As the focus turns from bridging the infrastructure deficit to building the 'nation for the future', there are gritty issues to be addressed, writes Stephen Selwood.

Despite a few hiccups over the location of party central for the rugby world cup and a slower than expected rollout of Ultra Fast Broadband, to date the Government has made excellent progress in delivering its plan.

Electricity transmission investment, RMA and other regulatory reforms, and roads of national significance are all proceeding apace. Work in progress includes implementation of electricity market reforms, the Land and Water Forum report back on the thorny issues relating to water allocation and use, and work on improving procurement and management of Crown assets. Good progress, all in all, but with some implementation issues.

It is critical that the next version of the infrastructure plan, due out early next year, looks at future demand scenarios to identify capacity issues before they arise and decide how funding and policy gaps can be bridged in a much more timely, integrated and cost-effective manner.

One of the most significant infrastructure challenges for the Government over the next five years will be funding future investment to both sustain and lead growth.

This will require grasping the market pricing nettle for transport and water and realising the tremendous opportunities presented by its commitment to One Auckland and the development of a regional spatial plan.

In transport, for example, existing "pay/go" funding is not sufficient to fund the level of investment in road, rail and public transport that is required - especially in Auckland. The transition to tolls and/or road pricing as a means to help fund transport investment and manage future demand growth must be on the agenda.

Equally important will be finding a way to address ever-increasing demands for water in dry regions. The two main alternatives are water capture and storage or water pricing. Water storage faces major hurdles from a land use planning and environmental consent perspective. Water pricing, including economic prices for environmental and social effects, raises dreaded "privatisation" concerns on the political left. Politics aside, both measures are complimentary. Pricing will help manage supply and demand. The ability to increase supply through storage will help keep a lid on excessive prices.

Given the significant property rights issues that arise it seems clear that no single party will be able to solve these problems alone. It will need a much greater commitment on a bi-partisan basis, requiring Maori, Right, Left and Centre to put New Zealand's wider needs ahead of party politics.

Local government will also have to address glaring gaps in infrastructure service funding and procurement. Reliance by most local authorities on rates funding for water should give way to volumetric pricing, for example. Those councils that do charge for water have enjoyed much lower levels of demand.

Some have been able to defer substantial investment in infrastructure that would otherwise have been forced upon them because of wasteful use of "free" water. Water is arguably New Zealand's most significant natural asset but its supply and distribution is certainly not free. We can't afford to continue to waste it by failing to charge properly for its use. Direct user charging for water services is needed from a sustainability and fiscal management perspective.

Improved local government procurement methods should include more shared services by territorial local authorities; joint contracting to overcome lack of scale issues; and commercial models such as franchising or PPP concessions for the delivery of infrastructure services. There are opportunities for efficiencies by developing a programme approach, with small projects, renewals and maintenance requirements bundled to achieve economies of scale.

It is the Auckland Waikato and Bay of Plenty "golden triangle" where the largest infrastructure deficit already exists and where future growth pressures are the most acute. On medium population growth projections this region will accommodate almost 700,000 additional people by 2031 - 76 per cent of national population growth - and deliver more than half of New Zealand's gross domestic product.

The Government has determined that the next harbour crossing is an important issue for Auckland's future. But by far the biggest strategic issue facing the region is how we are going to plan for growth across the upper North Island; how we are going to ensure good connectivity between our ports and airports; how we are going to accommodate demand for space in Auckland; how we are going to prioritise and fund the necessary infrastructure investment to support that growth; and how we are going to ensure that regulatory decision-making processes deliver social, environmental and economic balance.

Of these, where, when and how we deliver the next Auckland harbour crossing is an important but subsidiary issue. Equally important are questions about the levels of urban density we want, whether we develop the Auckland CBD with or without an inner city loop, or an eastern corridor and how growth is to be shared across the wider economic region of the upper North Island.

The first national infrastructure plan was a useful start in addressing the infrastructure and regulatory deficits that have held New Zealand back over the last two decades. The Government is making good progress against that plan. But the bigger challenge is how we deliver optimum growth going forward over the next 20 years.

The next iteration of the infrastructure plan must address the infrastructure development needs of a growth economy. It needs a bi-partisan approach to confront difficult pricing / funding challenges. It should encourage markets to create and capture opportunities presented by technological change. Instead of letting regulatory process hamstring sustainable development the plan must promote legislative and regulatory processes that give us a competitive edge.

The five priorities

The first National Infrastructure Plan released in March identified the Government's five immediate infrastructure priorities as: broadband, electricity transmission, regulatory reform, roads of national significance, and the Rugby World Cup 2011. Government also set itself the task of reviewing the broader electricity market, irrigation, and getting better procurement and management of the Crown's physical assets.

For the longer term it identified four key issues that it considers will be nationally significant in the future: enhancing transport linkages across the harbour in Auckland; the relationship between infrastructure and land use planning in our cities; the need for better alignment between national infrastructure planning and regional and local planning; and the need to undertake more work on transport pricing as a way of managing demand, getting the best modal choice, and creating resilience in our transport system.

* Stephen Selwood is chief executive of the NZ Council for Infrastructure Development

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