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Private sector and infrastructure financing

November 9th, 2004

Private sector delivers more bang for infrastructure investment buck

Private financing of infrastructure assets has delivered significantly improved value for the funds invested compared with traditional public sector procurement, a report finds.

The study Private Financing of Public Assets by Auckland solicitor and infrastructure specialist Robert Lonergan, was commissioned by the New Zealand Council for Infrastructure Development (NZCID) chaired by Hon. Jim McLay.

Mr Lonergan is a Senior Associate with law firm Bell Gully with extensive experience of privately financed Private Public Partnership (PPP's) projects in the UK, Europe and the Middle East. He has contributed to several international publications on construction and infrastructure issues.

Mr Lonergan's analysis which is the first discussion paper to be issued by the NZCID, explores the wealth of available case study material on PPP's, and which leads to the following:

* Private financing has significantly boosted value for money compared to traditional central or local government procurement for which the capital costs are funded wholly by the public sector.

* Private sector financing has increased the number of projects delivered on time and within the public sector budget.

* Private financing successfully transfers project risk to the private sector away from publicly funded projects. In some cases the private sector has borne financial losses that tax and rate payer funding would normally have carried.

* However private financing is suitable only for projects with certain characteristics mainly regarding scale.

In rejecting recent criticism suggesting PPP's could lead to some taxpayer liabilities, and that overseas experience showed they pose unacceptable risk to public services, the paper says:

"It would be quite wrong to suggest that private financing is a 'magic bullet' for public procurement and public services.' But it adds that "even if private financing can deliver a part of the gains evidenced by overseas experience then its use will be well justified."

The full paper is available on www.nzcid.org.nz

ENDS

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