Both sides in PPP debate point overseas for lessons

Hospitals, schools and houses will be the target of the new public-private infrastructure fund. Pictured: Auckland Hospital. Photo/Dean Purcell

Supporters and opponents of a fund being set up to build public infrastructure are pointing to the performance of similar moves overseas to support their argument.

HRL Morrison & Co today said its Public Infrastructure Partnership Fund (PIP Fund), with an initial investment capacity of up to $500 million, was an important new development for this country.

The fund would focus on developments such as schools, student accommodation, social housing, hospitals and other medical facilities.

Typically the PIP Fund would be paid by a government partner for financing, building and managing facilities for 25 to 35 years, after which the facilities would be transferred to public ownership.

Morrison & Co chief executive Marko Bogoievski said the model was proven offshore.

A spokesman for Finance Minister Bill English said the weight of international evidence showed public private partnerships (PPPs) could produce economic gains.

They had a successful history in Australia and Britain where they had been operating for more than 20 years.

"While there have been a small number of failures in the UK this has to be seen in the context of several hundred projects carried out," the spokesman said.

"In Australia every state has utilised PPPs. As a result Australia has a deep and well performing infrastructure sector and we would like to see some of that replicated in New Zealand."

The Government was open to working with the private sector where it could get better value for money for taxpayers, and the Morrison & Co fund was one proposition among others where groups had indicated they were willing to help achieve that.

But PSA national secretary Richard Wagstaff said British taxpayers knew the cost of being locked into the kind of long term leases proposed under the Morrison & Co proposal.

"They're paying to maintain a PPP-built school, for the next 18 years, even though it closed last year.

"That school, in Northern Ireland, shut because it's no longer viable ... But UK taxpayers will have to continue paying a million dollars a year for its maintenance until 2027," Mr Wagstaff said.

"PPP-built hospitals in Britain are also in trouble because they're locked into crippling long term contracts with private companies. Two London PPP hospitals were declared technically bankrupt in 2005."

One was Queen Elizabeth Hospital in Woolwich which opened in 2001, but four years later was insolvent because it was locked into a 30-year contract it could not afford. It had to pay $49m a year, $22m more than if it had borrowed the money from the government.

Wagstaff saw the Morrison & Co fund as "another part of the government's privatisation agenda".

The PSA also referred to a 2006 Treasury report which concluded there was little reliable empirical evidence about the costs and benefits of PPPs.

The main benefits usually attributed to PPPs were accelerated provision of infrastructure projects as a result of using private sector finance, and better value for money due to private sector innovation and whole-of-life cost minimisation, the Treasury paper said.

But there were other ways of obtaining private sector finance without having to enter into a PPP.

Most of the advantages of private sector construction and management could be obtained from conventional procurement methods, the paper said.

The advantages of PPPs also needed to be weighed against the contractual complexities and rigidities involved.

A commitment in principle of up to $100m to the PIP Fund has been made by the Guardians of New Zealand Superannuation.

General manager, private markets, for the guardians, Matt Whineray, said the investment suited the Superannuation Fund's long term investment horizon, and stacked up against global alternatives.

- NZPA