Infrastructure Minister Chris Bishop during a break in the Investor Summit.
Infrastructure Minister Chris Bishop during a break in the Investor Summit.
Opinion by Simon Wilson
Simon Wilson is an award-winning senior writer covering politics, the climate crisis, transport, housing, urban design and social issues. He joined the Herald in 2018.
Let’s be honest. There is only one reason the Government wants to use PPPs (public-private partnerships) to get stuff done. It’s this: If private-sector partners finance our infrastructure projects, the Government doesn’t have to find the money for them now.
Things getbuilt, and the Government can paint itself as both a disciplined guardian of the public purse and an effective promoter of growth and development.
And it wants road tolls to do the heavy lifting to make this plan work. But would you pay a $20 toll, or more, to drive only as far as the Brynderwyn Hills?
In the wake of last week’s International Investment Summit, experts from the construction and finance sectors have fallen over themselves to welcome the news that PPPs will rule the day.
Well, of course they have. They’re going to benefit.
Quite a lot of independent commentators also welcome the news, which is more surprising.
PPPs are notoriously complicated; armies of lawyers get involved. But there are some simple truths it’s useful not to lose sight of.
Whether it’s the Government or the private sector borrowing to pay for a project, taxpayers will have to pay that money back.
As Infrastructure Minister Chris Bishop told another conference just yesterday, “PPPs are not magic money. It’s not free. It’s just a procurement method.”
The Government can borrow money more cheaply than anyone else. It’s paying 4.7% interest on 10-year Treasury bonds right now, while the private sector is paying upwards of 8%.
Largely because of this disparity, a British parliamentary study in 2011 found PPPs were likely to end up costing twice as much as other comparable projects.
The advantage to the Government is that the higher price doesn’t have to be paid for 20, 30 or even 50 years. It becomes your children’s problem, when the politicians who made it so are no longer around to answer for it.
Bishop told the conference yesterday that his Government will use PPPs “only if they are the same price or cheaper over the whole life of the project”.
That’s pretty interesting, because the evidence this is possible, like the money itself, is not falling out of the trees.
PPPs do not remove risk
As a rule of thumb, the more a PPP requires a private company to take on the risks of a project, the higher the price will be. The company must cost those risks into its contract or it won’t take on the work.
This also pushes up the price we pay, but it still doesn’t remove the risk.
As Craig Renney, from the Council of Trade Unions (CTU), has noted, often the risk isn’t settled by a PPP. “Instead,” he says, “what you get is ‘risk ignorance’. No one actually knows where real risk lies until you end up in court.”
Council of Trade Unions (CTU) economist Craig Renney. Photo / Mark Mitchell
PPPs are not better for whole-of-life management
Yesterday, Bishop said New Zealand is the fourth-worst country in the OECD at maintaining its infrastructure assets.
“The great advantage of the PPP model,” he said, “is that you can lock in the maintenance over 25-30 years and make them do it. You have to pay for that, of course, but the work gets done.”
But potholes and rotting hospital buildings are not caused by an absence of PPPs. They’re the direct consequence of Governments abandoning maintenance in favour of paying down debt.
And it doesn’t follow that PPP contractors will necessarily do it better. Their priority is to make a profit and if that means manipulating the contract to avoid ongoing commitments, who’s to say they won’t do it?
PPPs are not a guarantee of whole-of-life maintenance - proper funding, good contracts and good regulations are.
Perhaps there are PPPs that will make good sense for us, as taxpayers and/or as users of the new infrastructure. But public debt in this country is relatively low and the credit-rating agencies say the Crown could borrow tens of billions more. We don’t have to be beggars.
PPPs contribute expertise
This is true. PPPs are typically set up with consortiums that include local and international firms. Between them, they offer a mix of local knowledge, international experience and efficiencies of scale.
But non-PPP projects are typically set up like that, too. The tunnellers at the Ministry of Works’ Tongariro power scheme in the 1960s and 70s were Italian; the CRL and Waterview projects, both Government-led, brought in tunnellers and all sorts of other experts from overseas in exactly the same way.
The problem for New Zealand has been that when those projects are done, the experts leave. It’s disruptive and it adds significantly to costs.
This can be resolved by ensuring there’s a pipeline of work and the Government and Opposition are both, at least in theory, committed to creating such a pipeline. But it won’t need PPPs to succeed.
Case study: Tolling the Northern Expressway
The infrastructure crisis in New Zealand is not about procurement methods or even about money. It’s about a skilled-worker shortage, public mistrust (sometimes well founded and sometimes not), regulatory shortcomings and weak political leadership.
It’s also about ideology getting in the way of good planning. Take the Northern Expressway (NX, or Ara Tūhono), which the Government wants to build through PPP contracts, using tolls to offset the costs.
It’s a “Road of National Significance” (Rons) and will extend from Warkworth to Whangārei, 100km away.
NX will be built in three stages, the first of which was presented to the summit. Presumably, to lip-smacking glee.
It’s 26km along a route of extremely difficult geology, sited to the east of the current state highway, and will include an 850m tunnel and three massive interchanges. Bores have been drilled up to 150m deep to learn more about the land that lies beneath.
The most recent costing comes from the Ministry of Transport in late 2023: $2.9-$3.8 billion. This one bit of the highway is in the running to become the country’s most expensive transport project behind Auckland’s CRL.
The argument for it is that Northland has unreliable and dangerous transport links to the rest of the country and this stifles its economic development. That is true.
Joe Carr, chairman of the Northland regional transport committee, has called the proposed expressway a “game-changer”, as the road carries “huge volumes of freight and 790,000 tourists a year to the region”.
What's the best way to get there?
Those “huge volumes” are less true. There are only 15,000 vehicles a day on the Warkworth to Te Hana road, of which a little over 10% are freight. Only about 10,000 of those vehicles continue over the Brynderwyn Hills.
Non-motorway arterial roads all over Auckland routinely carry far more. Dominion Rd, for example, has 25,000 a day; Lake Rd in Takapuna has 32,000 and Ti Rakau Drive has 35,000.
The most recent business case for NX, from 2020, says that every dollar spent will provide only 70c in benefits.
It might be a road of national significance, in the sense that Northlanders should not be so isolated. But it’s ideological nonsense to pretend it’s a road of national economic significance.
The Government’s answer to this conundrum is tolls. Get the users to help pay for the road.
Here are the NX numbers on that.
The road already has a toll: the Gateway Toll just north of the Orewa turnoff. That section cost $360m to build and carries 24,000 vehicles a day. The tolls are $2.60 per car and $5.60 per truck, and over 25 years are expected to contribute $158m, or 44% of the original cost.
A third of the total revenue is gobbled up by the toll operation itself: it’s a figure NZTA is trying to reduce. If it succeeds and pushes that toll contribution from 44% up to, say, 50%, that seems a reasonable outcome.
The new Penlink road will also be tolled and also has the potential to return about half the original cost.
But for Warkworth to Te Hana it’s a very different story. With 15,000 vehicles on that section of the road but only 10,000 going over the Brynderwyn Hill, it’s reasonable to assume about 5000 of the vehicles are travelling locally.
Few of them will want to pay a toll, especially as the current state highway linking all the towns will remain as an alternative.
For a road that costs $4b to build and carries 10,000 vehicles a day, a toll that returns half the original cost over 25 years would be ... over $20 per vehicle.
Then they’ll build the Brynderwyn section, which will be very expensive, and toll that. And then they’ll do the last section into Whangārei and they’ll toll that too.
Anyone fancy a $50 toll to drive to Whangārei?
No Government would countenance that. So the toll will be much lower, contributing little to the overall cost of the road, and taxpayers will end up paying more.
Carr’s committee would like to see a three-lane highway from Te Hana to the Brynderwyns. That’s a single lane each way, separated by median barriers, with alternating passing lanes.
That could be built all the way from Warkworth to Whangārei. Far cheaper, far quicker to get done, and with all the efficiency they need. They could finish making the rail line fully functional too; much of the work has already been done.
PPPs aren’t the solution for the Northern Expressway, but a bit of disciplined creative thinking could be.
