Macquarie, Capella, KPMG eye financial adviser role in Wiri public-private partnership prison.

By Gareth Vaughan

KPMG is squaring off against Macquarie Capital and Capella Capital as financial advisers to the three consortia short listed to build and operate a prison at Wiri through a public-private partnership (PPP) with the government in New Zealand's first social infrastructure PPP.

 The government says it's partnering with the private sector for the building and running of what's likely to be a largely debt funded prison to "add value" of NZ$1.2 billion to the Auckland region, create thousands of jobs and save the taxpayer money.

Interest.co.nz understands Macquarie is financial adviser to the Secure Future Consortium, one of three short listed by the Department of Corrections for the project. Other members of the consortium are Serco Australia, Fletcher Building's Fletcher Construction unit, Spotless Services, the Accident Compensation Corporation, and John Laing Investments.

Australia's Capella Capital, which describes itself as a financial sponsor and developer of infrastructure projects and transactions, is part of the NZCS Consortium alongside the GEO Group Australia Limited, Hawkins Construction and Honeywell.

Accounting firm KPMG is advising the third short listed consortium, GLM Consortium, interest.co.nz understands. It includes G4S Australia and New Zealand, Leighton Contractors and Mainzeal Property and Construction.  New names may yet be added with each consortia still finalising its membership.

A Westpac spokesman, whose bank last week expressed interest in housing PPPs, reiterated that Westpac is interested in PPPs but "strict confidentiality" prevented it from commenting publicly on the specifics of what it might be involved in.

How much will it cost?

According to the Department of Corrections, the successful consortium will design, finance, construct and manage the new prison. The Department of Corrections will provide regular payments to the consortium over the 25 year life of the contract. These payments will cover the costs incurred by the consortium in constructing and managing the prison. The Department of Corrections won't yet put a dollar figure on how much the government plans to spend on the project or how much it'll cost overall, with a spokesman saying its work with the three short listed consortia will determine the cost of the prison's construction.

 That said, the spokesman suggested that as a reference, it was worth noting that the Spring Hill Corrections Facility in the Waikato, a 650 bed prison that opened in 2007, had a construction cost of NZ$380 million. The Wiri PPP will be for the design, construction and management of an approximately 1,000 bed prison for 25 years.

Department of Corrections staff plan to meet with representatives from each consortium several times over the next few months with their final proposals due in early August and plans for a finalised contract to be in place by July next year. At the end of the 25-year contract, the prison will revert to Crown ownership.

Capella says its Australian team has worked on more than A$10 billion worth of projects in sectors including education, health, justice, defence, transport, accommodation, commercial and industrial real estate over the past decade. Internationally, Capella has also worked on PPPs with its parent Lend Lease.

Capella says it likes to be a long-term equity investor in the projects and assets it sponsors. The only New Zealand project listed on its website is Wiri. See a picture on Capella's website of what the Wiri prison might look like should the GLM Consortium be chosen to build it.

Debt '80-90%'

Macquarie is one of the world's biggest operators in the PPP space. In a presentation on PPPs Macquarie Capital New Zealand division director Duncan Olde says financing metrics are improving post the Global Financial Crisis with debt at 80% to 90% of funding and equity at 10% to 20%.

In April last year Minister of Corrections Judith Collins and Minister for Infrastructure Bill English announced the Department of Corrections proposed to establish a men’s prison through a PPP on land the Department of Corrections owns adjacent to the Auckland Region Women’s Corrections Facility at 20 Hautu Drive, Wiri, Manukau City. the ministers said the new prison was needed because some of the Department of Correction’s current facilities are aging and need replacing, and because of expected growth in the prison population.

Then in November Collins and English said Cabinet had approved a PPP arrangement for the design, construction, financing, maintenance and operation of the prison, saying the government was open to making greater use of private sector expertise where it makes sense to do so. Collins and English said the PPP would allow the taxpayer to pay for actual delivered service performance.

"International experience suggests that using an appropriately structured PPP for the new prison will offer savings over conventional procurement methods," Collins and English said. "In addition it is expected that this PPP will enhance public safety and improve rehabilitation outcomes."

The ministers said an extra 1,243 prison beds were expected to be needed by 2016 to cope with forecast growth in prisoner numbers and the need to replace ageing existing prisons.

 In a speech last July Collins said it costs an average of NZ$91,000 to keep a prisoner for a year.

"I think that we owe it to taxpayers to actively find ways of reducing those costs while improving standards and security across the board," said Collins.

Job creation & money into the economy

She said during the prison's construction, which is expected to last until 2014, the prison should create about 1,900 fulltime jobs for an average of 380 jobs a year.

"In total, the construction and maintenance of the prison will inject NZ$101.6 million in wages and salaries for construction sector workers over the lifetime of the prison," said Collins. "Corrections estimates that the facility will employ approximately 384 custodial staff, 144 prison support staff and around 115 non-prison staff for a total of 643 workers, primarily in Manukau City."

Once the prison is fully occupied, she said prisoner costs are estimated to average NZ$5.5 million annually, while facility related costs are expected to be around NZ$2.5 million annually.

"All up, the added value the prison is likely to generate to the Auckland region over its 30-year lifespan is approximately NZ$1.2 billion and the equivalent of 12,700 job years - which is one full time job for one year," Collins added. "These figures are based on a 960 bed prison. The final number of beds, and the economic benefit to the region, could well be higher."

The Department of Corrections is currently seeking changes to council zoning of the land where it's proposed the new prison will be built. Currently the land is zoned  "women's corrections facility"  which the government wants changed to "corrections facilities" given the new prison will be for men.

The Department of Corrections spokesman said it was seeking some other changes too, including alterations to access points and some of the amenities on site. The designation change is going before an Environment Protection Agency Board of Inquiry,  starting in May. More information is available here.

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