NZ First deputy leader Shane Jones has unveiled further details of the Government's $1.2b Regional Infrastructure Fund.
The Government’s $1.2 billion Regional Infrastructure Fund (RIF) opens to applicants today, though officials are still finalising the assessment process.
The pot will be divided into two parts. There’s $720 million for “resilience infrastructure” – helping to provide for regional resilience in the face of flooding and extraordinary storms, for example, and for the likes of energy security.
The second part is $420m for “enabling infrastructure”: projects that can underpin stronger regional economies and increase lagging productivity.
$60m is set aside for the Government’s “emerging priorities”, a designation that, in the case of the Provincial Growth Fund, proved to be distinctly slushy.
Indeed, some call the new fund a kind of Provincial Growth Fund-lite, by which they mean an unflattering comparison to the $3b fund of the 2017 to 2020 Labour-led coalition Government, also presided over by New Zealand First MP and then Regional Economic Development Minister Shane Jones.
It too was a contestable fund, but its eligibility criteria often looked like a fig leaf for ministers’ fancy.
Jones is now restored to the post of Regional Development Minister, this time in the National-led coalition Government, and sat, seemingly happily, in a Cabinet comprised of some of his most ardent, though now erstwhile, critics.
Speaking to the Herald at length about the fund, he called it a “genuine opportunity” for regional New Zealand to improve the assets and structures – often shared, often shabby – that underpin its ability to thrive, economically.
He stoutly defended his brand of industrial policy. Yes, he accepted, people say the Government is trying to pick winners, but what, he wondered, is the alternative? Leaving New Zealanders in “the small, benighted places” to languish on social security?
They are rhetorical questions. And as they relate to public money for private business, it might well be more productive for working age people to move to market-based jobs, but such policy is not what’s brought Jones to Parliament.
The lessons of the PGF
There have been “learnings”, Jones said, on the often frustrated efforts of the Office of the Auditor-General to bring transparency to the PGF investment decision-making, and moreover to find value in its spending.
“The audit department, who continually rung me [sic] though I was on an enforced sabbatical for three years and out of Parliament, was not happy about perceived laxity around the processes: an insufficient level of paper work and report backs... and I’m not going to argue the point, the point is well made,” he accepted.
He intends, he said, that things be done differently this time. And he appeared to agree, when pressed, that official advice to ministers is a useful yardstick for the public to measure whether funds are well spent, whether or not the advice is not taken.
His home turf of Te Tai Tōkerau (Northland) will have to compete on its own merits for the RIF, he insisted; it received the largest share of PGF funding by far, despite being just one of six so-called surge regions.
He also confirmed that fast-track treatment will not weigh in a project’s favour in accessing the fund, and neither will RIF funding improve a project’s chances of receiving fast-tract treatment.
Who’s eligible
Eligible projects must be outside the metropolitan areas of Auckland, Wellington, and Christchurch, and there are no regions with priority.
The fund is open to both public and private sector entities, including iwi, councils and private business, but it excludes any project with funding from central government. All projects of individual businesses must include co-investment, though no minimum threshold is set.
Jones said it is not for state-owned enterprises: “KiwiRail will have to go knocking on another door.”
Some grants will be made, but equity and debt, which may be on concessionary terms, will be the focus. And the fund’s investments will range, in the main, from $1m to $50m.
$200m of the resilience stream is set aside for flood resilience, and $101m has already been earmarked for particular council projects: mainly stopbanks and floodwalls, chosen from the regional and unitary councils’ case for co-investment in flood management and infrastructure, “Before the Deluge 2.0″. “Three waters” projects are excluded.
The focus is on “hard infrastructure”, but the Budget appropriation is split: $900m for capital expenditure, $300m for operating expenses.
With limited exceptions, eligible projects cannot be under way already, and neither can they constitute “business as usual maintenance”, or fund apprenticeships or similar training.
The Ministry of Business, Innovation and Employment (MBIE) said in a statement that assessment criteria will include implementation plans, project governance, and risk identification and management, but that the full assessment process is “still being finalised”.
Decision-makers
About $400m of the fund will be allocated each calendar year (including the current one) through to the next election in 2026. MBIE officials, within the regional economic development unit Kānoa, with 94 fullime-equivalent employees, will manage the fund.
The cost is $24m over roughly three years (2% of the fund), which MBIE said includes all associated costs, including origination, development, decision-making and contracting.
For comparison, the operating cost of the Provincial Growth Fund was fatter, at $155m (5% of the fund), divided between MBIE ($112m) and the Ministry of Primary Industries $43.2m.
Officials have the power to sign off grants of up to $3m. And the designated Regional Development Ministerial Group will sign-off loans and equity investments of $3m to $35m – the group is comprised of: Jones; Nicola Willis, Minister of Finance; Simeon Brown, Minister of Local Government; Tama Potaka, Minister of Māori Development; and Chris Bishop, Minister of Infrastructure.
The full Cabinet will decide on all investments over $35m.
Remaining loose ends include who will sign-off small loans and equity investments, and the membership of a panel to provide commercial advice to ministers in their decision-making. The panel will be largely (though not entirely) made up of members of the board of Crown Regional Holdings Ltd, the holding company for investments made by Kānoa.
Who’s likely to receive funding and who isn’t
Jones said food production projects, from aquaculture to horticulture and other farming will be well suited to tap the fund. He cited waterside facilities and wharfs, and dams for water storage and greenhouses, among other measures for intensification that would plump production.
”Water storage is something the Prime Minister and I have spoken about, despite my doubting Thomas approach to climate change, the farmers know that their circumstances are changing by the bloody year and if they don’t have water then a lot of them aren’t going to be able to maintain enough revenue out of their farms, but getting water in New Zealand has been a devilish experience...”
NZ First has traditionally tended toward strands of economic nationalism (using government coffers in an effort to centrally direct economic growth is one), but Jones sounds a pragmatic note on foreign investment.
He’d be pleased, he said, if the government money leads more foreign capital into the country, and Act Party leader David Seymour’s planned loosening of the overseas investment rules should help that along.
Jones has also asked the head of Kānoa, Robert Pigou, and his officials to search out frontier projects: early stage and science heavy, where businesses see too much risk and insufficient benefit to working alone. These, he said, are likely to fall under “emerging priorities” and may involve Crown Research Institutes like GNS Science.
He’s especially keen on energy. Biofuels, perhaps. Or, on the zanier side, deep drilling into magma, of which there’s been almost none for the obvious reason of extreme heat and therefore extreme technical difficulty, but which the Icelanders are now beginning to pursue. Currently, geothermal energy is derived from shallow source hot, but not molten, rock.
“There would have to be people who the Crown could work with, who are willing to have ‘hurt money’ as well, but this is the kind of thing I’m thinking about... and of course it’s not risk-free because if it was people like Contact Energy would already be doing it...” Jones mused.
He doesn’t expect any investment for mining and petroleum companies, despite his enthusiasm for reviving the sectors. Investment in peripheral public infrastructure – think of new tarmac for the Hokitika Airport – is as close as they’re likely to come.
Yes, Jones said, he’s aware of interest amongst some of the country’s large natural gas users, such as Methanex, to import supplies – a small-scale liquified natural gas (LNG) import facility is one option.
”I do know that the industry has been tossing and turning as to at what point will the gas price in New Zealand be sufficient to take a punt and bring from Australia the necessary amounts of gas. But when it’s been raised with me, I’ve said, well, you guys jealously guard your commercial sovereignty so get on with it.”
“Every bid in this auction brings us closer to ... ensuring no one in NZ goes hungry."