PPPs 'only way' to get things done

The Business Roundtable favours electronic road user charges to pay for roading investment. Photo / Glenn Jeffrey

New Zealand's change of government has been a signal in certain circles that we are open for business, says Deloitte corporate finance partner Paul Callow.

Overseas interests who specialise in financially intertwining with governments to build infrastructure are looking with renewed interest at this country since National took office, he says.

"We work with clients who basically deliver these projects, and we've had them talking to us about what's going on in New Zealand."

It is now a far more receptive and certain environment, he says. "Labour provided a lot of mixed messages."

This will be music to the ears of the chief executives who came out overwhelmingly in favour of public private partnerships (PPPs) in the Herald's Mood of the Boardroom survey.

When asked if they supported a greater emphasis on central and local government and the private sector working together to identify new infrastructure projects, 93 per cent said yes.

The business leaders were also asked what their chief future concerns were for infrastructure in this country - telecommunications was number one, followed closely by roading.

If the Government wants to meet those concerns and complete all the projects on its infrastructure to-do list PPPs are going to be the only way, Callow says, because "they ain't gonna find the money from the taxpayer at the moment".

There are models from all around the world of successful PPPs and they work particularly well on roads. Studies show that the private sector brings projects in anywhere between about 15 to 20 per cent under the cost that the public sector traditionally does, he says.

Government boffins are struggling with how to structure the unfamiliar deals, but Wellington is working on it and "I'm quite encouraged, put it that way," Callow says.

One of those projects is the Government's massive $1.5 billion high speed broadband rollout. It signalled its desire to have local fibre companies doing the work and to that end Vector has formed the New Zealand Regional Fibre Group, made up of lines companies and local fibre firms.

Vector CEO Simon Mackenzie says local investment from players who understand the community, overlaid with national co-ordination, is key to the project's success. PPPs bring much-needed commercial discipline to government expenditure, he says. "I do absolutely believe it's a very good model that can be deployed in New Zealand for the right type of service."

However Britain has recently seen another side to Private Finance Initiatives (PFIs), as they're known in that country. It has invested an estimated £63 billion (NZ$163 billion) in PFIs since 1992, The Economist reports this week, covering everything from prisons to energy-from-rubbish schemes.

PFIs are suffering in the downturn. Most include plenty of debt finance, and with banks reluctant to lend private companies are struggling to fulfil their contracts, the magazine says.

In March the British Government rushed to rescue its PFIs, setting up a miniature infrastructure bank within the Treasury designed to provide up to £2 billion to PFI schemes frustrated by frozen credit markets. Perhaps the British situation ought to be thought of in the context of "lessons learned", Vector's Mackenzie says.

What Business Roundtable executive director Roger Kerr wants to see is rigorous economic analysis making a case for any investment.

The fast broadband project, for example, has to be seen against the background of telecommunications deregulation in this country. One of the arguments for the forced unbundling of Telecom was that not enough was being invested in broadband. "And in the way that one government regulation has a habit of begetting another, we're now into a discussion as to whether the Government should be involved in broadband. "The public should see the economic analysis which the Government ultimately gets together to justify any decision there."

But Auckland University broadband expert Jairo Gutierrez says a model of integration between public and private enterprises is the only way forward for the project. South Korea and Japan lead the world in access to high speed broadband, but they are examples of governments which have quasi-mandated the building of the infrastructure. Anglo cultures are far more individualistic, he says. "We have to be realistic, we're never going to get to the South Korea, Japan [kind of] cohesion. But we definitely need to move more in that direction."

With a road a toll can be charged which would pay for the project over a certain amount of time. "With this sort of infrastructure it's not so clear cut - you need a better model."

On the subject of roads the industry leaders were not asked specifically what their concerns were, but the accompanying comments tell the story. "I can't understand why we continue to invest heavily in rail and particularly passenger rail. In our country it will always be an incredibly expensive form of transport which relatively few people in Auckland will be able to access," a supermarket chain boss says.

The roading network is inadequate, South Pacific Pictures chief executive John Barnett says. "It just takes too long to get around and clearly that leads to enormous inefficiencies in all sorts of things."

Vector's Simon Mackenzie offers a slightly more holistic view.

While he says getting to Auckland airport is a "continual nightmare", as is servicing customers if outages happen to occur at peak times, he says traffic congestion in this country isn't that bad compared with other countries.

The problem calls for innovative thinking - for example, faster broadband will help by allowing people to more easily work from home.

He says this goes back to the argument for PPPs.

"As a private business we really only see the revenue that directly comes from a fibre investment, whereas Government can see potential impacts in transport, health, education and all those layers that incentivise them potentially differently.'

But Kerr says there has been under-investment in the nation's roads and the economic case for projects such as Auckland's State Highway 20 extension at Waterview have been well proved. "If the benefits stack up in relation to costs we should be investing."

The Business Roundtable wants to see a range of solutions to the problem of roading investment. It's a big fan of electronic road user charges.

"New Zealand should move towards those as soon as they're economically feasible," Kerr says.

The lobby group would also like to see entities such as Council Owned Organisations run along SOE lines, with their own balance sheet and ability to raise capital.

The Government would appear to be on the same page. Last week it announced investigations into setting up a "bond bank" to help councils finance up to $30 billion of planned infrastructure over the next decade.

The initiative came out of the Jobs Summit and is aimed at reducing councils' cost of borrowing. A study will look at whether combining councils' borrowing needs would result in lower interest rates and transaction costs. The arrangement is common overseas.