KEY POINTS:
Maurice Williamson, the National Party transport spokesman, has again raised the possibility of public-private partnerships as builders and operators of new roading projects - a call taken up by the government for the State Highway 20 extension and tunnel at Waterview.
Whenever the concept of a PPP pops
its head above the parapet those of us on the paying end ought also to be heads-up, and posing questions.
Building and operating a road is really a simple business with five key parts: funding, design, construction, maintenance and Administration.
The first question that should be asked is: What does private enterprise bring to this skill mix that would justify paying it a profit?
Funding: A road is an investment by New Zealand Inc, acting through the government. If a private company was to make investments of this scale it would probably do so with a mix of equity (the shareholders chipping in a few bob), borrowing and cash from current operations.
There's no reason the New Zealand Transport Agency can't do the same thing. The shareholders (let's call them "The Government") could put in some cash.
It would have to come from general taxation. The agency could borrow a large chunk, and fund a fair slice from its usual revenue stream accruing during planning and construction of the project. A mixture of revenue from fuel taxes and tolls would provide the ongoing income stream to repay the loan.
The problem is that the agency is not run like a company. It does not make a profit on the vast investment we have in roads.
Indeed when the idea of declaring a notional profit on our roading investment was floated in the 1990s, there was a howl of public protest of such vehemence that the idea was never heard from again.
(Therein, of course, lies the essential problem of roads v rail. Road haulage contractors get the cost of their biggest capital item - the road network - at a discount because no allowance for profit is expected. A rail operator, on the other hand, is expected by its shareholders to get a return on the investment it has in the permanent way, the railbed. But that's another issue.)
If the Transport Agency is not a company the concept of an equity injection from the Government is probably not going to ring the bell of the Finance Minister. Roads are an asset that have an expected life of many, many decades.
It is not unreasonable, therefore, to spread the funding of that investment over a period of, say, 25 or 30 years by borrowing, as you would when buying or building a house.
The New Zealand Transport Agency, as a Crown entity, is a sovereign borrower. It is an organ of the state with an AA+ credit rating. It can borrow on better terms and at interest rates much lower than those available to most privately-owned corporates. Over the life of the loan this will save many millions of dollars that will otherwise get plucked from motorists' pockets.
Why, therefore, should we pay a private investor a profit on top of their higher funding costs when the agency can fund the investment easily and at much lower cost? What does a private investment company bring to the table that we can't get cheaper ourselves?
Design and construction: The Transport Agency has a successful record, going right back through its Ministry of Works incarnation, of designing roads and managing their construction. The private sector does a proven job of building them. Result: A shiny new black road (or tunnel) ready for business.
Maintenance: All that remains is to maintain it, and again the agency has vast experience in doing that. What could a private operator do that can't be done, and is done every day, by the present managers? There has not been, as far as I can recall, any suggestion that the agency is incompetent or inefficient in this regard.
If it is, and this is the underlying justification for a PPP, then the other option is to give Don't Come Monday notices to the board and managers of the Transport Agency.
Administration: Other than general administration of the road network, which is currently handled without private company assistance, there remains only the collection of the tolls.
If the agency can't run a toll booth then it probably couldn't run its Christmas party.
So, before we invite an infrastructure investor to clip the ticket, would someone please explain why they should be able to cream the Cash In side of the books for 25 to 50 years?
The devil's in the detail - you can bet that the same said investor will be careful to avoid too much risk on the Cash Out side of the books. Guess who will get lumbered with that downside risk.
The final question we should therefore ask is: Who needs them?
* David Morris is an Auckland transport operator and travel writer with no connection with the New Zealand Transport Agency, which subsumed Transit NZ last month.
