Phil Twyford has said he would “absolutely” allow infrastructure projects funded by special purpose vehicles (SPVs) to collapse.
SPVs involve setting up a separate entity, distinct from the Government, which can borrow on its own balance sheet and then recoup that cost over time through special levies or user charges.
But they have attracted controversy because their borrowing costs are usually greater than if the Government borrowed on its own balance sheet.
This additional cost is in recognition of the SPV’s elevated risk relative to the Government’s, whose balance sheet is backed by powers to raise tax and other forms of revenue.
Critics of SPVs say this additional cost masks the fact that the Government is unlikely to allow an SPV financed project to fold, and would instead bail it out.
But Twyford, who is Minister for Transport and for Housing and Urban Development, said he would allow such projects to fold.
“If a developer builds a development and they finance the infrastructure privately to enable that development they carry the risk,” Twyford said.
“The SPV is just a balance sheet so the entity owns it, not Government,” he said.
Asked whether this would mean roads being left unbuilt, and pipes unfinished, Twyford said he believed someone else would probably buy most of the developments and finish them off.
Private-public partnerships
Twyford also touched on the future of public-private partnerships (PPPs), like the Auckland light rail project.
He said he was open to the Government funding those projects itself, if a good case could be made.
“That’s one of the options,” he said, accepting that funding the project on the Government’s own balance sheet could be cheaper than allowing the private sector to finance projects.
The New Zealand Superannuation fund had approached the Government about investing in the light rail project alongside a Canadian pension fund.
But Twyford said his decision-making on PPPs wasn’t just guided by the Government’s Budget Responsibility Rules, which commit the Government to keeping net debt at just 20 percent of GDP.
“Even if we got rid of the BRRs tomorrow that wouldn’t solve the problem we couldn’t borrow enough money to meet the infrastructure needs for the next decade so you need more money,” Twyford said.
The Minister also said he believed PPPs were a useful way of making sure transport infrastructure was allocated according to demand. The private sector was unlikely to fund projects where there was no demand for them.
…but wait, some PPPs are safe
The Government’s big SPV projects are being delivered by Crown Infrastructure Partners, or CIP, a crown entity developed to help fund infrastructure projects.
This means that projects like the Milldale project in Auckland, which the Government announced in November as a new way of financing infrastructure would likely be bailed out, should they fold.
Twyford said projects funded through CIP, which was “essentially a Government entity”, would likely be bail out.
The Government had also put $4 million of its own money in to the Milldale project.
The Transport Minister’s comments were made during a Newsroom interview which will run in full over the summer break.
