Govt fast-tracking PPPs to make up 'lost decade'

Finance Minister Bill English

New Zealand is a decade behind other countries in using public-private partnerships to accelerate, manage risk, and get value for money from big national infrastructure investments, says Finance Minister Bill English.

English used a speech to the New Zealand Council for Infrastructure Development in Wellington this morning to confirm the Government's intention to make extensive use of so-called PPPs, in which private investors share in both the risks and commercial upside of building public infrastructure.

The Government would remain the primary funder, with Australian trends showing an 80/20 split between government and private funding in PPPs.

While English identified PPPs and infrastructure development as essential to a more productive, competitive economy, the first area to receive the PPP treatment in earnest will be the prison system, which is busting at the seams from an exponential rise in prisoner numbers caused by ever harsher criminal sentencing policies.

"There is a range of opportunities for more private sector participation in prisons - from the current approach where input is limited to construction, right through to designing, financing, building, maintaining and operating facilities.

"We've asked Corrections to look at alternatives to conventional procurement for delivering new prison capacity, including a new prison. We're happy to proceed with that if the case stacks up, with decisions taken early next year."

English said infrastructure investment had been falling in almost areas of the New Zealand economy since the 1960's and 1970's, with the exception of communications.

To deal with that, the Government already had NZ$7.5 billion in planned infrastructure spending on the books over the next five years, and would use the Treasury's newly established National Infrastructure Unit to produce a national infrastructure plan, the first draft of which will be published early next year.

The plan would be neither a "shopping list" nor seek to over-ride other planning already in place.

"From the Government side, it will allow us to take stock of our spending and relevant infrastructure-related regulations, ensuring this is appropriate and contributing to productivity," English said. "From the industry's viewpoint it will provide some direction and certainty about where the sector is headed. Private sector participants have long been calling for such a document."

As a "late starter" with PPPs, New Zealand had the opportunity to adopt world best practice and learn from others' experience, especially Australia, to catch up a "lost decade" in which PPPs had been shunned for political reasons.

A key advantage of PPPs was their capacity to share the large design, patronage and construction risks inherent in any major infrastructure project, English said. He hoped that Australian experience would allow "a more sophisticated debate" about the use of PPPs than had so far occurred in New Zealand.

Australia's first private public partnership projects were completed more than 20 years ago, with all states participating and Victoria being "the acknowledged leader".

"Since 2000, around 50 major PPP projects worth about $30 billion have been completed in Australia," said English. "They range from the traditional road, rail, water and energy, through to areas such as defence facilities, hospitals, schools, prisons and radio networks. Total Australian infrastructure spending is running at around A$50 billion a year, or almost 5 per cent of gross domestic product."

- BUSINESSWIRE