Singing from the same hymn sheet

Patrick Brockie.

We have a new Government but it's pretty clear all parties are singing from the same hymn sheet when we discuss New Zealand's critical infrastructure needs.

A significant period of underinvestment in infrastructure, coupled with a strongly growing economy and increased immigration and tourism have put our infrastructure under enormous strain.

All political parties get this and have plans to try to address it. The capital intentions plan is for $100 billion of capital expenditure over the next 10 years to 2025, of which 40 per cent is to be funded by central government, 51 per cent local government and only $9.2b funded by the private sector.

The actual private sector number is materially lower than this as it includes projects undertaken by Transpower and KiwiRail.

There is ample room for the private sector to share more of the heavy lifting with infrastructure investment, yet remain a minority partner.

The previous Government had budgeted $32b of infrastructure capex for the next four years.

It is a good start. Central government has also accepted (begrudgingly perhaps) that local government funding constraints mean it needs to be proactively addressing how to deal with housing and horizontal infrastructure (water and roading) requirements in Auckland.

The $1b Housing Infrastructure Fund (HIF) was welcomed by the councils of Auckland, Hamilton, Waikato, Tauranga and Queenstown.

The loans are interest free (helping cashflow commitments) but remain on council balance sheets and hence are considered increased indebtedness, constraining future investments they can make.

The announcement of Crown Infrastructure Partners (CIP) is potentially a more effective structure to get this critical housing and infrastructure moving.

Crown Fibre has evolved into CIP and will build on the strong implementation track-record Crown Fibre established and the relationships it has built with councils across the country.

CIP will be looking at ways to capture some of the value uplift from establishing and paying for critical infrastructure (three waters and transport) in new housing areas - and rightly so.

Value capture was seen as a missed opportunity with the City Rail Link. CIP's role will be to establish a commercial model that can bring in partners to share in the risk, reward and funding for such development.

I suspect that, as with the Crown Fibre model, CIP may need to go solo initially in order to get things moving and establish a model that works for private sector investors.

So has progress been made? Yes and no. These developments are positive but will take time, and in the interim it's important some of the country's larger infrastructure projects continue to move forward.

The obvious bottlenecks are in speed to market, labour supply and the overall building product supply chain. These are serious issues.

The Australian construction market continues to experience high levels of activity in New South Wales and Victoria.

Construction companies in New Zealand are having to go further afield to find qualified construction managers and other staff. Hopefully the Government's immigration policy, when outlined, will not limit our ability to find experienced staff in this critical sector.

The Public Private Partnership (PPP) market is maturing and it is now five years since our first PPPs began. Eight PPPs (including Tauranga Social Housing) have been awarded through a disciplined bid process.

Both Wiri Prison and Hobsonville School PPPs have been in operation for more than two years, with two other PPPs moving to operations early next year.

We are building good experience with this form of project delivery and it may be timely for a report on progress and the learnings to date.

The Australian Government reviewed its National Public Private Partnership policy framework in 2015 (vs 2008).

PPPs have played a key role in delivering critical infrastructure and involving the private sector beyond just design and construct. There remains strong interest both from facility operators and equity investors in new PPP opportunities.

The market is unsure what PPPs will come up for bid in 2018, hence it is important the National Infrastructure Unit and our new Government can provide the visibility of a forward-looking pipeline, particularly if we are to attract interest from international parties.

With serious constraints in the construction sector, it would be good to see increased partnerships between local and international contractors to deliver best practice and innovation but also to share risk.

The Fletchers/Acciona partnership in the Puhoi-to-Warkworth roading PPP is a recent example of local and global coming together to provide better outcomes for New Zealand.

There has been intense debate about the new Dunedin hospital, and whether a PPP approach was appropriate with references to poor outcomes in hospital PPPs in the UK.

Labour issued a clear statement pre-election that a PPP approach to the hospital was not being considered.

Infrastructure New Zealand is considered pro-private sector and PPPs, but in fact we are supporters of "best practice" and better infrastructure outcomes for New Zealand no matter how they are achieved.

Hospital PPPs globally have mixed reviews but so does public sector management of hospitals (no winners there). We already have considerable private health services in New Zealand, just not in our hospitals.

We would imagine the first hospital PPP in New Zealand would be limited to the provision of non-clinical services (hard and soft FM) i.e. heating, lighting, air conditioning, catering, cleaning, waste management, security, laundry and general building maintenance, a relatively small percentage of a hospital budget (versus cost of medical staff and drugs).

The removal of responsibility for facilities management can allow medical professionals to focus on their core role of providing the best healthcare services possible.

Hospitals will remain largely government funded and managed but would New Zealanders not benefit from the involvement of experienced private sector companies operating certain services?

Through a procurement process we could see what experienced international companies, potentially teaming up with New Zealand-based companies, could deliver.

They will undoubtedly seek to bring new ideas and innovation in the management of a hospital and should not be seen as a threat.

As the Corrections Department have done with the Wiri Prison PPP, relevant learnings and experience from PPPs can be applied across the entire sector to benefit New Zealand.

The public and private sectors have much to gain from learning from each other through increased collaboration and partnerships.

The objective is simply to consider alternative ways of procurement and in the process raising standards for all New Zealanders.

- Patrick Brockie is the chairman of Infrastructure New Zealand.