Opportunity is knocking

Public-private partnerships provide the means to increase the efficiency and quality of infrastructure development, writes

It’s rare that a major public-private partnership (PPP) in New Zealand doesn’t attract debate about whether major infrastructure is best undertaken by the public or private sector.

The procurement, management and ownership of critical infrastructure can be a politically and ideologically charged issue.

Those promoting PPPs believe it shouldn’t matter who delivers and manages the infrastructure as long as it delivers better services and better value for New Zealanders.

Ideally, it should also provide an injection of ideas and efficiencies from the private sector that can be used in new and existing state services to raise the bar of performance and deliver better outcomes.

In a well-conceptualised and executed PPP, the public sector learns from the private sector … and vice versa.

In New Zealand, PPPs have been used in prisons (Wiri and Auckland East), two schools projects (one completed, one in construction, with a third at bidding stage) and two roading projects (Transmission Gully and Puhoi to Warkworth — not yet completed).

We have also seen the first social housing tender in Tauranga awarded to the private sector, albeit not a standard PPP approach.

To its credit, the National Infrastructure Unit (NIU) and the relevant government departments are seeking to take the learnings from each PPP process and apply these across the entire sector.

They are also taking these learnings into each new bid phase. We are now into our third schools PPP, and each time the NIU and Ministry of Education have sought to improve the process and outcomes.

When the Wiri Prison PPP closed, the Department of Corrections prepared a report on “Lessons Learned“. Corrections chief executives Ray Smith stated: “It (Wiri) is a flagship project for the department, and very important for our goals of reducing reoffending, lifting overall performance across the department and ensuring better public value.”

Corrections was keen to see where innovation from the Wiri bid could be utilised elsewhere.

Another key objective of the PPP programme has been to increase levels of innovation and attract international experience in infrastructure — not always easy in a country a long way from the larger markets and with so much infrastructure activity globally competing for resources.

New Zealand has attracted experienced international infrastructure players in the larger projects. In the most recently awarded PPP, the Puhoi to Warkworth roading project, the three shortlisted bidders contained global companies such as Acciona Concesiones and Ferrovial Agroman from Spain, VINCI from France and CPB Contractors from Australia.

One market participant said New Zealand would not have seen such global players participate in the project if it had been a conventional design and construct tender.

It is the scale and size of PPPs but also the broader opportunity including ownership and operational management of the concession that attracts greater international interest.

This would have been New Zealand’s loss if they had not been involved.

We need perspective around the approach to increased private sector involvement in the management and ownership of such assets as it will always be a small portion of govern- ment assets, operating and capital expenditure in these sectors.

The Ministry of Education and New Zealand Transport Agency have assets of $12.6 billion and $31b respectively. The PPPs represent less than 5 per cent of these assets in both cases.

The ministry has an annual operating budget for schooling of $7.7b, and we estimate annual payments for schooling PPPs would represent less than 1 per cent of this.

It is often forgotten in the infrastructure discussion that PPP assets return to full public ownership after the typical 25-year term of a PPP concession. At the centre of any discussion on the best approach to procurement of infrastructure should be obtaining best practice.

The NZ Council for Infrastructure Development has led successful missions to Australia, UK and most recently Canada to see first hand what innovation is occurring in infrastructure.

Delegates had the opportunity to meet key participants from both the private and public sector and can then provide feedback to New Zealand industry and to the Government.

The next mission travels to Scotland in March 2017. Scotland has pioneered innovations in infrastructure, including the UK’s first Private Finance Initiative and now via its own PPP model, the non-profit distributing approach.

Scotland has also led new thinking on infrastructure governance, consolidating urban water services under a single national provider, Scottish Water, and procurement via the Scottish Futures Trust and its bundled approach to procurement.

Like other nations, New Zealand has an opportunity to use PPPs to attract and tap into global innovation and harness the technology, knowledge and innovation that flows from such projects, and apply it elsewhere in the public sector. It’s an opportunity we should take full advantage of.

Patrick Brockie is chairman of the NZ Council for Infrastructure Development (NZCID)