The new Puhoi to Warkworth motorway is one. So is Transmission Gully, the new Waikeria Prison development and several schools.
They are all public projects designed, built and managed by private investors.
It’s not new, and it’s often controversial, but the public private partnership formula – PPP – is being seen as a way to help fund the multi-billion dollar road and transport projects announced in the last week by the Labour government and the National Party.
Typically, how it works is central or local government contracts out a project to a private company, or consortium of private firms. In return for building it, the private partner will operate the project for 20 to 30 years after it opens, allowing it to make money from it, before returning it to the council or government that commissioned the project.
“This is how we get big infrastructure delivered in New Zealand,” the NZ Herald‘s property editor Anne Gibson tells The Detail.
“We want light rail, we want a second harbour crossing and Wellingtonians need to be able to get in and out quickly and traffic to flow freely. We want these infrastructure assets. The point about them is how the politicians decide we’re going to pay for them.”
The government says it’s too soon to say how the $45 billion plan for two road tunnels and a light rail tunnel across Auckland’s Waitemata Harbour will be piad for, but it’s not ruling out PPPs.
“Every option is still on the table,” Prime Minister Chris Hipkins replied when asked if the funding would include public private partnerships.
National leader Christopher Luxon says part of the funding mix for his party’s newly announced $24 billion transport plan would be private capital.
“There are a lot of pension funds, there are a lot of sovereign wealth funds that want to invest in infrastructure for long term investment returns,” he said.
But PPPs are tainted by stories of cost blowouts, delayed completions and shoddy work.
RNZ senior journalist Ben Strang has documented the saga of Transmission Gully in Wellington, the country’s largest PPP that was overdue and over budget.
“Almost any time a PPP is set up lawyers have a field day and the goal posts shift as to when this project is to be completed because things happen and there’s not much you can do about it,” he says.
Even before the building begins, the project is fraught because the competitive tender process is an incentive to put in a low bid and use cheap materials.
“For instance, there are parts of Transmission Gully that when it opened it were already bumpy, the chip was already lifting on the road. Within two weeks they were already resealing parts of that road. If they had used more expensive materials, if they had used asphalt the whole way it would have been a far more high quality road. Instead, where they could use cheaper materials they did,” says Strang.
The arrangement is risky for both sides, he says, but the private partner has the upper hand, especially once work has begun.
“The difficulty with Transmission Gully is that the route was so difficult, so treacherous in places, took such engineering, dealing with a faultline, dealing with a 100-metre high bridge. One thing that the companies building it knew is that no one would want to take that over from them. You don’t want to finish somebody else’s work.
“So with something like five tunnels in Auckland that’s something you’ve got to think about – once you’ve selected this business or this consortium, if things go wrong is anybody going to really want to take over?”
Strang tells The Detail about which PPPs work well, while Gibson explains alternatives to PPPs that still involve private expertise.
She says a recent deal involving the sale of a PPP package of schools, prison and student hostels to a British-owned operation is a sign of the growing interest of international players in New Zealand.
Gibson recently wrote that local firm Morrison and Co has been cleared to sell the PPP service contracts on 13 government-owned sites, worth $205 million, to an entity owned by International Public Partnerships.
“It gives the buyer a platform, an entree into New Zealand,” she says.
“The benefit to New Zealand is the economic spinoff, getting new assets and also hopefully having all the services of very important parts to our economy, schools, prisons, student accommodation being run really well.”
Hear more about how PPPs work in the full podcast episode.
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