The Christchurch earthquake means that for the foreseeable future, major capital works will have to pass a stringent cost-benefit test, writes Liam Dann, Herald Business Editor.

With the benefit of hindsight, the Government's infrastructure strategy at this time last year looks blissfully simple.

It was carefully weighted, in terms of policy and funding, to bring forward essential projects. It was a gentle stimulus package of sorts with an eye on enhancing the long term productivity of the nation. But the quakes in Christchurch have blown that balanced approach out of the water.

Though there were those who might have advocated a more stimulatory approach, even the most enthusiastic advocates of Government spending would have been shocked by a future in which the country faced a $15 billion-plus construction job.


The choices for New Zealand have been greatly limited by disaster. The weighting of any government's infrastructure spending has been inexorably shifted towards borrowing and spending.

While that may have some economic upside in the short term, the downside is that everything the nation chooses to build in the next decade will have to pass a cost benefit analysis heavily overshadowed by the Christchurch rebuild. New Zealand has seen nothing of this scale in its history and it comes at a time when years of infrastructure underspending have already left the nation in need of major work to maintain networks necessary for a first world economy in the 21st century.

There are many big projects needed simply to keep up with population growth, let alone to enhance our chances of accelerating economic growth and improving the living standards of the population.

The Government has commendably stood firm on the need to press on with multibillion-dollar projects like Auckland's western ring route and the nationwide roll out of optic cable for faster broadband.

But there are bigger, more daunting challenges which cannot be ignored. Hugely expensive jobs like a second harbour crossing for Auckland and a central city rail link will now require innovative thinking in terms of raising capital and in terms of the policy if they are to ever see the light of day.

This Government has created a platform for a more productive future of public-private partnership infrastructure projects in New Zealand. From here there are big expectations that the nature of these partnerships can be developed and expanded.

Though it doesn't strictly fit the criteria, the ultra fast broadband build being undertaken by Telecom offshoot Chorus is, in effect, a test case for public-private infrastructure building.

Whether the model can be extrapolated to more traditional state-funded projects like roads and bridges remains to be seen.

Much time and thought has been put into the pricing and terms of access that the private operator of the broadband infrastructure will offer. It will be closely scrutinised and its success in the eyes of the public may have some bearing on the prospects of future joint-venture projects. At some point though, if we are to tackle the nation's growing debt burden, there will have to be acceptance by the public that the choice is one of having private capital involved in public works or not having the works at all.

As Minister for Technology, Transport and associate minister for Infrastructure (and as someone with a personal track record in business) Steven Joyce is probably best placed to lead a transformation of the way infrastructure is funded in this country. Certainly there are high expectations from those within industry that he and his colleagues will continue on the current path if they are re-elected in November.

From an industry perspective there are plenty of reasons to be feeling good about New Zealand's infrastructure market right now.

As well as the rebuild of Christchurch and the Government's commitment to big roading projects there have been other policy wins for the sector.

The plans for partial asset sales are expected to see more capital flow to the big energy companies and should enhance the prospects of new power generation projects.

The creation of the Auckland Super City has enhanced the speed and efficiency with which the nation's most populous region can tackle important projects. Likewise the streamlining of the Resource Management Act has limited some of the red tape involved in getting projects under way.

But just as the quake rebuild presents plenty of opportunities for industry it also creates challenges which threaten to hamper projects all around the country.

Skills shortages and the cost of resources will be a constant problem for manufacturing and construction companies in the next few years. Demand out of China for hard resources and from other disaster-hit regions such as Japan and Australia for skilled engineers and workers will put great pressure on costs.

Industry likes certainty as it allows companies to invest in skills and resources efficiently and at a manageable pace.

The Government has done a good job so far of providing a long term blueprint for project funding over the next decade. It will need to work hard to keep providing that certainty around the finer details of new projects and the plans for Christchurch as they unfold.

It will need to strive to do things smarter to enhance the economic value that spending on infrastructure brings.

One issue that quietly continues to frustrate many in the construction sector is the extent to which international competitors sometimes have odds stacked in their favour.

It is doubtful anyone in the competitive sector would advocate a "buy New Zealand made" approach but there is a belief that project design could be better aligned with the resources and manufacturing strengths of the local industry.

In other words, while we need to be open to international competition, we should be careful to ensure we are not creating unnecessary barriers for local companies when have the capability in this country.

What New Zealand wants in terms of infrastructure, what it needs and what it can actually afford are among the most important questions now facing the country.

They are all politically charged and should be central to the upcoming election debate.

The challenges facing the next government of New Zealand are historic and will determine the kind of nation and the quality of life we leave for our children and grandchildren.

Liam Dann is the