This time a year ago, Prime Minister Chris Hipkins was in Auckland announcing his Government’s $40 billion plan to build a set of tunnels under the Waitematā Harbour.
With election season approaching, the Labour Party was eager for Auckland votes, which polling showed were in short supply after the extended COVID-19 lockdowns.
This project would have been the most expensive in New Zealand’s history.
Behind the scenes, however, policy advisors were pushing to prevent the Government from making an announcement before even an indicative business case had been completed.
The Infrastructure Commission "strongly advised against identifying and announcing an emerging preferred option”, while the Treasury expressed “substantive concerns” over the lack of analysis.
This was unusually strong language for official documents, but Hipkins and his Transport Minister, Michael Wood, proceeded with the announcement anyway.
This is a prime example of New Zealand’s flawed approach to infrastructure. Politicians are often eager to sign off on mega-projects that might win votes and secure their legacies.
When the projects aren’t so sexy, politicians are equally eager to defer them in favour of keeping taxes low or redirecting those dollars toward something more popular.
Towards consensus
Alan Bollard, the soon-to-retire chair of the Infrastructure Commission, said the politics of infrastructure have always been difficult.
There was often more incentive to fund new projects than to maintain existing ones, and a tendency to "pre-announce glossy projects before business cases are done."
Research from Australia indicated that the one-third of projects announced without business cases accounted for nearly 80% of all cost overruns, he said.
However, this isn’t even the sector’s primary frustration. As Infrastructure Minister Chris Bishop told attendees at last weeks’ Building Nations conference:
“If I had a dollar for every time someone said we need a long-term infrastructure plan that can transcend political cycles, I’d be a very wealthy man.”
Nick Leggett, the chief executive of Infrastructure New Zealand, said getting political consensus was crucial for successfully and efficiently delivering new projects.
“We aren’t expecting a full-on make-out session between political parties, more just some footsies under the table to ensure certainty for New Zealand’s infrastructure.”
Although the new Government was “aggressively pushing ahead with its own infrastructure plans” it was also aware it needed to develop a system that can endure beyond election cycles, he said.
In an effort to create this change, Bishop has restructured the various infrastructure agencies and asked the Commission to develop a 30-year pipeline of recommended projects.
He noted in a Cabinet paper that the lack of long-term national planning has led to poor decision-making and, arguably, the politicization of infrastructure investments.
Political parties will be briefed on the pipeline, which outlines current projects, options for the next decade, and projected needs for the following decade. They will then engage in an annual debate in Parliament to thrash out their priorities.
Bishop said this isn’t about delegating decisions entirely to unelected experts, but rather about finding a sweet spot where politicians can make more informed choices.
The major benefit for the public is that it will create an independent benchmark to compare political plans, allowing voters to hold politicians accountable for any deviations.
Oh, the irony
Hipkins, now the Leader of the Opposition, was initially skeptical of the National Party’s sudden enthusiasm for bipartisan consensus.
He told reporters it was “somewhat ironic” given the Coalition had scrapped a long list of Labour’s infrastructure projects as soon as they got into the Beehive.
This isn’t just a political attack from Labour. At the Building Nations conference, Transport Minister Simeon Brown was warned that cancelled projects were leading to idle workers being recruited by Australian infrastructure firms.
Barbara Edmonds, Labour’s infrastructure spokesperson, said parts of the sector had been paralyzed by the Coalition’s abrupt cancellation of major projects.
“This Government has halted work on critical transport infrastructure, scrapped necessary school builds, and paused the public housing expansion, creating immense uncertainty for businesses and wasting significant resources.”
However, she ultimately backed Bishop’s call for consensus, arguing that the country would never resolve its infrastructure issues if it continued “chopping and changing as it always had.”
Labour would need to more carefully consider which projects to choose and how to structure them to avoid repeating this issue.
“Equally, the Government will need to show an openness to working with other parties and approaching infrastructure in a way that creates enduring solutions and greater consensus.”
She outlined three conditions for cooperation: infrastructure must consider climate adaptation and resilience, the Crown must retain some level of ownership or control over assets, and iwi Māori must be involved in planning.
Intelligent buyer
Another reason for Bishop’s restructuring of infrastructure agencies was to develop expertise capable of collaborating with the private sector on complex projects.
The new National Infrastructure Agency will oversee almost all work involving private financing and will manage unsolicited bids from potential investors.
It will evolve from Crown Infrastructure Partners, an entity established to manage the successful rollout of ultra-fast broadband in collaboration with the private sector.
Certain parts of the Government have struggled to collaborate with industry. The NZ Super Fund’s unsolicited bid to take over the light rail project in 2019 appeared to derail the entire process.
NZTA said the bid was not up to scratch and wanted to stick with its own plan, but the Transport Minister insisted that both options be presented to Cabinet. The project was delayed and ultimately scrapped—despite $200 million already spent.
This debacle hasn’t discouraged the Super Fund, which recently signaled it was still interested in building public infrastructure in New Zealand and would prepare future bids.
Bishop envisions the NIA as an “intelligent buyer” capable of building strong relationships with private sector partners, like the Super Fund, and turning them into repeat customers.
An advisory panel said government agencies relied too heavily on external advice due to a lack of expertise, which makes them hesitant to take risks. This also leaves private companies without a capable government partner to resolve project issues.
Simon Court, an Act Party MP who works on infrastructure policy, said public-private partnerships are not about offloading debt from the Crown balance sheet; they are about delivering better projects more efficiently.
The Government was buying innovation and value for money from the private sector, but it needed skilled client-side teams that were capable of negotiating complex bids. Court also pointed to the Super Fund bid as an example of a failed process.
Without careful management, PPPs can easily become more expensive than projects handled directly by the Government, which benefit from lower borrowing costs.
How, not if
Cameron Bargrie, principal of Bagrie Economics, said it was inevitable that society would have to pay for this new infrastructure one way or another.
He said the Infrastructure Commission estimated it would take 9.6% of GDP to meet demand, but current spending is just 5.8%. Closing that gap would equate to a 20% increase in income taxes.
The Coalition plans to rely more on user-pays funding, both to avoid unpopular tax increases and also to determine which projects are most necessary. The idea is that if the public isn’t willing to pay for a piece of infrastructure, it may not be an urgent priority.
Projects that can be privately funded or self-sustaining through fees and charges are likely where the highest economic benefits lie — or so the theory goes.
The Infrastructure Commission has recommended that charging for existing infrastructure could promote more efficient usage and reduce the need for new projects in the foreseeable future.
Bollard noted that Stockholm’s time-of-use charges cut congestion by 30% to 50%, while the billions spent on new roads in Auckland had only led to worsening traffic.
So, that’s the future of infrastructure: a long-term consensus plan, partly financed by the private sector, and funded by end-users.
43 Comments
"An advisory panel said government agencies relied too heavily on external advice due to a lack of expertise, which makes them hesitant to take risks. This also leaves private companies without a capable government partner to resolve project issues."
And there you have it....they dont know how. After 4 decades the institutional knowledge has been lost....and it will take years (if not decades) to regain, if ever.
Good point.
A lot of the public sector CEs don't have any infrastructure or subject matter background. Until her recent resignation, Transpower was run by a CE with no background in electrical engineering for 10 years straight.
Not a single civil engineer in NZTA's leadership team - Link.
For those who haven't seen it, the Aussie series 'Utopia' covers this completely. Even Bollard's comment above, is beautifully expressed.
Otherwise, this is going to be seen, in hindsight, as the end of 'free market' (which it never really was) neoliberalism. There is no - repeat no - difference between this attempt to pick winners, and the Think Big one. In hindsight, Think Big scored 50%, and they were closer to understanding the Limits to Growth then, than the current mob are now.
Spending an extra 3.8% of GDP means spending about $15bn extra a year. If you do this using private finance at 8% (30-year payback), you get to annual repayments of around $15bn by year 10. Public finance at the current average yield (3%) would mean you would be paying out $10bn by year 10.
This is why Karen Mitchell's contribution at the infra conference was so important - she made the point that you had better be damn sure that the significant extra costs of private finance are offset by huge benefits in innovation, efficiency etc. I have the battle scars from private finance deals - and I can assure you that Karen was being polite. They are ridiculously expensive to set-up and service, and most end up with Govt being screwed on change requests (oh, that wasn't in the spec, that's another XX million added to the bill).
So, why PPP? It's really simple. Private financiers and fund managers want somewhere safe to put their money that guarantees a chunky return. They could just buy Govt Bonds but the yields are low. So, they lobby Govt to create new debt instruments, sorry 'PPP contracts', which provide a higher return. Note that offshore finance will hit us twice as the repayments flowing offshore will blow out our current account deficit.
If we go down the PPP route, the level of rent extraction by the late-2030s will be crazy and user pays approaches will not get close to paying the bills. So, paradoxically, we will end up with a bigger Govt - taxing more and more to pay the piper.
Question though...I agree PPPs a disaster waiting to happen, however what is to be done re capability to select, critique and oversee any infrastructure project in the short to medium term without (state) in house abilities? We can fund directly from the state to avoid paying more than necessary but we first need to know what we need....and we have lost that ability.
Yes, I agree that the state needs to build greater capacity / capability to manage (and potentially deliver) big infra projects.
Important to recognise though that PPPs add an *additional* need to build capacity/capability to manage the private finance component (endless negotiations, investment / risk analysis, etc). This expertise on the client side does not really exist in NZ and building it unnecessarily is wasteful and stupid. The state just needs to finance things using known instruments (govt bonds etc) and recruit people who have a track history of managing infra procurement/ delivery. That's an established skill set and will speed up delivery considerably.
Those experts need to be recruited at senior leadership levels, not just cogs in the bureaucratic wheels.
ACC had a good skillbase in clinical services back when I contracted there, but the leadership was dominated by actuaries, accountants and investment managers. So the public good perspective often got drowned out by money chasers.
China has managed to malinvest in much of their infrastructure, in some cases their high speed rail can't even pay for the electricity to run it, let alone interest, principal and running costs.
And they're capable of deploying it cheaper, with a larger population base.
This isn't to say nothing can work, ever, but we do run the risks of infrastructure rollout that has to be partly or largely subsidized by the rest of the economy.
I was at the conference, you have a pretty good grasp on the issues.
The proliferation of banking at Building Nations has exploded. Its main sponsor is BNZ, last couple of years it was ANZ. Tell me, why do bankers need representation at an infrastructure conference???
To justify adding 2% transaction cost and a 3% risk premium on the bond rate.
- South Island bridge replacements.
- 2nd Harbour Crossing, toll existing and congestion charging on AKL Network.
- Motorway to Whangarei, for port , tourism and business, the rail line is to $$$. electric trucks or hydrogen trucks better solution
- More generation (quick start) I would also provide cheap funding for people to install solar and set up a co-op to buy off them...)
- Look at Transpower and weak points in grid.
- Waters obviously
- Interisland ferries
- LNG import in Taranaki.
- Something to fix traffic to Kumeu from AK... even Riverhead.
I do not think Auckland needs light rail, I think once the lines are all updated and CRL provides higher frequency trains that will change the game, Maybe we allocate 3-5bil to eliminate level crossings... I use the bus service from Silverdale to Takapuna many days a week, its working fine with buses. Likewise the eastern corridor is working well.
Obviously I would think bigger and start a Freddy Mac type secondary mortgage purchaser, to once and for all time stop the boom bust of NZ Housing.
I would probably not move the port of Auckland.
There are plenty of bits of Auckland where there is no rail line and the CRL would be of little benefit. The North Western example is a classic example. On others, the required number of buses will make things like stops and stations (even on the NEX) unworkable. You'll need so many services down Dominion Road that they won't be able to stop without a backlog building up behind them.
That is the specific problem that Light Rail was meant to deal with; instead it ended up being a gold-plated make-work scheme for Wellington desk-jockeys with a bizarre airport fetish and the actual needs of Auckland became entirely secondary.
2nd Harbour Crossing, toll existing and congestion charging on AKL Network.
Do you mean a 3rd Harbour crossing? We already have 2. Fine with this if it is public transport, walking and cycling only. We don't need another road crossing creating congestion on the road network, we need to get cars off the network at peak times, congestion charging will mean a third road crossing is not required.
The biggest issue with the infrastructure shortfall is the additional cost it imposes on NZ Inc.
Instead of building timely infrastructure over previous decades the costs are now going to be imposed on current generations.
The end user (ratepayer, taxpayer or user) is the one that pays, no matter the funding mechanism.
If PPPs which include private equity play any part of the funding mix then current generations are going to be slammed with high additional costs given the rate of return the private sector will demand and the short time horizon they will want the return.
The only fair way to fund the massive infrastructure shortfall is intergenerationally via very long term govt bonds and possibly private sector pension funds who would accept lower longer term returns.
Domestic Govt funding is the only way to do it, yes. The challenge is not 'finding the money' - that's as easy as typing numbers into a spreadsheet - it is developing, organising and reprioritising the real resources (people, energy, machines, etc) to do the work. Delivering infrastructure at scale means less kiwis doing the work they are doing now, and more kiwis doing the work that needs doing. The trade-off is between the work that stops and the work that starts.
Govt has to work out how to use taxation and other policies to 'free up' the real resources in the economy. Once you look at the challenge from that resources perspective, you can make far better choices. For example, do we spend $10 billion worth of labour and materials on expanding a single road or do we invest our time and energy in public transport and solar infrastructure that has a much quicker and explicit payback?
As Claire Trevett points out, O the hypocrisy:
On Wednesday, Infrastructure Minister Chris Bishop tried his utmost to launch the Good Ship Political Consensus, only to have it quickly and predictably founder on the rocks of hypocrisy.
Bishop had set out his moves for a 30-year infrastructure plan, and in the process bemoaned that infrastructure had become too politicised. He had written to the other political parties to offer them six-monthly briefings in a bid to get more consensus around major projects. Alas, Bishop had failed to first get consensus on whether to ask for consensus.
Labour’s Chris Hipkins came out the gate and likened it to inviting guests to the wedding before proposing.
It was a good enough – and fair enough – line. In this case, the bride was still stinging from Bishop’s own politicisation of Labour’s plans for big infrastructure – notably, National’s derision of Labour’s projects such as light rail in Auckland, the Inter-Islander ferries upgrades and cycle bridges over the Waitemata Harbour.
https://archive.is/jRD37
https://www.nzherald.co.nz/nz/politics/claire-trevett-arm-wrestling-by-…
Not sure about the ferries, I think we'll end up paying about the same for a worse outcome.
The tunneled light rail - definitely right to be cancelled but they should have gone with the original surface option, it's still the best solution to bus capacity in the city centre.
Cycling bridge was a stitch up by NZTA, similar to light rail. They made an unnecessarily gold-plated super expensive option to guarantee it would be sunk. If the walking and cycling bridge was combined with a public transport only option it would cost a fraction of the price of a road tunnel and would have demonstrated that a road tunnel was completely unnecessary. The road builders at NZTA took over the project and were literally laughing and joking about how big and stupid they could make it as they put the option together. Congestion charging, public transport and walking/cycling connection across the Waitemata makes a 3rd road crossing unnecessary, that and only that, is the real reason the road building lobby/NZTA will not progress those options.
If the ferries end up costing less than $5b we'll probably come out ahead of where iRex was likely to end up - and worth noting GR had already told Kiwirail their most recent cost-escalation before they left office would not be fully covered by Government. Add another $400m onto that (between the incoming Minister briefing and a further briefing within the same month) and it's hard to see a hypothetical Labour govt reaching a different conclusion, given they were already in slash and burn mode themselves.
That's not correct. The $400 million was slashed from the $3.2 b total by Robertson, in what he approved in principle. It was then too close to the election for him to take to caucus. We never heard how kiwirail reacted to that, as all documents supposed to be released in May mysteriously haven't been.
Yet we canned it because "government inefficient compared to private sector" or something. So now we have a rapacious infrastructure contracting sector that tenders on razor thin margins knowing they're going to make an absolute killing when it inevitably comes to variations of contract and extensions of time.
In many places entrepreneurship in this industry has become a game of extracting money from the government.
Those of us with long memories of the MOW would probably argue that apart from Con Devitts Boilermakers Union (cf BNZ building 1970s) & the Rail/Seamens Union holding the public to ransom every school holidays on the interisland ferries there was no better "...rapacious infrastructure sector...making an absolute killing" than the MOW.
NZ's Govt's of the day used to lower the official unemployment numbers by overmanning the MOW as elections came up. The Traffic management of that generation.
i started my working life at the MOW, for all the bad they also churned out all many of the tradespeople of NZ running big apprentice programs for all trades, they also had engineers up the wazoo designing infrastructure well into the future as they needed to be kept busy and not wait around until some minister decided something needing building, and last all the equipment was used over and over, refurbished and moved from project to project not as private enterprise does now and buy in as part of the contract ( tunneling machines come to mind) then sell at the end of the project for a nice profit all paid for by the taxpayer
I'd like to see our existing infrastructure maintained properly so we get benefits from those first and aren't constantly fire fighting, instead of public assets being sweated more than a factory worker in a sauna during a heat wave.
The shiny new things can wait.
If you want people to change their infrastructure behaviour, you need to give them good alternatives.
Examples:
- Congestion charging requires public transport that goes to the right places often enough to be viable. We have no coherent plan to do this.
- Developing sustainable urban water structure is facilitated by densifying cities in a way that makes people actually want to live there. Glacial planning change means we get endless ugly infill housing, dormitory monoculture suburbs and little in the way of good design.
- There is a drive to electrify the vehicle fleet, but we lag far behind much of the world in installing chargers and developing the transmission network.
We seem cursed by magical thinking where one thing gets done without reference to the things that need to connect to it.
You also need to manage the projects properly. Read Bent Flyvbjerg about why big projects are almost invariably late, over cost and don't meet specification.
Bishop said this isn’t about delegating decisions entirely to unelected experts, but rather about finding a sweet spot where politicians can make more informed choices.
Um, isn't that exactly who should be deciding what to build based on best business case outcomes?
Research from Australia...
They watched Utopia? https://www.youtube.com/watch?v=Iagc0tSjt5s
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