We continue our 12 questions about Three Waters. Could the infrastructure be routinely placed in new ‘special purpose vehicles’ like those being used to finance housing at Orewa and roading in Tauranga?

At the start of this month, the Government announced the creation of the first special purpose vehicle created under the new Infrastructure Funding and Financing Act.

The new company will raise finance from private markets to build 13 transport projects around Tauranga, then repay the debt by charging a levy on those who benefit from the infrastructure. Tauranga City Council’s balance sheet will never see a cent of the money – not the debt, and not the levies raised to repay it. 

The announcement came as Newsroom was talking with the experts on the big questions about financing the Three Waters reforms. Ratings agencies S&P, Fitch and Moody’s discussed the impact on ratepayers, taxpayers, and on those consumers whose water charges will pay for the highly leveraged borrowing of the four new water corporations.

1/ Paying for Three Waters: the local pūkeko v the imported partridge
2/ Who would actually manage the borrowing for Three Waters infrastructure?
3/ Three Waters’ magical kete with room to borrow more and more
4/ On the 4th day of Christmas, what’s so good about four water companies?
5/ Achieving the gold standard of balance sheet separation
6/ Driving through water reforms in new special purpose vehicles
7/ Govt sticks to ‘bottom line’ of balance sheet separation – but why?
8/ If councils retain Three Waters, how much will they have to raise rates?
9/ The silly Ministry of Water Works – and its serious side
10/ On the 10th day of Christmas, should Three Waters become two?
11/ Too big to fail – calls for Govt to guarantee Three Waters debts
12/ Paying for Three Waters: ‘It’s always gonna come back to you in the end’

And we also asked three top independent experts to assess the pros and cons of the Government’s financial model, and some of the alternative proposals. They were legal expert Josh Cairns, a partner at Simpson Grierson; finance advisor Bevan Wallace, executive director of Morgan Wallace; and former Three Waters transition programme leader Amelia East, Asia-Pacific head of advisory for HKA infrastructure consultancy.

More widely, there were sceptics who questioned whether the new Infrastructure Funding and Financing Act would ever result in any large-scale regional project, saying such funding had been slow, bureaucratic and expensive.

So the Tauranga roading announcement was somewhat of a vindication for those involved.

“The Infrastructure Funding and Financing Act was not designed to be a business-as-usual financing source for councils so is not – by itself – a solution to financing Three Waters infrastructure across the whole country at scale.”
– Josh Cairns, Siumpson Grierson

One of those was Josh Cairns, whose law firm had been advising the Treasury on the Infrastructure Funding and Finance model since its inception in 2018. “It’s really rewarding to now see it in action as it starts to deliver important infrastructure projects to support growth across Aotearoa,” he says.

“Without the model, otherwise viable and much-needed projects – like those in the Western Bay of Plenty Transport System Plan – would be much more difficult for the council to achieve within its debt limits,” he says.

But even Cairns, one of the biggest champions of the special purpose vehicle model, is a doubtful it could work at the scale of New Zealand’s nationwide Three Waters scale.

Yes, he says, the Infrastructure Funding and Financing Act includes Three Waters infrastructure, as well as transport and environmental resilience infrastructure. And it’s possible for councils to retain ownership of infrastructure financed through the Act. 

“But it was not designed to be a business-as-usual financing source for councils so is not – by itself – a solution to financing Three Waters infrastructure across the whole country at scale,” he says.

“In order to use the Infrastructure Funding and Financing Act, a council needs to prepare a levy proposal that must be approved through Cabinet. That’s a workable process for particular infrastructure projects or programmes in areas of high need, but not for day-to-day borrowing requirements for all councils.”

Bevan Wallace, executive director of investment advisor Morgan Wallace, likens the proposal to the electricity reforms of the 1990s. “Such special purpose vehicles would mirror the electricity distribution sector reforms and as a consequence you would then likely see sector restructuring through mergers and acquisitions that would likely deliver a commercially aligned outcome rather than a politically orchestrated one.”

Would the Government allow such mergers and acquisitions at the expense of local representation?

Wallace responds drily: “I can’t answer what restraints this or any future government might impose on fundamental property rights.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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