Prime Minister Christopher Luxon speaks to media after the first day of the Infrastructure Investment Summit at Auckland's Park Hyatt hotel. Photo / Sylvie Whinray
THREE KEY FACTS
They say competition is the most important ingredient of capitalism, but the great and the good of international infrastructure investment gathered at Auckland’s Park Hyatt hotel were probably surprised by the kind of competition New Zealand’s politicians had on offer.
In one of the first speeches at the conference, Finance Minister Nicola Willis said rebuilding the economy was crucial to “create great jobs for our kids”, a point that was particularly poignant for her as a “mother of four children aged 9, 12, 13 and 15″.
“In a world of abundant choices I want them, and all young Kiwis, to see this as a country of aspiration, a place they will choose to make their home,” she said.
Her opposite number in Labour, Barbara Edmonds, told investors, “I too have many children”.
She joked that between Willis and herself, “we have a football team and a reserve”.
“Eight children in nine years and no twins – so I too have a lot invested in the future of this country,” she told investors in her speech.
Not to be outdone, Resources Minister Shane Jones took to the lectern and said his family included eight children and 21 grandchildren.
Jones joked that as people complained about the superannuation burden in light of declining birthrates, he could hold his head high, having done his bit.
There was a good chance things might not have been so jovial. There were a lot of hurt feelings in the room.
The summit included representatives from Hyundai, the jilted shipbuilders integral to Labour’s project iRex Interisland ferry replacement project, whose $551 million contract was cancelled when Willis denied additional funding.
Then there were the representatives of CPB and HEB, partners in the Transmission Gully PPP, dubbed an “appallingly designed and negotiated public-private partnership” by then-Finance Minister Grant Robertson, whose successor was Labour finance spokeswoman and aforementioned speaker Edmonds.
There were representatives from CDPQ, the Canadian pension fund that came very close to building and operating the Auckland light rail line with the NZ Super Fund had NZ First not scuppered the deal (which National had severely criticised).
And then there was Chris Liddell, Donald Trump’s former Deputy Chief of Staff and former National leader Judith Collins, who once used his connections to the Trump administration as reason not to back his candidacy for the OECD. Both were in the room.
But everyone was in a good mood.
CDPQ’s managing director for infrastructure in Australia, Jean-Étienne Leroux, said he was attracted to New Zealand for its “rule of law, predictability [and] stability”. When asked about the light-rail disaster, Leroux let bygones be bygones, saying he felt very “welcome” in New Zealand.
Prime Minister Christopher Luxon said Liddell’s presentation was “very thoughtful, very considered”. “Thank you so much mate,” he said.
The conference even had Shihad fan Chris Bishop (he will see the band three or four times this week) saying something nice about opera, praising New Zealand great Simon O’Neill’s performance of Nessun Dorma at the gala dinner on Thursday night.
The conference has been a success, politically at least. The Government got a good crowd into the country and most of the investors with whom media were allowed to talk (media were barred from the main room) were happy to be here and keen to stay long-term – a big win for a country that is haemorrhaging construction workers despite having an infrastructure deficit of $200 billion by one estimate.
Whether the conference is successful in a more substantive sense is a question that will only be answered in a few decades’ time when New Zealanders glide through the gridlock-free streets of Auckland, over (or under) Auckland Harbour to Whangārei on four lanes of expressway – or perhaps spend time in the new block at Christchurch Men’s Prison, a PPP.
The Government wisely decided to flood this week with infrastructure announcements, most of which were substantive.
On Sunday, it announced Public Works Act reforms offering cash incentives to settle purchases quickly and limiting appeal rights.
On Monday, it announced the opening of expressions of interest in the Northland Expressway PPP.
On Wednesday it announced it would reform the FIF regime, encouraging wealthy foreigners to stay in New Zealand by limiting the tax they would pay on their offshore wealth.
On Thursday, it announced the first three fast-track projects to go before consenting panels, the commencement of a PPP for a Northland dry dock and for a new development at Christchurch men’s prison, and a plan to procure from the private sector some of the $7b in health infrastructure in the infrastructure pipeline.
On Friday, it announced it was looking to bring in offshore expertise for the second Auckland harbour crossing.
Laced through these announcements were expressions of interest from foreign investors, including Australia’s Plenary, who committed to bidding for five PPPs in the next five years, including the Northland Expressway. Italian Webuild and Malaysian Gamuda were also a part of that consortium.
Meanwhile, a rival consortium, including Spanish infrastructure group, Acciona, was being put together to bid on the same project.
The summit wrongfooted Labour, whose appearance had been touted as evidence of New Zealand’s bipartisan approach to infrastructure.
Edmonds made noises about supporting some PPPs in certain non-critical areas (that were not core social services). She also reassured investors it would not rip up any PPP contracts signed by the coalition if it takes office.
However, under questioning, Edmonds made those parameters sound like they would exclude almost every likely PPP.
“[For] public infrastructure like schools, hospitals, prisons and critical infrastructure such as the [interisland] ferry, we say ‘no’ to PPPs,” Edmonds said, declining to add whether this included projects like the new Northland dry dock.
Under questioning, Edmonds’ promise not to rip up contracts weakened – she would not confirm whether the pledge extended to contracts to build and run projects like prisons, or whether the pledge was only to continue with contracts that were limited to building.
“I’m not going to rule anything in or out regarding specific contracts. We would need to look at it when the time comes,” she said.
Labour, which was represented by Edmonds along with Megan Woods, Kieran McAnulty and Peeni Henare, came under pressure from its own flank with Public Service Association (PSA) national secretary Fleur Fitzsimons saying PPPs cost too much money and put workers at risk.
“Private companies need to make a profit. They do this by reducing service levels, staffing and wages and conditions,” she said.
Other Labour-affiliated people offered criticism, such as Council of Trade Unions (CTU) economist Craig Renny, who sits on the policy council.
“There is no financial case for PPPs in New Zealand where the Crown can borrow more cheaply”, Renney said.
“We will all pay more in the long run,” he said, citing the Government’s own PPP framework, which said PPPs should not be thought of as a “financing tool”, noting that spreading the cost of infrastructure over multiple years could be achieved more cheaply by government borrowing.
What the strategy did say, however, is that PPPs can create higher-quality infrastructure delivery by creating “stronger commercial incentives”.
Edmonds, perhaps keen to reassure nervous members of Labour’s opposition to PPPs, sent out a fundraising email minutes after the conference closed, saying Labour opposed privatisation of health and education.
What the summit did not resolve was the tension inherent in New Zealand’s approach to PPPs. Opponents of the model are right, almost everyone agrees, that PPPs tend to cost more than Government-delivered projects. New Zealand’s two PPP roads cost the country more than $200m a year in contracted payments to the private partners.
PPPs do, in the view of proponents, bring better-quality infrastructure, maintenance and commercial discipline, a view supported by experiences in Australia and Canada.
The challenge here, however, is that in order to be an enticing market for PPPs now and in the future, New Zealand needs to get ready to offer rather more of them than we do currently.
As Morrison chief executive Paul Newfield told the Herald this week, firms interested in PPPs “are unlikely to come across to New Zealand and make an effort to actively engage in the market for one project or two projects”.
Doing more than “one or two” projects, however, is expensive. According to Craigs Investment Partners head of investment banking Brett Shepherd, between $50b and $100b is what really “moves the dial” for global infrastructure investors. No New Zealand government has that kind of money to throw around and none would be likely to have the workforce to build those PPPs even if it did.
Luxon seemed very open to a great many PPPs. When asked whether there might be “hundreds” of PPPs procured in the health and education sectors, things like small school and hospital projects, Luxon said “how it works is a pipeline ... whether it works for us as a government and whether it works for the investor as well, it’s not about an aggregate sort of commitment”.
The conference was successful in bringing investors to New Zealand and getting them interested – and it may also have encouraged both Labour and National to inch closer to an armistice on cancelling each other’s projects. It seems likely several investors will bid to build important infrastructure projects. But the cost and workforce challenges that existed before the summit will exist long after it.
Fixing those problems is a long-term infrastructure project all of its own.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
Luxon has reached his target for reducing victims of violent crime four years early.