While public-private partnerships (PPPs) have been welcomed overseas, New Zealand is late to the party; the public is missing out on the infrastructure that could be provided, and the economy isn’t benefitting from the stimulation PPPs create.
PPPs deliver on many fronts. The use of private sector capital frees up Government (or local government) cash flows, while private sector expertise ensures projects are best in class and built to private sector standards. Generally speaking, the private sector with its scrutiny on the use of capital, will deliver on-time and within budget. The asset generated provides a facility for public use, while returning an investment stream to the private sector partner. PPPs also stimulate the wider economy.
Back in 2007 the Vector Arena project brought together the Auckland City Council, Quay Park Asset Management and Mainzeal to deliver a facility that will be transferred back to ratepayers in 2047. In the meantime, the Auckland region can enjoy the benefits of a 12,000 seat, world-class, multi-purpose, all weather arena. And a new inner-city sports stadium for Auckland could create another perfect PPP opportunity – the deliverable this time being a completely different stadium in our largest city, with good transport links and great public access.
So why aren’t we seeing more PPP solutions being delivered elsewhere in New Zealand?
Surely it’s time for less debate and more action, given that the world is awash with capital looking for a home, and New Zealand needs more infrastructure. Hospitals, prisons, schools and roads all make sound PPPs because they can deliver a consistent return on investment over a 20 to 40 year period, and all are for the national good.
The issue in New Zealand may be insufficient experience with PPPs and not enough political engagement. If we’re talking about business disruption and old models being no longer fit for purpose, PPP solutions have to be on the agenda and get more airplay.
This is where Budget 2016 could have an impact. The Government must articulate and actively promote the benefits of entering into PPPs because of the capital investment they deliver with no additional borrowing. With no mention of PPPs in the Budget speech since 2011, its time has come.
After seeing the success of the Hobsonville School PPP, the Ministry of Education has signalled its intent to create six new schools using PPPs (in Hamilton, Auckland and Christchurch). But the opportunities are far broader: think cross-harbour tunnels, rapid transit solutions, hospital research centres and those parts of the Christchurch rebuild that are still at concept stage.
The Budget challenge is for both the Government to identify the need, and for the private sector to embrace it.
As more PPPs are successfully undertaken, hurdles will diminish and the expertise in implementation will grow. In other countries, including the United Kingdom, PPP implementation is a specialism we simply aren’t seeing in New Zealand.
And just in case you are interested – yes there is comprehensive accounting guidance in this area to ensure that the economic substance of any PPP arrangement is fairly stated.
While not strictly a PPP, the proposed cash injection from ACC and the Super Fund into NZ Post to enable Kiwibank to extend its lending was a smart redistribution of capital. And that’s also the way PPPs should be assessed from a Government’s perspective.
A win-win, you might say, much like a well-executed PPP.