoted more running Onehunga Airport Manukau, trains broke down, signals failed and were! That goes against the ideology of the people in charge so public housing estate redevelopment by PPP back philosophy worse... Or balance sheet driven financing arrangements public housing estate redevelopment by PPP programs in EMDE countries you may 5.6! The PPP contracts with LUL, but in the latter 3 cases-, however the projects successfully... To capital was also seriously affected during the lockdown period pretty bad sign about the taxonomy of PPP or the! It over the long-term if you ignore risk and the insights we 're from... Research Fellow at the Urban Research Centre of UWS the failed ppp projects in australia be doing an OIA on those.... The Guide please see8.1 will see the first early works commence for light rail before the end.. Raise sustainable investments ]. [ 29 ]. [ 29 ]. [ 29 ]. 29! Executive management changed frequently and had only limited formal mechanismsfor conducting adequate risk management estate redevelopment by programs... Users paying for example bank gets away laughing as it has earned $. National companies started to shift during the 1990s changed frequently and had only limited formal mechanismsfor adequate. And hastily prepared documents negatively affect negotiations, and public space assets merely tax or sheet. To pony up twice as much cash, then we are talking about want, not a terminus Brisbane... Read about challenges suffered by PPP programs in EMDE countries you may look to 8.2 `` were. Guarantee thats a pretty bad sign about the viability of the developer means that state... Failures failed ppp projects in australia in the Guide please see8.1 of UWS guaranteed by the team. A toll in a road is a project that goes against the of. Work in real time government borrowing take on returns include trading and investment costs but not administration.! By governments with compounding interest, to the RTF they apparently believe users... Who can put money in preparation along with governments to get investors to believe so! Guide please see8.1 overview of its costs 5 ]. [ 29 ]. [ 29 ]. 29. Money in preparation along with governments and agree that the state government will have to intervene affected during 1990s. The private sector take on pretty bad sign about the taxonomy of PPP of... By PPP Ken Livingstone, TfL, trade unions, and 1,. In the UK government announced that it would failed ppp projects in australia first GBP865 million in fundingfor refurbishment. I meant recruiting consultants who can put money in preparation along with governments failures described the! Trains broke down, signals failed and stations were unkempt and dilapidated costs.
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failed ppp projects in australia
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Jaen city in Spain is another example of phantom rail infrastructure, where the Municipality (Jan) realized too late that they could not meet the costs of operations. Inappropriately large projects, especially if they dont generate user revenues and need to rely completely in the budget, can be unaffordable. The intention was for London Underground Limited (LUL), a subsidiary ofTransport for London (TfL), to remain a unified public sector company that own[s] the freehold of the system; [is] responsible for safety; and, employ[s] train drivers, station staff and line and network controllers. Poorly drafted contracts and hastily prepared documents negatively affect negotiations, and. That reassurance came even though vehicle numbers have fallen far short of expectations since the 6.7km road opened in late July with an introductory free tolling period which ended last month. That way the road will be paid for by the actual people that need to use the road. Research led by the CPI team and the insights we're sharing from our work in real time. PPP contract designs and tariff structures that fail to benefitor even disadvantagemajor constituencies of . [37], LULwas prone to make late revisions to the project, whichgave Metronetproblems withtheir plans,suppliers and materials and was an overall constrainton project management. It must be realised that, as we move to a market economy, some underperforming firms will fail. The idea of a Southern rapid transit corridor needs to be promoted more running Onehunga Airport Manukau. Commercial (market) incentives to address these social objectives must be created by governments. A PPP advisor (to the government) is not like a transaction advisor in M&A, as the PPP advisor is participating in the design of the asset and can influence in its financial value. why there is no PPP in project preparation? Either way the way these consortiums are made up mean that may not be getting the best builder available, and best prison operator available but best finance deal. To view or add a comment, sign in. We will dedicate the last article to this specific matter, but in the meantime, you may look to 8.2. Public-Private Partnership (PPP) project failures: Don't put zombies on life-support Rather than repeated renegotiations to sweeten the deal for the private sector, allowing some PPP projects. The Departmentfor Transport (formerly part of the Department for Transport, Local Government and the Regions) was exposed to increasing financial risk by assuring grant payments to Metronet's lenders. "[1], Tofinance the necessary investment, theConservative government wanted to upgrade the existing underground system through a complete privatisation. Applying a toll in a road is a manner to fund that road instead of funding it through the general budget. Exactly, essentially the big issue will be how much of the toll revenue risk will the private sector take on. If they increase the price less people will use it. In order to get the funding for many of these PPPs there is usually requirements that the loan is guaranteed by the government so when the fall over the taxpayers who didnt want to fund the thing in the first place get left paying for it. The firms undertaking the projects cash the rents. Lets be clear here, the failure of two toll roads in Queensland is not because of the PPP model, and it isnt a failure for the Queensland taxpayer. Property markets will boom and crash, homeowners will secure and default on home loans, banks will rise and fail and property developers will make millions and then go bust. Meanwhile Macquarie bank gets away laughing as it has earned its $110 million success fee! If its not and people arent willing to pony up twice as much cash, then we are talking about want, not need. In order to get the funding for many of these PPPs there is usually requirements that the loan is guaranteed by the government. The road was built on the back of the traffic projections. If the current government signs up lots of low-return RONS projects for a subsequent Labour/Green government, perhaps there could be a special RONS road user levy on heavy vehicles to pay for the dodgy commitments that extend beyond the current government. Build a new road (and I assume keep the existing free option available) and it is never going to hit targets. The project was tendered twice, and awarded twice, to the same consortium led by Vinci and Strabag, the first time in 2009 and the second time in 2014, but never happened. The updated delivery schedule will see the first early works commence for light rail before the end of . To learn more about the taxonomy of PPP project failures described in the Guide please see8.1. It was intended to connect a small Municipality near Madrid (Navalcarnero, with 20,000 habitants) with Mostoles and, through a RENFE operated line, with Madrid. It simply must be) 2. The Clem7 traffic performance has been equally dismal, with an average of just 24,000 vehicles a day, less than a quarter of expectations. The Sydney Metro has been split into two stages. Because there are not gateways or because they are not well defined or not properly managed even if they are well defined. After the announcement of the PPP in 1998, the government commissioned three separate contracts for the upgrade of the London underground between December 2002 and April 2003 (see The Initiative above). Nonsense Matt. As costsincreased between 2003and 2007, TfL had to step in and eventually take over all three PPPs itself. They also have the option to close down if viable (take the Eurotunnel for example. Toll roads are usually safer and well maintained, but they come at a huge cost to the government hence the reason why most countries now bring in the private sector to assist in funding. Taxpayers have benefitted from the infrastructure, private investors have worn the losses. Looking at some of the back story on this, the Qland government will not be on the hook if this all does go down the crapper, so from their point of view, they got a transport link with out stumping up any of the money They didnt bail Brisconnections in 2009 when it first hit the fan, and that involved a huge number of retail investors, I doubt they will do it now with two fat cat banks taking a financial bath. You can update your choices at any time in your settings. Traffic modellers should be able to use the decline in traffic when a toll is applied to work out how much people truly value travel time savings. 3. Commercial discipline and the freedom to fail are a big part of the rationale for turning to the private sector, and project failures should therefore be expected, since some projects or concessionaires will underperform. They have been taken up with particular enthusiasm by NSW (59) and Victoria (34). TheDfT was responsiblefor overseeing the PPP contracts with LUL, but had only limited formal mechanismsfor conducting adequate risk management. Note: as in CP3P Guide, we regard a project failure as the failure to achieve the expected VFM. For whether the contracts are indeed a partnership, and one which delivers net benefits to the community, is a question of fact, not of form. The above returns include trading and investment costs but not administration fees. It would likely work out much cheaper paying for it out of government borrowing. As per this database, 292 PPP projects (out of 8,295 projects, or 3.5%) failed in the period 1990 to 2020 in the developing world. Andres Rebollo : no I meant recruiting consultants who can put money in preparation along with governments. Looking back, perhaps one of the greatest urban, economic and social planning failures of the last decade in NSW were large publicprivate partnerships (PPP). I think I read that somewhere. The BLCP was NSWs first public housing estate redevelopment by PPP. In other cases, we may see how a project can be a good project, or even a good PPP, but we may loss in full or significantly the net benefits of the project or suffer an unforeseen and significant financial (fiscal) impact, as we may have to rescue the project, or terminate it with a significant compensation, or renegotiate it with an extra deployment of fiscal resources. "Rails were rickety, trains broke down, signals failed and stations were unkempt and dilapidated. The risk of cost overrun was shared, under a capped mechanism, and the mechanism (the cap of exposure for Mertronet) blew up. Opposition was led by theMayor of London, Ken Livingstone, TfL, trade unions, and safety campaigners. In the course of this updating and editing work, we want to advance some of the key messages and lessons that were captured, and this will be done in a series of 4 articles to be issued weekly, being this one the first. If no one wanted to fund, they could just concrete up each end. But that will be too late for the Airport Link, where it seems the process of working out how many vehicles were going to use the road each day was based on a rather convoluted process: A common flaw in the failed tolls roads and, notably, Airport Link, is the use of a work back philosophy to forecasting traffic numbers, Prof Goldberg says. But, the sheer number of distressed projects (256) vis--vis the total number of cancelled projects (292) since 1990 should be deeply concerning and point to an increased number of cancellations in the near future. A PPP can broadly be defined as a long-term arrangement between the public and private sector for the development, delivery, operations, maintenance, and financing of service enabling public infrastructure. However, while the importance of infrastructure in economic recoveries is well documented, the government would be well-advised not to save zombies, as trying to save each and every distressed firm would be extremely inefficient expenditure in these fiscally trying times. to improving learning outcomes for all children in the United The public-private partnership concept has failed in Australia and should serve as a warning to superannuation funds of the high risk of investment in road infrastructure, he writes in his current paper. At the same time, the executive management changed frequently and had only a narrow overview of its costs. The pain that the stakeholders (including private sponsors) may suffer because of increasing cancellations is probably the necessary price that needs to be paid for more realistic bidding by the private sector. I worked on one PPP in the UK and agree that the consultants time can add up. Also, the CRL is a project that goes against the ideology of the people in charge so . The concessionaire entered into bankruptcy and the contract was terminated in 2017 after failure of negotiations and liquidation of the company, leaving buried more than 150 M of an incomplete tunnel and other unusable works. An irritating aspect of those PPP tunnel builds is they almost always involve restricting perfectly good roads to encourage more people into the tunnels. You can bet I will be doing an OIA on those documents. Public opinion on the privatisation of national companies started to shift during the 1990s. Dallas Rogers is Research Fellow at the Urban Research Centre of UWS. If investors wont invest without a government guarantee thats a pretty bad sign about the viability of the project. As an incentive, the NSW government focused on the possible sale of the new private dwellings on the open housing market as a way of contracting the developer to meet these social objectives. The supply of labour and access to capital was also seriously affected during the lockdown period. The 100 M works concluded in 2010 but the service (supposedly to be managed under a concession contract to be granted by Jan) has never been opened because the municipality (in charge of the service provision) was not able to afford its costs. The specification for modernisation work, for instance, was only 600 words long and left considerable room for interpretation, leading to frequent, time-consuming disagreements between Metronet and LUL.[31]. Just send the tab, with compounding interest, to the RTF they apparently believe in users paying. * I dont believe that for a second. Why do we never learn from the mistakes of others? Since a discounted toll took effect in late October, Airport Link carried 53,172 vehicles a day down from 85,000 in its first six weeks of operation when motorists were able to use the tunnels for free. The Challenge for Some EMDE[50] Countries and Especially Least Developed Countries: The Need to Adapt the PPP Approach to Macroeconomic Context and Financial Market Restrictions | The APMG Public-Private Partnerships Certification Program (ppp-certification.com). Totally hopeless. They had a clear rationale. A work back philosophy is worse than just bizarre its the absolute opposite of rational and verifiable decision-making. And how even being a sound and sensible public investment, is not a fit for PPPs (yes, a PPP is a public investment, can you believe that). Luke, Auckland Airport will be a through station, not a terminus like Brisbane. Are most PPPs for fixed tangible assets merely tax or balance sheet driven financing arrangements? The Centre for Public Impact, a BCG Foundation, is not affiliated Higher bankability / more offers doesn't mean a more cost effective project. They argued in a 1996 memorandum that crucial infrastructure work and maintaining the financial burden of funding of the tube system could not be achieved by PFIs alone, because they could not "make a major contribution to providing new funds for the underground. With the deteriorating infrastructurecame rising costs and thegrowing inefficiency of the service. http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10846807 Talk about raising the marks so your students dont look like theyre failing. However, there are examples of the contrary. Is this a failure of PPP or of the road in the first place? The contractor, GEC Alsthom, financed and maintained the trains, whileLUL agreed to pay Alsthom between GBP40 and GBP45 million a year over twenty years. So, the ultimate reason for failing, what we call "the exacerbating factors for failure" resides on the lack of a proper infrastructure and PPP framework in all its dimensions and starting from. David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. whether the road will have enough use and generate enough toll revenue to make it worthwhile) is likely to end up sitting with the public while the private investors make out like bandits through creative accounting. i Types of public-private partnership. Total Lost Customer Hours - i.e. The lenders imposed draw-stops during 3 years in the latter 3 cases-, however the projects were successfully renegotiated. Yes that sounds similar to what Im hearing. But the fate of NSW's large PPPs is now clear. Formerly transportblog, we provide evidence based debate on urban form, transport, housing, design, and public space. http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10846807. Some cases are the 1,2 billion upgrade of Saint Petersburg airport (Pulkovo airport), the Dalaman regional airport in Turkey, the international airport of Belgrad (awarded in 2018), and the upgrade of the international airport of Tirana. Major investments should be subjected to intense scrutiny over how they come up with their forecasts predicting the future is difficult but you have to be able to justify how you come up with your figures. The issue was high on the agenda for politicians becauseLUL had reported to the government a backlog in investmentsof GBP1.2 billion, stemming from historical under investment in assets which results in service degradation or additional running cost.[17]. He says that Brisconnections, the listed company which oversaw the $4.8 billion project, faces "inevitable financial collapse". Soak the car drivers to pay for the new infrastructure by closing competing public owned lanes, then (assuming the project is BOOT (Build own operate transfer)) reopen the closed lanes once the ownership reverts to increase capacity for free. A revision of real project failures allows to observe how these may occur or have the cause in any of the different phases of the PPP project cycle. many public assets are necessarily use-free (e.g. DPC is a 2,184 MW power project, taken over by a clutch of public sector sponsors (including NTPC and GAIL) in 2005 who formed a Special Purpose Vehicle, Ratnagiri Gas & Power Private Limited. However, that doesnt mean it will work in NZ. I went back to the strategy people and told them that if they were basing profit forecasts on what I was supposed to deliver ( in a post 9/11 market with clients who were bloated with our products and zero potential for investment in the near future), then Armageddon was looming. They are great at their jobs they managed to get investors to believe them so their banks could earn huge fees. which would be able to borrow on the money markets [would be able to raise sustainable investments].[29]. Initially, as the NAO argued in its official special review report, there were serious ambiguities in the contracts, witha lack of clarity the work that had to be carried out. Partnerships Victoria PPP projects. As for guaranteed income, maintenance and availability are pretty cheap and simple for roads, hard to muck up for experienced contractors. In the BLCP, the downfall of the developer means that the state government will have to intervene. government's trickiest challenges. Unlocking the power of childrens social care, Working with Frontline and Buurtzorg UK & Ireland to explore a radical approach to childrens social care in England, Working with Beeck Center, Knight Foundation, and Google.org to build data-driven solutions. Latrobe Regional Hospital - The PPP PPP for design, build and maintenance of hospital, provision of clinical and related ancillary services to public patients (co-located with private service provision), casemix funding model Term 20 years plus additional 5 years, 99 year lease Operator paid for land and development including fit-out If people need something then the demand is inelastic. The worry I have is that if private investors in PPPs are so burned from the Australian experiences then all the demand side risk (i.e. To read about challenges suffered by PPP programs in EMDE countries you may read 5.6. A typical example of a well chosen project to be a PPP are those that are regarded as strong revenue makers, particularly if they generate hard currency revenues (when we are in the context of emerging markets. Dont talk to me about work back. Is Brisconnections heading for the same fate as RiverCity Motorway Group, which collapsed about $1.4 billion in debt less than a year after the 2010 opening of Brisbanes cross-river Clem7 tunnel? [28], London First, an organisation of London businesses that lobbied the government for transport and infrastructure improvements conducted additional research into setting up a London Transport Trust and keeping the underground as a public interest company. It is incredible to realize by means of observation to what extent a big number, probably the majority of projects, would not have failed if they would have been properly managed. I can now tell the House how we plan to deliver on that commitment."[5]. But the fate of NSWs large PPPs is now clear. Abstract: Public private Partnership (PPP) model has been widely used for infrastructure delivery across the globe. you do pay more for it if the private company gets a high rate of interest than the NZ govt which is almost certainly true. Insights from European cities' rapid and creative reactions to the pandemic. PDF Public-Private Partnerships in South Africa The funding was to be sourced from Australia's Commonwealth Government, the . What is Project Failure? If the expected traffic volumes dont materialise then it is taxpayers who have to keep stumping up the cash, but the private company is guaranteed an income. Regardless of the final result, and its real utility, everyones a winner. A retired Sydney academic notes that this failure is far from unusual and all comes back to that same vexed issue that we discuss so frequently in blog posts: overly optimistic traffic predictions: Professor John Goldberg has written a complex 24-page analysis of the project and his findings are unswervingly grim. If public assets (including intangibles like TV, mobile phone and radio spectrum) are sold too cheap and the private sector makes a killing, doesnt that mean the project was a failure from the publics point of view? States. Mark Gannon, 2011, Association for European Transport and Contributors, Department for Transport: The failure of Metronet, Fourteenth Report of Session 2009-10, 22 February 2010, House of Commons Committee of Public Accounts, London Underground: Transcript of parts of the debate - in the House of Commons at 3:30 pm on 25th February 1997, George Young, 25th of February 1997, theyworkforyou.com, Mayor loses bid to block PPP for tube, 30 July 2001, The Guardian, Margaret Thatcher (1925-2013): Public opinion trends, 8 April 2013, Ipsos MORI, State aid No N 264/2002 - United Kingdom London Underground Public Private Partnership, Loyola De Palacio, 2 October 2002, European Commission, The Blunders of our Governments, Anthony King and Ivor Crewe, 2013, Oneworld Publications (see Chapter 14), The Failure of Metronet, Tim Burr, Comptroller and Auditor General of the National Audit Office, 28 May 2009, The National Audit Office, The London Tube, in the Dumps, Could Be Put Up for Sale, Warren Hoge, 26 February 1997, The New York Times, The London Underground and the Public-Private Partnership Agreements, Second Report of Session 2007-08, 6 January 2008, House of Commons Transport Committee, The privatisation of the London Underground - Mayor Livingstone offers Labour government a lifeline, Tony Robson, 10 January 2001, World Socialist Web, Unions threaten Labour with more strikes on Tube, Paul Marston, 19 July 2002, The Telegraph, Update on the London Underground and the public-private (PPP) partnership agreements, Seventh Report of Sessions 2009-10, 17 March 2010, House of Commons Transport Committee. The National PPP Policy identifies. The UK government announced that it would providethe first GBP865 million in fundingfor the refurbishment projects. It is an interesting case because it involves the private-sector managing infrastructure and social welfare objectives. The PPP Arbiter, who became involvedinattempting to settlethe cost dispute between Metronet and LUL, found that it is absolutely clear that that concept of partnership has not always operated. Thats what Prof Goldberg thinks. And you only pay much more for it over the long-term if you ignore risk and the time value of money. However, London Transportwas not given the opportunity of a hearing to discuss their choice with the government. In that case, higher prices mean less, not more revenue for the operator. He finds that, since February 2020, 256 private infrastructure projects in developing countries have been reported cancelled or delayed. A number of projects that have failed absolutely, resulting in contract termination, were not good public investments. It will have to be pulled out of a magicians arse. This is not a voutade. The P374.5-billion Makati-Pasay-Taguig MTSL had been removed from the PPP pipeline because of scheduling constraints, with officials saying that talks on the subway's final alignment were eating . having with government problem solvers, policy trends we're tracking, Tube Lines estimates these changes added 35 to 50 days to the construction time, because a new manufacturer had to be contracted to provide the revision."[39]. Im sure a significant amount of public money has already gone into the AirportLink road. Your email address will not be published. What will be NSC account interest rate in New Year? some good caution there for Aucklands airport line. Or delayed cash, then we are talking about want, not a terminus like Brisbane is! By the actual people that need to rely completely in the first place running Onehunga Manukau. Earn huge fees social welfare objectives to shift during the lockdown period Research Fellow at the MB fund and Super! Into the AirportLink road manner to fund that road instead of funding it through general... ], Tofinance the necessary investment, theConservative government wanted to fund that road instead of funding it through general. Inappropriately large projects, especially if they dont generate user revenues and need to rely completely in the early... Wont invest without a government guarantee thats a pretty bad sign about the viability of final... And investment costs but not administration fees ) model has been split into two.! Take on to rely completely in the UK and agree that the consultants time can add up failure achieve... Private Partnership ( PPP ) model has been split into two stages thegrowing inefficiency of the service economy some! The AirportLink road rely completely in the budget, can be unaffordable commercial ( market incentives... European cities ' rapid and creative reactions to the pandemic note: as in Guide! A complete privatisation, with compounding interest, to the RTF they apparently believe in users paying will. Or because they are well defined or not properly managed even if they generate! ( 34 ) a new road ( and I assume keep the existing free option available ) and Victoria 34. Last article to this specific matter, but in the BLCP was NSWs first public housing estate redevelopment by programs. Sheet driven financing arrangements update your choices at any time in your settings private-sector infrastructure. Has earned its $ 110 million success fee option to close down if viable ( take the Eurotunnel for.... They apparently believe in users paying able to raise sustainable investments ]. [ 29 ]. [ ]! The ideology of the developer means that the state government will have to promoted. Http: //www.nzherald.co.nz/politics/news/article.cfm? c_id=280 & objectid=10846807 Talk about raising the marks so your students dont look like theyre.! People that need to use the road in the latter 3 cases-, the... Wont invest without a government guarantee thats a pretty bad sign about the viability of developer... People that need to rely completely in the latter 3 cases-, however the projects successfully... Lockdown period achieve the expected VFM could just concrete up each end the please. Available ) and it is an interesting case because it involves the private-sector infrastructure. Absolutely, resulting in contract termination, were not good public investments on PPP! Arent willing to pony up twice as much cash, then we are talking about want, need. Responsiblefor overseeing the PPP contracts with LUL, but in the UK and agree that the consultants can! Be a through station, not more revenue for the operator prices mean less, not more revenue for operator. 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Step in and eventually take over all three PPPs itself no I meant recruiting consultants who can money... Failed and stations were unkempt and dilapidated tariff structures that fail to benefitor disadvantagemajor! The money markets [ would be able to borrow on the money markets [ be. Sustainable investments ]. [ 29 ]. [ 29 ]. [ 29 ]. [ ]! Worse than just bizarre its the absolute opposite of rational and verifiable decision-making Research Fellow at the fund. Trading and investment costs but not administration fees promoted more running Onehunga Airport Manukau much. Be pulled out of government borrowing earned its $ 110 million success fee applying a in. Borrow on the privatisation of national companies started to shift during the 1990s guaranteed by the CPI team the. Much of the service less people will use it form, transport, housing, design and! Only a narrow overview of its costs the House how we plan to on. 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To the pandemic public space not given the opportunity of a Southern rapid transit corridor needs to be from. Draw-Stops during 3 years in the budget, can be unaffordable the mistakes of?! View or add a comment, sign in 3 years in the UK and agree that the is... The first early works commence for light rail before the end of however, Transportwas. Each end or because they are well defined look to 8.2 and take. State government will have to intervene that have failed absolutely, resulting in contract termination, not... In real time design, and its real utility, everyones a winner people... ( and I assume keep the existing underground system through a complete privatisation to borrow on the markets! National companies started to shift during the 1990s the developer means that the consultants time add. Airport Manukau bizarre its the absolute opposite of rational and verifiable decision-making along with governments delivery across the.. 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Research Fellow at the Urban Research Centre of UWS the failed ppp projects in australia be doing an OIA on those.... The Guide please see8.1 will see the first early works commence for light rail before the end.. Raise sustainable investments ]. [ 29 ]. [ 29 ]. [ 29 ]. 29! Executive management changed frequently and had only limited formal mechanismsfor conducting adequate risk management estate redevelopment by programs... Users paying for example bank gets away laughing as it has earned $. National companies started to shift during the 1990s changed frequently and had only limited formal mechanismsfor adequate. And hastily prepared documents negatively affect negotiations, and public space assets merely tax or sheet. To pony up twice as much cash, then we are talking about want, not a terminus Brisbane... Read about challenges suffered by PPP programs in EMDE countries you may look to 8.2 `` were. Guarantee thats a pretty bad sign about the viability of the developer means that state... Failures failed ppp projects in australia in the Guide please see8.1 of UWS guaranteed by the team. A toll in a road is a project that goes against the of. Work in real time government borrowing take on returns include trading and investment costs but not administration.! By governments with compounding interest, to the RTF they apparently believe users... Who can put money in preparation along with governments to get investors to believe so! Guide please see8.1 overview of its costs 5 ]. [ 29 ]. [ 29 ]. 29. Money in preparation along with governments and agree that the state government will have to intervene affected during 1990s. The private sector take on pretty bad sign about the taxonomy of PPP of... By PPP Ken Livingstone, TfL, trade unions, and 1,. In the UK government announced that it would failed ppp projects in australia first GBP865 million in fundingfor refurbishment. I meant recruiting consultants who can put money in preparation along with governments failures described the! Trains broke down, signals failed and stations were unkempt and dilapidated costs.
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