With a national infrastructure deficit that would take three decades to fix – even if we were able to immediately pour $31 billion a year into it – it’s time to consider creative solutions, says BNZ’s head of infrastructure, government and specialised finance Susan Lucking.
Also a board member of Infrastructure New Zealand, Lucking says that to accelerate the infrastructure build we need to take a more long-term, coordinated approach or suffer lost productivity and a diminished standard of living. We also need to consider all of the available tools at our disposal, including public-private partnerships (PPPs). This is not a problem that the government alone can solve, she says.
“When talking about the infrastructure need, we typically think about the need to expand our roading network or building new schools and hospitals, however it is much broader than that. The deficit is readily apparent when we look at issues with our drinking water quality, overflowing stormwater drains, unreliable public transport, the condition and scale of the roading network, the availability and affordability of housing, and the capacity in our schools, prisons and hospitals,” says Lucking.
“The deficit is affecting everybody on a daily basis and it also impacts the productivity of New Zealand. It matters because everything we do involves infrastructure in some way, shape or form.”
Establishing a pipeline of work
Key to developing a coordinated approach to this vast problem is knowing exactly what projects need to be completed, when and where. The Infrastructure Commission is working on a comprehensive project list to help planners funnel resources and help attract major international contractors as there isn’t capacity within the local sector to do it all.
“We need to show as a country that we are worthy of their time and investment – it’s much harder to get a company to commit to a large scale project in New Zealand if there’s only going to be one whereas if you show over the next 10, 20, 30 years there’s going to be a continual pipeline here people are more likely to spend the time to get to know the nuances of how construction works in New Zealand and where the workforce is.”
International partners also bring valuable new ideas. Lucking points to digital twins, a virtual replica of physical assets that captures real-time data and simulates the behaviour of the asset which has the ability to optimise the operations and maintenance of assets. It’s a technique commonly used overseas.
Low-cost today, pricey in the future
“While it is essential to get more projects built, it is also important to look after those that are already in place, to ensure we get the most out of our investment decades down the line. We need to take a whole-of-life approach to infrastructure investment so that we are not just focusing on what the lowest cost option is today,” says Lucking. “If we go for the cheapest option today to try to make the most of that limited pool of money, it could end up costing us more in the long run or, if we continue to defer maintenance, it may shorten the lifespan of the assets.”
It can be a hard sell, but Lucking says we need to be more future-focused when considering new roadways, schools, hospitals and other essential pieces of infrastructure. How will our changing climate impact where people will be living in 10, 20, and 30 years? If new houses go in, where will that community send their children to school and how will people get to work?
“When it comes to planning and prioritisation we need to take a New Zealand Inc approach as opposed to just looking at this on a regional basis,” says Lucking. “We need to be making decisions now as to how we want people to be able to move around New Zealand in the future and what we want New Zealand to be known for.
“If you’re building something for the population of the future then the cost now is going to be higher but ultimately if we were going to retrofit or replace infrastructure due to capacity constraints before the end of its useful life, that’s going to be more expensive for the country in the long run.”
Partnerships are key
To get the infrastructure build moving at speed, says Lucking, we’ll need to utilise various financing and funding tools such as public-private partnerships (PPPs) and the Infrastructure Funding and Financing Act 2000 (IFFs), which applies levies via a targeted rate to those who will benefit from the new infrastructure. Road tolls and value capture are other possible funding tools, although Lucking points out they need to be executed with care so as not to disadvantage low-income households.
Social housing is an obvious area where infrastructure investors, including iwi, and community housing providers can work alongside Kainga Ora to produce solutions for families, such as the partnership between ACC and CORT Housing Trust.
PPPs have delivered 11 new primary and secondary schools in Christchurch, Wakatipu, Hamilton and Auckland in the past 10 years, with positive feedback from the educators who use them. With 25 years of maintenance included in the deal, and teachers free to concentrate on teaching, these projects have their enthusiastic supporters, although PPPs can cost more than government projects. Lucking explains that this is to do with finance structuring.
“Infrastructure financed by the private sector can have a higher cost of debt than that raised by the government directly, however it’s important to understand that’s because private sector debt has been raised based on the risk of the one project on a stand-alone basis while the government debt bridges the entire balance sheet.
“There’s also the cost of doing nothing. So, if we are waiting for all of these projects to be procured by the government without private sector involvement we’re not accelerating the economic benefits the improved infrastructure can unlock via improved productivity or the growth of business or housing that comes along with it. If you take that into the cost-benefit analysis, that can often mitigate that higher cost of private debt vs government debt.”
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