'No gas in the private tank'

Mark Binns, chief executive of Fletcher Building's infrastructure and construction. Photo / Brett Phibbs

Fletcher Building's construction book is 84 per cent Government-led and that won't change any time soon.

Mark Binns, chief executive of infrastructure and construction at the business with a market capitalisation of $4.6 billion, says Government spending was holding the sector up.

He cites the 84 per cent figure as the exact amount of state work by Fletcher.

"I like (PM) John (Key) spending money and if he stops, we're in trouble because the private sector has no gas in the tank. I think it will be quite a while before it changes.

"The Government will be dominant for the next two to three years. For that to change and the private sector to return, we need underlying demand in retail, residential housing, offices, commercial, industrial - and demand is on the floor at the moment. We need to have developers with equity, but most of them have been wiped out with the crash. A new breed of developers needs to rise with equity because banks are conservative. Banks say they will lend but only on deals of iron quality."

David McLean, Westpac's general manager of wealth, insurance, private and institutional banking, says the lack of developer equity in New Zealand, even in robust economic times, is highly unusual internationally. Elsewhere, developers have "more skin in the game" than here. Banks will lend but lack of equity and no savings culture in New Zealand are the biggest impediments to economic expansion.

Binns says getting access to cash was the biggest problem for the private development sector.

"Underlying economic demand is weak but even if the demand is there, finance is tough. You need equity and that's hard to come by because the banks are very selective in what they will fund.

"There's no mezzanine left so putting deals together is very, very hard."

He also has some concerns about next year's work-book, describing that as potentially a "hiatus" period because of the inherently lumpy nature of some of Fletcher's bigger infrastructure and construction jobs.

After alliances involving Fletcher completed Auckland's Central Motorway Junction and State Highway 20 jobs ahead of time, he is confident of the industry's capacity and his firm's abilities.

But he is also unsettled by the construction sector's lack of diversification, saying that because private sector spending virtually dried up overnight, the highly skilled workforce capable of handling big projects were almost totally reliant on political whim.

"2011 is shaping up as a very difficult year. The prospects are not looking fantastic. Infrastructure spending is holding up but all our eggs are in one basket, if you like. We're powerless to influence that. All we can do is say to the Government 'hey, this is an issue for the industry, you want to be able to deliver infrastructure, it's going to be lumpy and there's a gap opening up'.

"The Government has been very good in keeping the flow of work up but these big projects have a very long gestation period. You just can't click your fingers," Binns says.

Big new jobs on the horizon include the $1.4 billion Waterview motorway extension, likely to be awarded to a consortium of companies like those on State Highway 20's Manukau Harbour Crossing and the Victoria Park Tunnel job.

Another big opportunity for the construction sector is the Wiri prison job, worth about $300 million, where the Government is expected to to go ahead with the public-private partnership model for its design, construction and operation.

Fletcher is understood to have put its hand up to build the $450 million Tauranga Eastern Link expressway from Te Maunga to Paengaroa in a joint venture with Downer. Fulton Hogan is understood to have submitted a competitive tender for the Tauranga job, named as one of the seven new roads of national significance.

Last month Transport Minister Steven Joyce announced the link would be tolled, allowing construction to begin early next year, seven years earlier than would otherwise be the case.

The 23km $567 million four-lane highway will bypass Te Puke and Joyce says it will help productivity and growth in the Bay of Plenty and Tauranga by shaving up to 24 minutes off trips. It will also make the area safer by cutting use of State Highway 2 from Tauranga and Paengaroa, ranked second worst in the country per kilometre for fatal and serious injury crashes by the KiwiRap programme.

Binns has more faith in the infrastructure sector's longer term prospects, saying he is confident about 2012-2013. Recovery in house construction is not imminent, he says, questioning whether conditions are right for strong growth there.

Rugby World Cup and the Super City will have a recessionary effect on big building, he predicts, because the new council will not want major civil works on when thousands of people arrive in Auckland next year. Staff at the new Super City might also take some time before they make big decisions, he predicts.

*Fletcher Building's annual result for the June year will be released this month, and its annual meeting in November is at the new Eden Park stand it built for Rugby World Cup.

NATIONAL INFRASTRUCTURE PLAN

Building big
Toll roads: $21 billion
Education: $5 billion
Health: $2.9 billion
Corrections: $726 million
Electricity transmission: $1.4 billion
Electricity generation: $7 billion
Water: $1.9 billion
Community facilities $2.8 billion

Why?
* To increase New Zealand's productivity growth
* To maintain high levels of employment
* To cut our vulnerability to adverse events
* To close the gap with Australia by 2025

Seven biggest road jobs
* Puhoi-Wellsford, State Highway 1
* Completion of Auckland Western Ring Route SH20/16/18
* Auckland Victoria Park Tunnel SH1
* Waikato Expressway sh1
* Tauranga Eastern Corridor SH2
* Wellington Northern Corridor (Levin to Wellington) SH1
* Christchurch motorway projects