Learning from Others

1 May 2017 At the end of March, delegates from New Zealand arrived in the UK to exchange ideas on infrastructure investment. Paul Jarvis caught up with some of them to find out what’s next in their market

The New Zealand infrastructure market is making some big waves across the world at the moment.

Since 2015, the government has been following through on the infrastructure programme it established, and has had a strong start to delivering its PPP pipeline. Projects ranging from new roads, to new prisons and schools have been put through the PPP initiative, which has so far proved to be a success in delivering on its promises.

However, New Zealand has ambitions beyond introducing and running an efficient programme of projects.

“Infrastructure is an enabler as part of a broader social development,” says Dan Marshall, head of the PPP programme at the New Zealand Treasury.

One of the key aims of the New Zealand government is to use the PPP model to deliver its social goals, he explains, rather than simply building infrastructure for its own sake.

“The PPP programme is about what we can learn from the private sector in terms of getting projects delivered and built,” he continues, “but also delivering successful projects over the long-term.

“We are looking at how we can better utilise assets. Our team is looking at the best procurement methods.”

And that is one reason why Marshall visited the UK at the end of March, as part of a wider delegation that included a number of officials from the New Zealand government, as well as PPP experts from Infrastructure New Zealand and private sector players.

Marshall was keen to learn about the opportunities that value capture can offer New Zealand, learning from the experiences that the UK has had with Crossrail in London and the city’s plans to make even greater use of value capture techniques as part of the Crossrail 2 programme.

“It is about shifting the debate away from ‘should we be doing this with the private sector?’, to encouraging more engagement and partnership,” Marshall continues. “We are starting to look at value capture and tax increment financing and how we can deliver infrastructure.”

“The concept of value capture is easy to say,” adds Stephen Selwood, chief executive of Infrastructure New Zealand, “but it is difficult to achieve in practice.”

He points out that one of the big lessons from London’s experiences has been that New Zealand and its public authorities should not be thinking about individual pieces of infrastructure in isolation – that by focusing on a more holistic view, things such as value capture can become easier to access.

This question of providing a more holistic picture of infrastructure planning was another reason for the delegation’s visit, as the country is increasingly looking to develop a longer term visible pipeline that can give investors confidence.

Marshall says that he and colleagues are in regular contact with their opposite numbers in countries such as Canada and Australia, as well as the UK – all of which have well-established infrastructure plans that are regularly published and updated.

But while this all appears to be sound underpinning of a potential programme of investment, what are the current opportunities in the market?

The New Zealand government has no shortage of ideas here. To begin with, there are the schemes going through the existing PPP programme, such as the Waikeria prison project.

The third prison to be carried out under PPP, the request for proposals was issued in April. Meanwhile, there are also plans for new defence accommodation projects, with a business case currently being considered for new accommodation and mess facilities for the New Zealand Defence Force. “That is looking across New Zealand as a whole, at a number of locations,” says Marshall. “That is due to come to market early next year.”

Selwood points to a number of initiatives that go beyond the standard PPP project that the New Zealand government is now looking at.

“A really big opportunity is to focus development in certain locations and go for scale on greenfield projects. For example, to partner with landowners on greenfield opportunities, where you can do much more.”

He continues: “In Scotland, we’re talking to them about the City Deal approach and how that has helped them deliver infrastructure. In managing water service delivery, we’re looking at the Thames Tideway model, but also the way they have done it in Scotland. Urban regeneration and transport investment are also big areas.

“We are asking how has each project looked at private capital and how each one has leveraged it.”

However, 2017 is an election year, and while officials are quietly confident that a PPP programme will survive, they are under no illusions as to the impact it may have in the short-term. “Opportunities that run beyond the next election do get heavily discounted by the market,” admits Marshall.

Nonetheless, the pressure is very much on the government – whatever its eventual political make-up – to keep on building. “We are advocating for a shift to road pricing to both fund much needed additional investment and help manage demand more effectively,” says Selwood.

Rob Addison, senior analyst at the Treasury’s national infrastructure unit, is confident that things are heading in the right direction. He points to significant increases in spending over recent years. “The level of forward looking investment was $50bn at a central level last year, and a similar amount at a local level,” he explains.

“New Zealand has an aging population and aging assets. There are also regional demographic changes such as urbanisation, which is a big issue,” he continues. “So we are not going to be able to meet our needs without private sector investment.”

That demand side, as urbanisation and other factors such as the country’s aging infrastructure, begin to converge, will provide the government with a key challenge in the future, Addison predicts.

And it is not simply at a national level that New Zealand expects to see movement. Addison points out that there is now consensus in Auckland for the first time regarding the use of private finance to help deliver major infrastructure.

Selwood agrees. “We are seeing a more sophisticated conversation,” he explains. “Auckland increasingly recognises that it has to pay its own way.” Part of that will be harnessing new techniques such as value capture and potentially using powers similar to the UK’s City Deals initiative.

Collaborating and learning from the UK on these issues will be a key part of how New Zealand develops its infrastructure programme over the coming years, and moves beyond a market that simply offers cookie-cutter type PPP deals to the market. Using infrastructure more intelligently will no doubt mean asking more of the private sector, too.

And there is plenty that the UK will be able to learn from New Zealand, too. “This is all about best practice between our two countries,” said Selwood during the visit. “It is about people learning from one another.”

“This delegation provides an opportunity to learn from each other and to link New Zealand business with UK experience,” added Jeannine Walsh, the UK Department for International Trade’s senior trade development manager in New Zealand. “It is an example of strong collaboration between our two countries.”

“There are always opportunities to learn from others,” says Marshall.

As the UK government looks to get its PF2 programme underway, as well as continues to focus on major schemes like Crossrail 2 and HS2, that is certainly something that officials may wish to consider, for there is plenty it can also learn from the ambition and success of the New Zealand market.

“The PPP programme has been very successful to date in New Zealand,” concludes Selwood.

This page was last updated on:
1 June 2017.

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