Government seeks private prison builder, operator

Government seeks private builder and operator for new 1,000-bed prison

By Pattrick Smellie

April 14 (BusinessWire) - Mum and Dad investors look likely to be offered investment opportunities in prison-building as the government unveils its first public-private partnership plan: to build a new 1,000 bed prison at Wiri, in south Auckland, by 2014.

Finance and Corrections Ministers Bill English and Judith Collins unveiled the first part of its long-awaited public-private partnership, reviving at the same time its late 1990's policy of privatising prison services - a move reversed by the last Labour administration which believed the state should run them, even if they cost more and achieved less.

While the Department of Corrections will remain responsible for prisoners held in privately run prisons, today's announcement is expected to be the first of many such PPP infrastructure deals, with English citing the education sector as a possibility. Roading projects are commonly built internationally under PPP contracts.

PPP consortia generally have to stump up their own funds to start a project, with government payments occurring as key milestones are met, creating the potential for a new era of PPP investment funds to appeal to both institutional and retail investors.

No figures were released today, but English said international studies suggest savings of between 10% and 20% can be expected from private operators over the 25 to 35 year life of the proposed contract, which it is hoped may attract Maori capital and service providers, given the high level of Maori imprisonment.

The Treasury identified blow-outs in the prison budget as a major source of previously unforecast pressure on government spending at the release of the Budget Policy Statement last December. This reflects a forecast explosion in the prison population caused by cross-parliamentary support for ever-longer prison sentences for a widening range of offences. New Zealand already has among the highest rates of imprisonment in the world.

Last December's fiscal and economic update from the Treasury identified as much as $228 million a year in new operating expenses to government spending forecasts since last year's Budget, gobbling up 20% of the $1.1 billion Finance Minister Bill English says is available for new operational spending initiatives each year.

Prison construction costing $1.566 billion could be required between 2009 and 2018 on new prisons.

"An additional 2270 prison beds are needed by 2019 to cope with forecast growth in prisoner numbers and the need to replace ageing, existing prisons," Collins said at today's announcement in the Beehive.

"Currently, it costs an average of $91,000 to keep a prisoner for a year. We owe it to taxpayers to actively find ways of reducing those costs while improving standards and security across the board."

Privately run prisons would be required to meet strict outcomes which would see them operating as well, if not better, than publicly run prisons on measures such as rehabilitation and safety inside the prison.

The one previous private prison management contract, at Auckland Remand Prison between the late 1990's and 2004 when the last Labour government ended the arrangement, saw significantly lower levels of prison violence and suicide than was being achieved in the public prison sector, English said.

"A range of PPP models were explored by the government. A custodial PPP, in which the private sector designs, builds, finances maintains and operates the new prison, was found to deliver the best relative value for money," English said.

With Maori very heavily over-represented in the prison population, the government expected PPP consortia would seek to include Maori service providers and other partners.

English said the plans would free up money for other important public infrastructure, and was a key part of the government's drive to get better value from public funds.

(BusinessWire)

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