Takutai Square in Britomart is always clean and tidy. Photo / Jason Dorday
Recycling assets is an affordable way to create vital infrastructure that might otherwise not be built.
David Walker, principal and APAC advisory market lead at engineering firm GHD, says Auckland’s most visible example is Waitematā Station, formerly Britomart.
“Britomart station cost the pre-amalgamation Auckland Council $200 million, which was funded by property sales. This could happen because the council had a good portfolio of commercial and residential property that it sold down,” he says.
“It’s a great example of shifting from property assets to creating important new infrastructure. If Auckland City Council hadn’t done this, then the entire City Rail Link project would not be happening now.”
Previously general manager of executive services at Auckland Council, Walker says the above-ground part of the station, the Edwardian Auckland Central Post Office, was “a recondition project and it was a big job because the engineers had to tunnel underneath it, put rails in and do many other things.
“At the time, it opened it was the largest underground diesel train station in the world and needed massive fans to suck out all the fumes.”
Next door is another outstanding example of asset recycling: the large-scale urban redevelopment at Britomart Place.
“The old Auckland City Council sold this on a very long-term lease to Cooper and Company. They did the redevelopment including the Westpac and EY building at Takutai Square.
“They restored old heritage buildings on Customs St and have made a really pleasant area, which they run and maintain. It’s always well-looked-after, it’s always clean and tidy.
“As part of the deal, the council got back $28 million — which might not sound much given the scale of the development, but the council could never have achieved what Cooper and Company did.
“In about 100 years the asset will come back to the city and - this is important - it will return in a good state.”
Public-private projects of this nature are not always handed back in good condition. Walker says the Civic Theatre was returned to the council in a terribly dilapidated state.
“The council had to spend $40m to get it back up to scratch. It’s a beautiful building and, in hindsight, $40m isn’t bad, yet the right safeguards were not put in place. That won’t be the case with Britomart.”
Walker says Auckland City Council learned how to better manage transferring public assets to and from the private sector.
He says another lesson now being put into use by its successor, Auckland Council, is making better use of money received when assets are recycled.
A recent example was when Auckland Council sold its airport shares late last year. Walker says the sale returned between $1.3 billion and $1.4b, which was used to establish an infrastructure war chest: the Future Fund.
“This money is not being spent on operations. It has been locked away where it can be accessed for needy infrastructure projects. That’s a really elegant solution because there has always been a lot of opposition to selling directly cashable investments like shares.”
Walker says there’s an ingrained public resistance to “flogging off the family silver”.
This creates political and community barriers to asset recycling, even when it’s economically sound or necessary.
“From my experience at the council we might have a single house to sell. We would have to work for years with the local board or community board, even though it was just an old house, falling to bits and needing a lot of money spent on it.
“The house wouldn’t have any value as a community asset, but there would still be resistance to a sale.
“We found that if you could point directly to the benefit from a sale — or the trade-off — it helped. That’s what the Mayor, Wayne Brown, has done with the airport shares."
He says in general projects often lack early and clear communication to the public about the costs, benefits and trade-offs involved in recycling public assets. Getting better at messaging is a crucial part of successful asset recycling.
New Zealand doesn’t always get the best value from infrastructure assets. Walker says we have one of the highest per capita infrastructure expenditures in the OECD, yet we rank near the bottom when it comes to asset management.
One major issue is asset management planning. Infrastructure Minister Chris Bishop identified this as a problem when launching the Government’s work programme to improve public infrastructure asset management in May of this year,
“Bishop is on board with the whole asset management challenge and mentioned that a number of asset-owning government agencies have failed to comply with expectations.
“The 2002 Local Government Act forces local councils to have asset management plans. We can argue how effective that has been, but the plans are there. However, often the funding isn’t there to make them happen.
“Take the example of Wellington Water. The asset management plan might say it needs to replace pipes now, otherwise they’ll go pop, but there isn’t the funding. This is the absolute poster child for under funding assets even though you have asset management plans in place.”
He says that too often, operational funding is an afterthought.
“When the focus is just on the capital build, it’s not a problem for the first few years. You might get away with 10 years. And then someone notices that the paint is peeling off the walls in this new hospital and that’s when the awareness kicks in.”
One way of addressing this problem is through regulation.
“Thanks to regulation, the energy sector is a leading sector when it comes to quality of asset management planning and implementation.
“Now the water sector is going to have similar regulations. Combined with that, the Government has been facilitating a funding arrangement through the local government funding agency so that these water companies, as they merge, can borrow more.
“That was one of Watercare’s issues. It has more than enough income to have a much bigger debt funding base, but because it is locked in with the council’s debt envelope, it hasn’t been able to get on with projects.”
GHD is an advertising sponsor of the Herald’s Infrastructure report.