Our transtasman neighbour has the jump on us when it comes to public-private partnerships, writes Graeme Hunt.

The so-called "Australian model" for infrastructure development - strong government support and robust private-sector involvement and discipline - is being touted as a solution to New Zealand's infrastructure woes.

More than 50 completed public-private partnerships accounted for at least A$34 billion ($42 billion) of infrastructure projects in Australia in the past decade. New Zealand, by comparison, hardly left the starting blocks.

Macquarie Capital (New Zealand) divisional director Duncan Olde says New Zealand is well behind and will not catch up overnight.

"Each Australian government has its own agency for engaging the private sector," he says. "The recently adopted national PPP guidelines aim to create a uniform, best-practice approach."

According to figures Macquarie gleaned from Infrastructure Australia and state government agencies, Victoria and New South Wales are the market leaders with 20 completed PPP projects apiece since private involvement in infrastructure development started to take hold in the late 1980s and 1990s.

The other states and the Northern Territory have been much less active although Queensland, a recent convert, has used PPPs for big-ticket projects, including an airport link and busway (A$3.5 billion) and the North-South bypass tunnel (A$3.2 billion).

The range of PPP infrastructure projects across Australia is diverse; roads, rail, prisons, schools and hospitals, convention centres, waterfront redevelopment, water reclamation, courts and police stations.

Duncan Olde says Australia embraced infrastructure PPPs slowly but has established a market which New Zealand is part of. "We are effectively competing in an Australian marketplace for capital and people have the opportunity to participate in that competing market - [Australia] has a commitment from the relevant government rather than us with a toe in the water."

Olde says infrastructure PPPs are not all about attracting private capital for public assets.

"PPPs are not just a funding solution. Private capital brings extra discipline and focus on risk. PPPs may be a way of achieving better value and demonstrating you get more bangs for your buck."

He says private involvement in some infrastructure, such as the Northern Gateway road between Orewa and Puhoi or another Auckland Harbour crossing, can generate revenue that can be used to fund infrastructure. But many projects do not generate a return.

"We need to be a little careful because at the end of the day when people put money into PPPs they still require a return. Where a serious investment is not going to get a return, the Government still has to meet the bill."

He says public-private local government infrastructure development has its difficulties.

"The big challenge for local government in New Zealand is that [councils] are asset-rich but they have little political desire to increase rates."

Olde sees opportunities for private involvement in transport, healthcare and water projects.

"I would like to see a wider development of PPPs here but I don't expect it to happen overnight.

"The global financial crisis has had a number of effects - capital is more scarce and far more expensive than it was.

"From a PPP perspective, infrastructure has a relatively low-risk profile and has not been hurt like other asset classes. There's been a flight to quality." What attracts private investors, he says, is certainty.

Ernst & Young's executive director (project finance advisory), Ben King, says private finance is not the priority in infrastructure PPPs.

"What is important up front is to prioritise investment needs, decide what outcomes for the community will be, and assess how a PPP drives efficiency and gets better operational outcomes."

King, who worked in infrastructure funding in Britain, says PPPs can offer a valuable aid to infrastructure development in New Zealand.

"Local government has lots of funding mechanisms at the moment - selling assets, borrowing money, rates increases as well as the PPP, which is a procurement tool first and foremost."

King says private finance via a PPP allows councils to leverage spending in any one year. "That has been a key benefit of public-private partnerships. If we can access more means of providing that infrastructure and get additional funding, that's where the real benefits are."

He says PPPs used to design, build, operate and maintain schools in Britain - a local government service - have proved their worth.

"These allow teachers and headmasters to focus on educational outcomes and move those other areas of the educational estate to another party. Studies show the educational outcomes have improved [as a result of PPPs].

"The [New Zealand] Ministry of Education is looking at the possible application of PPPs for school-building and long-term operation and maintenance."

King says PPPs offer greater efficiencies in infrastructure development, not least in lower staff numbers and better maintenance. They also foster better long-term planning of infrastructure needs.

He says infrastructure PPPs are attractive to the private sector because the assets are stable, the risk is understood and the projects are long term.

John Vetter, the ANZ Bank's Auckland-based executive director (utilities, telecommunications and infrastructure, and natural resources), says the small size of prospective PPPs is a hurdle to overcome if international investors are to be attracted to here.

"There will be scale issues the Government will have to overcome to attract top-quality overseas service providers," he says. "Anything under $50 million or $100 million is small by international standards."

Vetter, who heads a team of infrastructure specialists, says liquidity is not a problem, in part because of the ability of the banking system down under to weather the global financial crisis. "There is not an issue of access to finance, whether domestically or internationally. We are fortunate that our Government is focused on infrastructure rather than bailing out the finance sector."

He says ANZ's focus on infrastructure is consistent with the Governments infrastructure strategy. Its role in debt capital markets and the creation of a New Zealand-based PPP and export credit agency (ECA) deal team have provided important links with Asian investors and offshore liquidity pools.

Vetter says New Zealand is fortunate to be able to draw on the world's best practice when it comes to establishing PPPs and the bank sees a strong relationship between infrastructure development and economic growth.

"There is a direct link between New Zealand's success and our success. We are very supportive of anything that drives GDP growth in New Zealand."

Vetter concedes that the public consent process for infrastructure projects is slower than in other high-income OECD nations but the country has the certainty of law and runs efficient ports.

"The really exciting thing from our perspective is the Government's push into broadband. It is something that will assist GDP growth to our benefit."

Westpac Institutional Bank New Zealand chief executive David McLean says he would like to see schools and hospitals brought into the PPP mix.

"We have got to have this debate," he says.

"One of the influences of private-sector investment is transparency and the unbundling of risk."

McLean says Westpac talks to the Government regularly about widening the use of PPPs.

"School buildings could get on the agenda but hospitals are down the track."

He says the Government is keen to make better use of PPPs but the public sector has been slow to take them up. "We have gone anti-private enterprise in many cases."

AUSSIE INFRASTRUCTURE PPPS
By sector since 2000 (number)
Transport 12
Justice 9
Health 8
Education 7
Water 6
Urban 3
Defence 2
Waste 2
Housing 1
Energy 1

By size since 2000 (A$)
$2b+ 6
$500m-$2b 10
$200m-$500m 12
$50m-$200m 17
$0-$50m 6

Completed PPPs since 1987
Victoria20+
New South Wales20+
Western Australia5
Queensland4
South Australia2
Commonwealth2
Northern Territory1
Tasmania 1

Source: Infrastructure Australia and state government agencies