The Transmission Gully motorway, a Public-Private Partnership. Photo / Mark Mitchell
The Government wants more public-private partnerships (PPPs) in infrastructure and today launched a revised PPP framework, setting out new rules it hopes will attract more firms to bid for infrastructure delivery.
The framework included a four-person foreword talking up the plan from Prime Minister Christopher Luxon, Infrastructure Minister Chris Bishop, and Parliamentary Under-Secretary Simon Court – as well as from Labour’s infrastructure spokeswoman Barbara Edmonds, who gave her cautious support.
Edmonds said Labour would support “PPPs when they maintain some form of public ownership/control of critical infrastructure and align with Labour values of fairness and co-operation”, noting that “[s]wings in priorities each election cycle don’t help New Zealand’s infrastructure deficit”.
The support of the largest Opposition party for a project led by someone from the other side of the House, Act MP Court, suggests this might be another step in the slow, tentative march towards greater bipartisanship on infrastructure matters.
The revised strategy aims to make PPPs more attractive by assessing how much risk the Crown should carry compared to the private partner and considering whether the Government should reimburse private firms for bidding on PPP contracts, even if the bid is unsuccessful, reflecting the fact putting together a PPP bid can cost millions. The strategy will also require officials to look at ways of charging people who use PPP infrastructure to reduce the cost to the Crown.
PPP is a broad term that, in New Zealand, tends to mean the Government paying a private provider to build and operate a piece of infrastructure over a certain period. Supporters say PPPs bring benefits such as private sector rigour in investment decisions and free up space on the Crown’s balance sheet by spreading the cost of that infrastructure over many years, rather than through debt funding. Detractors argue a Government-funded and delivered option is cheaper, given the Crown’s lower borrowing costs, and point to examples such as Wellington’s Transmission Gully, where the model has run into trouble.
The PPP programme commenced in 2009, and since 2011, eight PPPs – including three prisons, two roads, and three bundles of primary and secondary schools – have been delivered. However, the PPP programme has recently stalled.
Act wants to ramp it up again and secured a commitment in its coalition agreement with National to begin looking at PPPs once more.
“PPPs, when done well, drive better performance because they have strong contractual incentives. Compared to traditional approaches, projects using a PPP model will have a greater focus on whole-of-life outcomes, meaning projects are more likely to be well-planned, delivered on time and on budget, provide high-quality services, and be maintained throughout their lifespan,” Court said.
Much of the debate on PPPs has focused on cost and whether a private firm’s commercial focus can deliver something more affordably than the Crown, which has lower borrowing costs.
The strategy pours cold water on this argument, saying PPPs “should not be categorised as a financing tool”, but should be thought of as a way of getting better quality for the same cost, or by buying in private expertise that New Zealand lacks.
The Government has said it will revise its “Affordability Threshold and Public Sector Comparator”, which is how it compares PPP bids with what it would cost to do the project itself. The Government said that, in the past, these comparisons have been “unreasonable”.
“Having private capital at risk for delivery performance offers significant benefits by creating stronger commercial incentives. This approach requires greater discipline and due diligence during the procurement phase, while also ensuring that private consortiums maintain accountability throughout the entire lifecycle,” it said.
In his foreword to the strategy, Bishop said the Government’s focus would be on delivering “greater outcomes for the same cost”, which he said had always been at the heart of the PPP strategy.
He said the Government will “only use PPPs when they outperform the counterfactual procurement model”.
“PPPs will be most suitable for large, complex projects where objectives and outputs can be clearly specified. These are the types of projects that will benefit most from innovation, risk transfer, and whole-of-life project optimisation,” he said.
The Government will also attempt to encourage more firms to bid for PPPs, by reassessing the level of risk shouldered by the partner versus the Crown, and by considering whether to reimburse “a portion of verifiable bid preparation costs for unsuccessful parties”.
Infrastructure NZ chief executive Nick Leggett said this was significant, noting sometimes firms spent $2 million to $5m bidding for a contract.
Leggett said it was significant Edmonds had written a foreword to the plan, emphasising its bipartisanship.
Overseas, some PPPs are used to transfer costs to users by, for example, allowing a private firm to build a road and cover its costs entirely by building tolls. This has not been attempted in New Zealand under the most recent round of PPPs because there are very few areas where the revenue a firm could charge for using a PPP would cover the cost of building it.
However, the strategy said that all PPP business cases will now consider “the potential applicability of third-party revenue streams and how these might contribute to meeting the delivery cost of the project”.
Despite this consideration, the Government is realistic that there will be few opportunities to completely shift a PPP’s revenue requirements to users rather than the Crown itself, saying that ministers “expect that most projects proposed for PPP procurement will be unlikely to derive sufficient third-party revenue streams to support the full cost of delivering, operating, and maintaining the required infrastructure”.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
A Chinese cameraman brought a unique camera to film Luxon in Beijing.