By Gareth Vaughan
Westpac will provide loans to the consortium chosen by the government to build and maintain New Zealand's first public private partnership (PPP) schools with equity funding coming from the HRL Morrison & Co managed Public Infrastructure Partners (PIP) Fund.
Associate Minister of Education Craig Foss announced last week that Learning Infrastructure Partners had been chosen to design, construct, finance and maintain the Hobsonville Point primary and secondary schools in West Auckland for the next 25 years.
Through the Learning Infrastructure Partners consortium the design work has been done by ASC Architects and Perumal Pedavoli Architects, the schools will be built by Hawkins Construction and maintained by Programmed Facility Management. Westpac is the senior debt provider, with equity coming from the PIP Fund, whose investors include the New Zealand Superannuation Fund, the New Zealand Social Infrastructure Fund and community trusts.
HRL Morrison & Co, which takes its name from its founder the late Lloyd Morrison, also manages sharemarket listed infrastructure company Infratil.
Westpac group beat out rival consortia including ANZ & BNZ
The Learning Infrastructure Partners Consortium was selected over two other short listed consortia. One of these was the Building Futures Group, which included Mainzeal, Warren and Mahoney, Stephenson & Turner; PAE and BNZ. The other was the Future Education group including Arrow; Jasmax, Spotless Facility Services and ANZ.
It's the second PPP contract awarded by the Government within a month with the SecureFuture Consortium selected to design, finance, build, operate and maintain a prison in Wiri, South Auckland through a contract worth as much as NZ$900 million in March. The financial adviser to the SecureFuture Consortium is Macquarie Capital with lenders including ANZ and BNZ.
Asked how much the school PPP would cost Foss told interest.co.nz, via a spokeswoman, that pricing details would be released over time with the Government currently bound by a confidentiality clause in the contract.
"It’s important to point out that the Government will save money on this deal, but the most important and valuable savings are intangible; this contract ensures the taxpayer gets better value out of school property and allows teachers and principals the time to teach and govern instead of focusing on property maintenance issues," Foss said.
"A recent survey indicated that primary school principals spend almost 30% of their time dealing with building issues. In the case of Hobsonville Point, that time can be spent focusing on students and what’s happening inside the classroom."
Asked about the sorts of returns on the project both the Learning Infrastructure Partners consortium and the Government could expect, Foss said benefits to the Crown would include cost certainty, and better understanding of "whole of life" costs of assets with the Ministry of Education only paying for what it gets.
Up to 85% debt funded
Interest.co.nz also asked Westpac how much money it would loan the project and what returns the PPP might generate. However, a Westpac spokeswoman referred questions to Steven Proctor, the executive director of the PIP Fund.
Proctor said no fact sheet had yet been agreed with the government so he couldn't comment on the amount of funding going into the project. However, he said such PPP projects are usually 80% to 85% debt funded with the balance coming from equity.
The New Zealand Social Infrastructure Fund (NZSIF) established by Morrison & Co and Craigs Investment Partners to invest through the PIP Fund, is targeting an internal rate of return of 11% per annum before tax, but after all costs, investment management and administration fees and expenses. Proctor said the expected returns from the Hobsonville schools project were in line with that. See more on the NZSIF here.
Meanwhile, Foss said any future school PPPs will be considered on a case by case basis. Separately, Housing Minister Phil Heatley last year visited a social housing project in West Sydney that was being built by a Westpac-led consortium.
Meanwhile, in his press release last week Foss added: “Under this PPP, the Crown is no longer exposed to design and construction risks. These become the responsibility of the private partner who must fix them promptly or face financial penalties."
Hobsonville Point Primary School is scheduled to open at the beginning of 2013 and Hobsonville Point Secondary School in early 2014.
(Update adds comments from Steven Proctor, details on unsuccessful consortia).
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11 Comments
Now is not the time for off balance sheet tricks,
A slither of equity (often borrower by the contributor) and loans from Westapac. The "credits name" will be recourse back to Govt we thinks.
Education is a worthy investment, let the Govt borrow to fund this (rather than fund day to day expenditure). The finance cost will be lesser.
What magic or fairly dust do the infratil folk bring to the party, apart from fees, complex wiring diagrams, corporate accountability not. and commercial in confidence.
Asked how much the school PPP would cost Foss told interest.co.nz, via a spokeswoman, that pricing details would be released over time with the Government currently bound by a confidentiality clause in the contract.
"It’s important to point out that the Government will save money on this deal, but the most important and valuable savings are intangible; this contract ensures the taxpayer gets better value out of school property and allows teachers and principals the time to teach and govern instead of focusing on property maintenance issues," Foss said.
the savings are intangible - well thats alright then ......
The New Zealand Social Infrastructure Fund (NZSIF) established by Morrison & Co and Craigs Investment Partners to invest through the PIP Fund, is targeting an internal rate of return of 11% per annum before tax, but after all costs, investment management and administration fees and expenses. Proctor said the expected returns from the Hobsonville schools project were in line with that. See more on the NZSIF here.
What are the off-balance sheet, but nonetheless liable annual % IRR costs to the government, if the equity partners expect 11% after all costs are deducted? Surely term government stock rates at ~4.10% present a cheaper funding avenue.
We need to see comparisons of alternate strategies in the public arena now - with none of this mumbo jumbo.
Asked how much the school PPP would cost Foss told interest.co.nz, via a spokeswoman, that pricing details would be released over time with the Government currently bound by a confidentiality clause in the contract.
Very good question John.
We need to know what risk weighting Westpac can attribute to the loan crediting the consortium, for regulatory capital adequacy purposes. - is it 100% as per the usual commercial loan criteria or a special Reserve Bank approved zero rate because the government stands behind the payment stream?
Public knowledge of this fact coupled with the loan rate will determine how badly 'we' the public are being rorted.
Equally, we need to know if the veil of secrecy is shrouding an explicit government guarantee to pay the consortium. Such a provision would further undermine the need for such high returns for the equity partners and the bank.
PPP offers very poor value for money. The UK experience has demonstrated this on numerous occasions. And the figures are often 'fiddled', both on the part of the bidder, or on the part of the government (to move debt off their balance sheet).
Either privatise the schools, or leave them fully in public hands. Don't mix public and private - it will inevitably lead to acrimony, and the taxpayer being fleeced.
In Scotland, where this arrangement is more widespread, the impact on education is directly noticed. The schools are built using low grade materials, such as hollow core doors, so that when students don't manage themselves properly, the materials fail and the school is billed for repair. The arrangement of areas is entirely at the discretion of the owner. If they don't like the way the school is using the property, they might close off access ways that prevent normal wear and tear. The use of pin boards and adhession products on walls can cause normal wear. But that may not be agreed to the owner of the building. The way users approach school buildings is put in the hands of staff as yet another controlling feature of the system that needs your compliance. Except in this case, it is contractual and impacts directly on the bottom line of the school. In my view this is a step too far for education to absorb.
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