“New Zealand requires a guaranteed infrastructure pipeline to provide confidence to the sector and allow the industry to attract investors, assemble and keep skilled workers and widen its pool of suppliers,” says Nick Leggett, chief executive of Infrastructure New Zealand. “We must be willing to take calculated risks, diversify our funding sources and align housing needs with robust transportation.”
In a Q&A with Partnerships Bulletin, Leggett explains why private finance is an important part of the infrastructure solution. Beginning with recent uncertainty surrounding the future of the Auckland Light Rail project - amid suggestions that the National Party would cancel the PPP if it came to power - we discuss the prospects for PPPs in a country that has shied away from the model in recent years. The organisation also believes that most New Zealanders are open to more partnerships between the public and private sectors to deliver new infrastructure.
How important is it that the Auckland Light Rail (ALR) PPP is delivered? And what would be the impact of it being scrapped at this stage?
"Auckland needs a mass transit system, both for the reliable and swift movement of people around the city, but also to improve housing and commercial intensification around key routes. There is a massive sunk cost in ALR and the view of Infrastructure New Zealand is that the good work done should contribute towards a swift start to construction."
What is investor sentiment towards the project currently like, especially in the context of the threat for it to be cancelled under a change of leadership?
"The market must be tested and while there is political uncertainty that will prove to be more difficult. Given the previous serious interest from private capital and development both here and overseas, we would be optimistic that this project could attract the kind of investors who will take a long-term interest in its success through development, delivery through to operations."
More broadly, how do you see PPP fitting into the New Zealand infrastructure space in the years to come, especially given the negativity surrounding it following the high profile issues with Transmission Gully, for example?
"There is certainly space for greater private involvement in New Zealand infrastructure funding and delivery. Instead of sitting around waiting for the government to decide and fund projects, private capital offers us the very real value of delivering projects earlier, rather than waiting and spending more or not delivering at all. If we have a real focus on the kind of projects that can deliver economic value, New Zealand will be in a much better position to unlock those greater number of privately partnered projects - and build our capacity to deliver those projects.
"There will also have to be refinements made around risk allocation to PPPs as we know them, along with a maturity developed within the public sector around how such arrangements operate.
"It appears to us that New Zealanders are open to projects partnered between government and external partners. We recently commissioned polling which showed that 55% of New Zealanders were open to this, and only 19% opposed. The rest were undecided."
How are investors viewing the infrastructure market generally?
"Investors are concerned at the lack of signals from New Zealand that suggests it is open to PPPs. The lack of activity and interest from New Zealand has a detrimental impact on not only the number of projects that can be progressed but is also seeing us lose skilled workforce who are departing to territories where the door is very much open to a wider range of financing and development structures.
"New Zealand is a small market and therefore must be open to a variety of arrangements to fund and deliver infrastructure. The fact that it is not is holding us back and that is the strong message we receive universally from the sector."