Infrastructure report: Partnership takes a new road

By Bill Bennett

Transmission Gully marks a fresh approach to financing large road projects, reports Bill Bennett.

The proposed James Cook interchange near Waitangirua.
The proposed James Cook interchange near Waitangirua.

When the Transmission Gully motorway gets under way later this year, it won't just be breaking new ground north of Wellington. It will also mark a fresh approach in the way Government finances large road projects.

Australia-based MWH general manager John MacKillop oversaw MWH's role as the New Zealand Transport Agency's technical advisor for the project. He says the billion-dollar project to create a safe and reliable alternative route for traffic between the capital and the rest of the North Island will be New Zealand's first Public-Private Partnership road delivered under the new availability model.

For a long time PPP was a popular approach overseas when it came to building large infrastructure projects where there is potential to generate revenue. In the case of roads, that meant tolls. However MacKillop readily admits the PPP approach went out of favour after a number of high-profile Australian PPP road projects failed. He says they went wrong because the incentives weren't structured properly.

MacKillop says Transmission Gully is different because it is being set up as an "availability PPP". In essence the Government pays the private company for the road's availability. Payments continue so long as the road remains safe and travel times remain reliable. If there are lane closures or, say, the road isn't reopened fast enough after an earthquake, the private company is penalised.

MacKillop says this approach removes much of the risk: "I don't see that this road is going to fail. There's not going to be a problem if the tolls aren't there to pay for it. The top priority is safety and the deal is structured to give users a great, motorway standard road."

Under the traditional road PPP model, a private company would get the rights to collect tolls for a set period. This can work, but success is largely down to accurate traffic projections; if the expected number of vehicles doesn't turn up, the road builders are left out of pocket. MacKillop says this happened with two roads in Sydney and two in Brisbane.

Availability PPPs are all about the project outcomes. As technical adviser on the Transmission Gully project MWH's job was to work with NZTA to develop the outcome specifications. MacKillop says this involved geotechnical work and a lot of interaction with the legal advisors and commercial advisors also appointed by NZTA. MWH was appointed to the role over a year ago, but MacKillop says the main work took place over just three months as his team prepared the request for proposal (RFP).


John MacKillop.

For him the most challenging part of the process was the geotechnical investigations programme. He says New Zealanders do this in far more depth than Australians -- perhaps that's not surprising given how close the road is to a major fault line.

MacKillop says though most of the work was done locally by MWH New Zealand staff: "they have the right skills and local expertise"; he was brought in from Australia because there is little PPP experience in this country. This was only the third PPP project in New Zealand. He says the first thing he did in New Zealand was to hold a PPP workshop.

One advantage of the availability PPP approach is that the project is all about what is delivered, not how it is delivered.

MacKillop says this gives contractors freedom to innovate. How they design and build is left to them.

He says the lessons learnt from Transmission Gully helped MWH win a contract to perform a similar role in Queensland. The state Government is building the Toowoomba Second Crossing, which runs across the Great Dividing Range bypassing the city and relieving an existing road that is now close to capacity.

Governments usually look to PPPs because they don't have to outlay capital, but there can be other reasons. MacKillop says another PPP project MWH carried out was when the New South Wales Government decided to sell its desalination plant to raise capital it could invest elsewhere, in schools and roads. By taking the plant off the balance sheet, the state Government raised capital without affecting its credit rating. He says this is another current trend in PPP projects.

In the case of the Sydney desalination plant, MWH worked for one of the bidders handling the due diligence for its bid. This meant working out the condition of the asset and estimating the cost of likely upgrades and operations.

MacKillop says working on PPP projects boosts everyone's skills: "We make sure we transfer our expertise to clients as part of the deal." He says he and his team learnt a lot from working on their first availability PPP: "You have to think differently about things when you're focusing on the project outcome rather than just getting it done. Those are skills we've already applied elsewhere."

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production bpcf03 at 22 Nov 2014 13:41:24 Processing Time: 409ms