Government wants users of new infrastructure to pay more so it takes out less debt

Prime Minister Christopher Luxon with Infrastructure Minister Chris Bishop, who says the Government needs to embrace ideas from the private sector to plug New Zealand's infrastructure deficit. Photo / Mark Mitchell

Infrastructure Minister Chris Bishop has inked his intention for users of new infrastructure to cover more of the costs to avoid leaving the Government with the tab.

Cabinet has signed off on a Treasury “Funding and Financing Framework” that outlines the principles the Government will follow when weighing up what its financial contribution to various infrastructure projects will be.

In essence, the Government wants departments, agencies and local councils that provide infrastructure to get users to pay more through the likes of tolling, congestion charging, water meters, targeted rates and value capture.

It’s also keen for the private sector to be involved in the delivery and operation of some projects via public-private partnerships.

The alternative to tapping into pools of private capital (potentially at a greater cost), and taking more of a user-pays approach, is spreading costs across all taxpayers and ratepayers, and getting central and local government to take out more debt.

Bishop believed this approach wasn’t working.

“Our funding models for many assets do not reflect the full economic cost of delivering the service, which means operational activities, including asset renewals and maintenance, often compete with wider priorities – and often miss out,” he said.

“The new framework provides guidance to agencies and departments that they should, in the first instance, seek user or beneficiary-pays to fund new infrastructure projects.

“Rather than defaulting to the blunt approach of grants of taxpayer money, the Government will expect proposals from sectors such as water, energy, housing, climate adaptation and transport to be able to demonstrate how user or beneficiary-pays can contribute towards funding requirements.”

Bishop said the Government would still offer grants, but it would only consider using its balance sheet capacity once alternatives had been exhausted.

“Different proposals will need different types of funding or financing – the Government will look at the specific needs of each proposal and offer ‘just enough’ support to make the proposal feasible,” Bishop said.

“This is about fairness and efficiency, and about preserving the Crown’s balance sheet capacity.”

Govt welcomes unsolicited private-sector infrastructure pitches

In a separate but related announcement, the Government is creating a pathway for those in the private sector to make unsolicited bids to build infrastructure.

The new avenue will enable market participants to negotiate directly with the Government if they come up with an idea that aligns with its objectives and is good value for money.

Applicants will be able to submit their bids to National Infrastructure Funding and Financing Limited, formerly Crown Infrastructure Partners.

Private-sector parties might propose to make their money by charging users for the infrastructure.

For their proposals to get a look in, parties will need to convince the agency they are the only ones capable of delivering the infrastructure.

If there’s any doubt of this, the agency can request to test the concept with the market via a short competitive tender.

The Government is promising to respect any intellectual property owned by applicants during the process.

The new pathway won’t affect the existing channels and procurement processes the Government uses to build infrastructure. The Ministry of Business, Innovation and Employment remains the lead agency for this.

Rather, the pathway will be an additional way of getting the private sector involved in the delivery of infrastructure.

“There is no Government monopoly on good ideas, so it’s imperative we have a clear framework for assessing ideas and engagement from the private sector,” Bishop said.

“New Zealand needs to be positively embracing private-sector ideas and solutions to our infrastructure deficit, not doing our best to turn them away because the Crown hasn’t got the systems and frameworks to engage commercially.”

Parliamentary Under-Secretary Simon Court suggested the previous government would’ve handled a private-sector proposal to help build Auckland Light Rail better if there was a proper process in place.

“In 2018, the New Zealand Super Fund and Caisse de depot et placement du Quebec put forward a proposal to design, build, own and operate an Auckland Light Rail to transport 11,000 commuters per hour for an estimated $6 billion,” Court explained.

“Leaving aside the merits of the proposal, the way the Crown responded was a masterclass in bureaucratic inertia.”

Court stressed competitive tension through an open tendering process remained an important way for the Government to get value for money.

Accordingly, the requirement for submitters to be the only ones capable of fulfilling their proposal was key to the criterion.

The guidelines, created by Treasury, elaborate on this “exclusivity” requirement.

They explain an applicant might be able to argue it’s the only one capable of doing the work because of exclusive property rights (including exclusive Treaty of Waitangi redress) that would otherwise be unavailable to Government.

An applicant might also have a unique contractual arrangement that cannot be offered by another service provider, own technology that has a unique benefit, or provide value for money that can’t be matched by the market.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.