Government signals funding package for three water projects

Finance Minister Grant Robertson and Infrastructure Minister Shane Jones outlining infrastructure spending. Photo / Mark Mitchell

The government looks close to announcing a major funding package for councils planning water upgrades after separating those from the $2.6 billion of grants and loans it announced today for 'shovel-ready' infrastructure work.

The projects announced today include some climate-related water projects and catchment works such as stop bank upgrades. But the package doesn't generally include projects dealing with 'the three waters" of fresh water supply, storm water or wastewater treatment.

"In terms of three waters that is on a different track, and one that I hope to have something more to say about in the next few days," Finance Minister Grant Robertson told journalists today.

Councils face a bill for billions of dollars to start upgrading their water systems to meet more stringent health and environmental standards. Last week, Infrastructure Minister Shane Jones said he didn't want to see Crown money going into those projects until there were better institutional arrangements among councils to share those costs and manage those assets more collectively.

New Plymouth District Council was today granted $37 million – the full cost – of replacing the district's sewage sludge treatment plant and converting it to run on a mix of natural gas and hydrogen.

But the council had also sought $321m to upgrade the district's three waters systems. It has had no news on that application.

Mayor Neil Holdom said the government's decision to provide funding for water projects makes a lot of sense, given they are pre-consented and quite labour intensive.

"It will probably come with some strings attached" in terms of aggregation of activities among councils, he told BusinessDesk.

An infrastructure deficit across much of the country was already straining the balance sheets of some councils, Auckland in particular.

Yesterday, the New Zealand Local Government Funding Agency hiked the debt ceiling for A-rated council borrowers to 300 per cent of revenue until 2022, freeing up capital for councils to manage out of the Covid-19 crisis. The ceiling was previously 250 per cent of revenue.

The new funding announced today is additional to an earlier $12b of spending committed to a range of housing, road and rail projects.

In April the government established the Infrastructure Reference Group to work with local councils and businesses to identify a pipeline of $10m-plus projects that could be activated to help support construction activity and the broader economy during the Covid-19 rebuild.

More than 1,900 submissions worth $134b were received and a short-list of 802 projects was presented to ministers in mid-May.

About 150 projects worth $2.6b have been approved in principle and officials are undertaking final due diligence to ensure projects are viable and offer the benefits stated by applicants. Another $400m is being retained as a contingency.

The funding – a mix of grants and loans - is expected to unlock a total spend of about $5b and generate up to 20,000 jobs.

The funds were allocated based on the population and the expected Covid impact on regional economies. Projects that support key regional assets, or regional industries, were also favoured.

Otago, where a 10 per cent GDP contraction is forecast, is receiving roughly $260m, the third largest allocation after Auckland and Canterbury at $500mn and $300m respectively.

The region is taking a big hit from the loss of international tourism, with the Queenstown economy expected to contract by more than 23 per cent.

Robertson said the projects selected were also a mix of community and more commercial projects. There was a deliberate choice of small and large projects, and a range in terms of timing so that a full pipeline of work could be maintained for the coming year.

"This funding is not just about the big end of town," Jones said, speaking alongside Robertson.

The ministers today named 12 projects as a sample of the types of schemes being funded.

They could employ more than 1,700 people at a cost of about $240m. Even with the fast-tracking only a handful will start construction this year.

The full list of projects is expected to be detailed in the coming two weeks as project approvals are confirmed.

Among the biggest job-creators in today's list is a $22m contribution to accelerate construction of Auckland City Mission's HomeGround development. Work had begun on that project but had been forced to slow because of a lack of funds.

The Blenheim Art Gallery and Library was another project close to construction that risked stalling, Robertson said. The government is contributing $11m toward the $20m project.

About $55m is going into a roading and land development project in Rotorua, which includes the district council, local iwi and the New Zealand Transport Agency and could create 300 jobs.

Robertson said the project had been held up for years and he said there is "huge" scope for similar projects to unlock urban land developments.

Other projects include construction of a 12-hectare inland port at Whakatu in conjunction with Napier Port. The $20m loan from the government will help bring the project forward by five years. The company wouldn't say what the expected total cost is, citing ongoing negotiations.

The New Plymouth hydrogen project was one of the more expensive in terms of job creation at about $480,000 for each of the 77 positions expected during construction.

Holdom said the project is "brilliant" as it helps maintain the region's specialist heavy engineering capability and supports its fledgling hydrogen sector. It also assists the country's decarbonisation efforts in a way that is positive for the economy.

The switch to a hydrogen-blend will reduce emissions by about 25 per cent at the plant, which accounts for close to half the council's entire emissions.

Holdom noted that the $85m allocated for Taranaki roughly equates to the region's share of the national population.

But if taxpayers in other parts of the country objected to the grant funding, he said they should reflect on the more than $280m of oil and gas royalties the region has provided annually to the rest of the country for decades.

"I think those other regions have done extremely well out of Taranaki."