Infrastructure Report: Industry calling for bold investment

New Zealand's twin requirements of infrastructure investment and a need for non-monetary stimulus may provide fertile ground for an ambitious programme of government investment, writes James Penn
Fulton Hogan chief executive Robert Jones.
Fulton Hogan chief executive Robert Jones.

Industry players are calling for bold investment to address New Zealand's burgeoning population and the problems that come with it.

Earlier this year in the Herald, Fulton Hogan chief executive Robert Jones asked, "How is our national infrastructure coping with population change and growth? Not too well, if you take our national housing and urban traffic issues."

"We believe it's a very big brake on small business," says Patrick Brockie, chairman of the New Zealand Council for Infrastructure Development (NZCID). "To get around Auckland during the day is hard; to get from one side of the bridge to the other."

At the same time, some commentators are suggesting monetary stimulus has run its course.

"I think there's an emerging view that monetary policy stimulus is not really delivering the sort of growth that people were expecting it to deliver," says Paul Goodwin, managing director, Institutional at ANZ.

"Therefore, there's a huge responsibility on central and local government to start thinking about fiscal policy stimulus to try and stimulate growth."

This presents a unique opportunity for a marriage of these two emerging trends - calls for infrastructure investment and calls for fiscal stimulus - which New Zealand may be particularly well-placed to act upon.

With the Government's announcement of a 2015/16 surplus of $1.8b, up from the forecast of $176m, there may be room for some more public infrastructure investment.

Similarly, private markets seem eager to play their role in new projects.

"We have private sector investors who are willing to sit alongside central and local government to drive some investment into infrastructure to deliver long-term growth," says Goodwin.

Brockie agrees: "Involve the private sector to allow us to accelerate the infrastructure spend, as the Government have been doing with the PPP (Public Private Partnership) model.

"But it doesn't have to be exactly like a PPP: it can be different procurement models, but working hand in hand with the private sector, central government, and local government together; we could accelerate the infrastructure roll-out I think."

According to the Auckland Chamber of Commerce, there has been interest from private parties in working alongside the public sector to bring a key element of the Auckland Transport Alignment Project (ATAP) to fruition. That element is Penlink, a proposed alternative route between the Whangaparaoa Peninsula and State Highway 1 (SH1) at Redvale.

"Private sector investors have approached the chamber stating interest in undertaking Penlink as a Public Private Partnership where they finance, build and operate the road while AT pay for it to be open," said the chamber.

During the recent local election campaign, now-mayor Phil Goff scoped a vision for infrastructure investment funding.

"Limits on borrowing capacity and the inequity and inappropriateness of using rates as a major funding mechanism means alternative funding sources for infrastructure are necessary," outlined Goff's fiscal plan.

"Options include: government revenue-sharing with Council, private-public partnerships, and build, own, operate and transfer projects, or the raising of infrastructure bonds by Government or Council."

These initiatives, if followed through, will be music to the ears of those calling for a multi-party approach to infrastructure financing.

Goodwin cautions: "The trick will be making sure that the mayor does work with central government in a way whereby we don't let process and what-have-you get in the way of actually making some of these big investments real."

ATAP is seen as a good starting point for ongoing co-ordination between central and local government, having involved six different public bodies.

Brockie believes there is more of this ilk to come: "I think it'd be fair to say that Auckland Council want it to go beyond [the ATAP process], so that they can then discuss these other projects and have a really good working partnership so that things move forward - but not to forget that the private sector is there to help them."

This multi-party approach has been followed in Christchurch, where Jones' firm Fulton Hogan has played a significant role.

To address the infrastructure challenges in the aftermath of the 2010 and 2011 earthquakes, SCIRT (Stronger Christchurch Infrastructure Rebuild Team) was formed: an alliance of Christchurch City Council, Cera, NZTA, City Care, Downer, Fletcher Construction, Fulton Hogan, and McConnell Dowell.

"'Alliance contracting' is a recognised way of achieving good results from infrastructure programmes," said Jones. "It is particularly effective where scope is uncertain, risk is difficult to define, and speed of repair is critical.

"The SCIRT model has provided a cost effective option by combining the efforts of planners, designers, contractors and asset owners to deliver an end-to-end solution based on actual need and what is affordable.

"All parties share the risk in an appropriate way and poor performance is penalised."

Craig Davidson of Aecom argues that there needs to be greater focus on the impact of technological shifts when these investments are made.

He uses the example of parking buildings to illustrate this point. "Driverless cars: what does that mean in terms of infrastructure?"

Many predict that people will no longer own their own car once driverless cars become ubiquitous, but will rather use an Uber-style driverless car on-demand system.

"Have we designed the flexibility to convert that building, which has been designed for a 50-plus-year life span, into something else?" asks Davidson.

"And the answer simply is no. So it's basically going to have to be pulled down and that's a huge amount of wasted resource, environmental impact, and cost."

Others echo this call for future-minded investment decisions.

"How can we future-proof our infrastructure as our climate changes and sea levels are predicted to rise by 30 centimetres by 2050?" wrote Jones. "Already, flooding is this country's most frequent natural disaster with an average cost each year of around $50 million."

To address these challenges, Davidson argues that we need to more clearly define what our vision for the future is.

Transport infrastructure is a case in point. As one of the city's greatest challenges, many potential solutions have been "flavour of the month" at different points in time.

"We've bounced from bus transport to light rail to heavy rail to motorways," laments Davidson. "There is no clarity as to what and where we're going. And again, if you pull it right back to that vision we need to decide on something and commit to it."

Movement towards satellite cities is another infrastructural shift on the minds of many. This could involve the construction of public amenities to create new city centres just outside Auckland to enable economic growth to continue gathering pace without the same degree of infrastructural strain observed so far.

"But again it is one of those buzzword ideas that globally there are good examples of where it has worked well," says Davidson. "But it requires big-picture thinking and a degree of investment that to be frank we have really struggled as a city and a country to do well.

"We don't seem to be looking for global best practice. We are very much focused on who we have locally and what is our local thinking."

The Aecom chief executive points to a congestion-easing project in Sydney as an example. The approach there has reflected the big-picture thinking he has been calling for.

Rather than asking, "How do we fix congestion on the road to the airport?" The approach has instead been, "How do we fix the network as a whole?"

That means, explains Davidson, "looking at a macro scale at what all the levers are for easing congestion from demand management to new infrastructure, to making the most out of existing infrastructure."

"The infrastructure decisions that we're making today are a key determining factor for the health and well-being of citizens of decades to come.

"My real concern is that our thinking seems to be constrained by the status quo. We think by just doing what we've always done we are going to get something different."

- NZ Herald

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