Use more private funds for infrastructure

Use more private funds for infrastructure, Chapman Tripp tells govt

By Gavin Ellis

Aug. 14 (BusinessDesk) - New Zealand risks falling further behind in its infrastructure development unless it can adopt new tools for funding development and better prioritise the work needed, Chapman Tripp says.

Recent strong and uneven population growth, and a growing tourism industry, has exposed decades of under-investment in roading, housing, and drinking and waste water provision. Those pressures will only increase as the country attempts to play catch-up while also meeting the additional investment climate change will require both in low-carbon power supplies around the country and risk mitigation in coastal areas.

Mark Reese, a partner in the firm’s project finance practice, says the issues are well understood and the government does appear to understand that productivity is being constrained by the lack of investment.

Globally there are funds available and already there are local investors prepared to come up with novel funding models to help. He cited the re-purposing of Crown Fibre Holdings to invest in housing infrastructure, and the decision of the New Zealand Superannuation Fund to bid for the proposed Auckland light rail network, as examples.

Reese says more of that is needed and there needs to be a wider conservation about the priorities for investment and how they can be funded. That could potentially include a discussion of whether the government’s plan to reduce Crown net debt to 20 percent of GDP by 2022 still makes sense in the current environment.

“It’s as good a time as any for the government to be bold and make some decisions now,” Reese said in an interview with BusinessDesk.

“Starting is important.”

Reese was speaking to a 25-page report – ‘Dealing with the Infrastructure Deficit’ - Chapman Tripp has just published. It was timed to coincide with Infrastructure New Zealand’s Building Nations Symposium in Auckland later this week.

In the report the law firm argues that greater coordination is needed to get projects funded and started in a measured way. That longer-term pipeline will in turn allow an already stretched construction sector to build capacity to match, hopefully avoiding the pressure on resources that has pushed up costs and project risks in recent years.

The report argues that both central and local government should be looking more to the private sector to help fund those major projects that can provide investors a long-term, stable cash flow. That would free up resources for investment where private funding may not be feasible.

“The issue here is structural. Local authorities are largely responsible for the provision of growth infrastructure but their funding tools are not well suited to discharging that responsibility, particularly where acceleration is required,” the report says.

“Asset-backed financing offers a tool that works within existing delivery and accountability frameworks, meaning – importantly – that it offers a good prospect of delivery within a reasonable timeframe.”

Last week, Finance Minister Grant Robertson said the government is looking to encourage private investors to participate in building the long-term infrastructure the country needs. It also wants a more coherent, transparent and efficient system for implementing its infrastructure plans.

“You’ll hear more from ministers in the next few weeks about our plans to provide more certainty and clarity around the long-term pipeline of work and an easier way of working with government on infrastructure,” he told delegates at the KangaNews Debt Capital Summit in Auckland.

Reese noted that the government’s decision to rule out public-private partnerships for social infrastructure – such as schools and hospitals – would limit its options.

But he said local government was the area particularly constrained in its funding options, despite its very broad responsibilities.

The potential liability some councils could face to upgrade fresh water, storm water and waste water systems is large and some councils could struggle – either because of their low rating base or other growth pressures some are also facing.

Last month, Hawkes’s Bay Regional Council said it would proceed with a public consultation later this year on options for funding the expansion of the Port of Napier, which it currently owns outright.

The council has signalled it doesn’t have the funds to meet both its environmental plans and fund the $250 million to $300 million of spending the port says it will need in the next decade to meet its growing log, cruise ship and export apple trade.

The council will go to ratepayers later this year on options that could include selling part of the business or leasing the port out long-term to an operator prepared to make that investment.

(BusinessDesk)

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