KEY POINTS:
David Morris was right - it's true the Government can borrow money at a cheaper rate than the private sector for roadworks. But cheaper money does not necessarily mean better value.
The cost of a project also needs to embrace the overall value achieved, such as a higher quality and better maintained infrastructure over the longer term, or completion in a guaranteed time frame.
Reasons for considering a Public-Private Partnership for a large costly project are about obtaining the best value across many factors - quality of service delivery, design, construction and also price.
In essence, these partnerships are about transferring risk to the party in the partnership best able to carry it for the benefit of the project while government retains full control over service outcomes.
Typically that means transferring risks associated with financing, design, construction and ongoing maintenance of the asset to the private sector. If it is a toll road, the private sector also carries the risk as to whether traffic volumes meet expectation.
Governments around the world are increasingly using these partnerships to have the best of both worlds - they can make use of private sector money freeing up public funds for other things while still setting the conditions the project must meet.
If a PPP fails or underperforms, then the private sector carries the cost or isn't paid until key performance standards are met.
This recently happened in a Cross City road tunnel in Sydney, where the private sector financiers lost hundreds of millions when less traffic than forecast used the road. If the project had been funded by the New South Wales Government either as a free or tolled road, every taxpayer would have helped pay the bill.
This is at the heart of why public money is cheaper than the private sector. The Government's ability to borrow money more cheaply is purely a function of its capacity to levy taxes to repay borrowings.
Credit markets perceive this power as reducing the risk of their investment and therefore will lend to government at lower rates.
In the case of private sector borrowing, however, capital markets explicitly price in the risks of a project into its source of finance.
Given the higher risk incentive for private sector investors to perform, it is hardly surprising that a recent Australian study into some of the myths surrounding these partnerships concluded that overall PPPs are completed under budget and earlier.
In contrast, public sector funded projects are more likely to face delays and budget overruns. Cost overruns, time delays or performance failures are not priced into the government borrowing rate. Government and credit markets know that taxpayers - you and I - will pick up the bill.
Another incentive for introducing PPPs here is the assessment of the potential contribution of the Waterview Connection project to the Auckland economy. When completed it will contribute $800 million a year to the region's gross domestic product.
There is a lot we can learn from Australia's experience with PPPs. The Waterview Connection Procurement Steering Group Project we participated in looked at the value for money of PPPs in Australia.
Importantly we found that the State government projects will only proceed as a public-private if it is assessed to provide better value compared to what the same project could achieve under a more traditional procurement method.
A good reason for partnerships is also that there is a long queue of large transport infrastructure projects on the horizon.
Obvious examples with major funding shortfalls include completing the Waikato Expressway, the Tauranga Eastern Motorway, Transmission Gully and north and south motorway extensions in Christchurch, Auckland's Western Ring Route, the Auckland Manukau Eastern Transport Initiative and some very large and expensive rail developments.
