Auckland’s Spark Arena was built and is operated by a private company through a form of asset recycling arrangement. Photo / George Heard
Auckland’s Spark Arena was built and is operated by a private company through a form of asset recycling arrangement. Photo / George Heard
Opinion
THREE KEY FACTS
Cabinet has signed off on a Treasury “Funding and Financing Framework”.
NZ ranks last in a global survey for its record of delivering national infrastructure.
The nation’s infrastructure deficit is $200 billion.
New Zealand is grappling with having to solve a mounting infrastructure deficit that threatens the country’s economic competitiveness and the quality of life of our people, while at the same time prudently managing our government finances.
Most New Zealanders understand that we need to invest in andbuild modern, fit-for-purpose hospitals, schools, transport networks and other public infrastructure. Yet over a third of our infrastructure pipeline has no current source of funding. It is in this context that we must expand our funding toolbox and seek to make greater use of private capital.
One way to do this is through a planned programme of “asset recycling”.
Asset recycling involves realising the value of public assets through sales, leases or strategic partnerships with the private sector and then ring-fencing that capital to fund the building of new infrastructure.
From the public’s perspective their services remain the same or, if anything, can become more efficient. Regulated sectors also provide consumer price control protections.
At its heart, asset recycling is about unlocking the economic value from some of the assets we already own to increase and improve our future public infrastructure. This can be done through several means, including partial privatisation, temporary partial privatisation and lease and management arrangements.
Asset recycling isn’t new in New Zealand, it’s just under-utilised.
To fund a much-needed new wharf at Napier Port in 2019, Hawke’s Bay Regional Council agreed to sell a 45% share of the port after extensive public consultation. The sale, which included priority share purchases for the local community, raised $234 million, which allowed for the construction of the wharf, along with a fund for further community investment.
The value of the port with the new wharf was such that the council’s 55% share after the sale was worth more than its 100% share before it.
Auckland’s Spark Arena was built and is operated by a private company through a form of asset recycling arrangement with Auckland Council known as a Boot (build, own, operate, transfer). This freed up council funds for additional projects and released it from having to manage this major events venue.
The Jonas Brothers playing at Spark Arena. Photo / Dean Purcell
Across the Tasman, the Restart NSW scheme - which has contributed to transformative projects from highways to rail and healthcare infrastructure - is supported by an asset recycling programme. Strong controls are in place to ensure funds are reinvested correctly and business cases stack up, but by recycling existing assets in this way, New South Wales has invested nearly A$2.5 billion ($2.75b) into more than 800 projects across the state since 2011.
The Restart NSW example and the use of asset recycling generally nicely aligns with the recent proposal from New Zealand First for a “Future Fund” for infrastructure. Countries like Singapore and Ireland have effectively used independent funds such as this to manage infrastructure investments, blending public and private capital as well as overseas investment to secure national prosperity.
It is critical to differentiate between outright privatisation and asset recycling.
Asset recycling is not about selling off the family silver but smartly leveraging the value of existing, underperforming or difficult-to-manage assets. The well-managed recycling of assets can create a “win-win-win” scenario that improves the operation of existing infrastructure through private sector expertise, generates capital for the development of new or upgraded public assets investments, and enhances public services.
For instance, a well-structured lease agreement can maintain public ownership while outsourcing management to a private sector organisation that can run the asset better.
The political challenge lies in designing an asset recycling framework that ensures robust governance, transparency and builds a long-term political consensus. We should draw lessons from successful models abroad while addressing legitimate public concerns about asset control here at home.
What’s needed is a comprehensive national policy direction on asset recycling where the opportunity cost of government or local authorities continuing to maintain and operate existing infrastructure is compared to monetising those assets and investing the realised funds into new or upgraded infrastructure.
The time for bold but thoughtful action is now.
Asset recycling should be a tool in our infrastructure toolkit, applied judiciously and transparently to help build what we so desperately need — public infrastructure fit for future generations.
