Source: New Zealand Government
INTRODUCTION
What an honour to be running the anchor leg of this incredible conference, and to be able to update you on some of the work I’ve had the privilege of doing across two of the best portfolios for a civil engineer – Infrastructure and RMA Reform.
New Zealand’s infrastructure issues are well understood and have been well canvassed, and you’ve heard about a lot of the work this government is doing to get these big wheels turning from my colleagues over the last two days.
We are working incredibly hard attacking multiple fronts, and I want to wrap this conference up by running through a some of the work I’m doing to get things moving faster.
Refreshing New Zealand’s PPP framework to better engage private enterprise is a critical part of this.
If we can deliver infrastructure faster, we will get the benefits from our investments sooner.
RESOURCE MANAGEMENT
I could harp on all day about the issues our resource management system presents to delivering the infrastructure New Zealand needs, but I won’t. I know I don’t need to tell you about the issues you are experiencing every day.
However, it would be remiss of me not to touch on some of what we are doing to help unshackle us from the RMA’s grip so we can get on with building.
Replacing the Resource Management Act
A system so broad, so complex, so allergic to growth, cannot stand.
We cannot go on thinking every activity needs a consent, and that every consent requires reinventing the wheel in terms of what conditions might be appropriate to apply, when most things have been done before.
Fundamentally, we need to restore property rights and a presumption of the ability to build stuff and provide for human welfare, both now and going forward.
What about the environment? Well, the environment should get a property right too, to ensure its limits are not exceeded such that it can sustain human welfare into the future.
Material effects, where there are spillovers affecting these property rights of others, should be managed. However, we must do away with avenues for vexatious objections from remote interests.
Clearer, quicker, more certain pathways are paramount, and I look forward to being able to share more soon.
Phase 2 relief
In the meantime, we’re stuck trying to make the RMA work better. Minister Chris Bishop announced last week some panel-beating work on the RMA and its instruments. A lot of this is about driving some alignment across the myriad existing national direction instruments. These instruments are so conflicting and incoherent and have led to vastly different applications in plans by understandably confused councils, driving uncertainty for infrastructure providers and applicants, and litigation fears around councils’ planning decisions. They present pieces of a puzzle that do not currently connect.
Above all this, some pieces of this puzzle are missing altogether, and infrastructure national direction is one such omission. How is it that we have 30 national direction instruments, all pulling in different directions, and nothing properly promoting the benefits of infrastructure? Part of my role in this Phase 2 work is to develop infrastructure national direction to fill this void and help get things built.
A National Policy Statement for Infrastructure is a critical step in streamlining the consenting pathway for infrastructure. It will provide consistent direction for how plans and decisions can enable and provide for infrastructure in both the natural and built environments, and clear direction to decision-makers to recognise the benefits of infrastructure. It will drive consistency, certainty, and confidence for investment.
It will cover network infrastructure – like transport and water – and site-specific infrastructure – like ports, hospitals, and waste management sites – and will talk to the separate NPS’ for renewable energy generation and electricity transmission.
It will cover ancillary activities, like production and storage of bitumen, cement, and asphalt – these things we cannot build infrastructure without.
It will also pave the pathway for a rolling maul of new infrastructure national standards to codify those many established and acceptable methods and end this insanity of pointless bespokism that locks people up in unnecessary consenting processes.
This is another thing I look forward to sharing more about soon.
INFRASTRUCTURE
Alongside that enabling resource management work, we are laser focused on providing fit for purpose funding and financing tools to unlock infrastructure delivery, for which the NIA announced yesterday by Minister Chris Bishop will be a front door to access. This work accepts the reality that tapping into private capital, capacity, and capability is a necessity and not a choice, especially given the dire state of the government books we inherited.
Market-led proposals
We cannot afford to have infrastructure companies identify our problems and provide us with solutions on silver platters simply for these ideas to have nowhere to go and fall on deaf ears.
For example, there was no obvious process to review the Canadian and Superfund proposal for Auckland Light Rail. When I visited Texas, the Cintra toll roads consortium delivered an impromptu presentation of their proposal to upgrade the Northern Busway and State Highway 1 in Auckland in exchange for a concession, which I learned was subject to bureaucratic hot potato that landed nowhere.
This is why we are working on the market-led proposals process so we can capitalise on these opportunities where appropriate and incentivise world-class and innovative private sector ideas.
Value capture
We cannot afford to have taxpayer and ratepayer dollars subsidising windfalls for those who gain massive uplifts from the value public infrastructure creates. Those property owners in the catchment of the new City Rail Link stations would’ve been gleefully rubbing their hands together. This is why we are working on value capture tools.
Infrastructure Funding and Financing Act
Further, we cannot afford to rely on a front-loading of cost to ratepayers for infrastructure that will provide benefits over long periods. The Infrastructure Funding and Financing Act (IFFA) was designed to address this problem and enable greenfield development, inspired by Milldale, but it’s delivered no further greenfield deals to date. This is why we are looking into ways to make the use of the IFFA more attractive to the developer community as well as to local government.
Public Private Partnerships and strategic leasing
This brings me to what I want to focus on today – Public-Private Partnerships (PPPs).
The Coalition government has signalled an appetite and intent for greater application of private sector capital, capability, and capacity to help deliver on our public infrastructure aspirations.
PPPs are a key tool in this, and, in the true spirit of PPPs, officials and I have been engaging with the private sector on how we can get to a flexible PPP framework that delivers the infrastructure New Zealand needs, sooner, while maximising value for money over the lifetime of an asset.
It’s reassuring to see strong common themes coming through from this engagement. I want to commend the work of the likes of Infrastructure New Zealand who have done a lot of work with the sector in this space and have delivered a great PPP paper that accommodates options for a range of project types. The amount of work that has gone in from so many in developing models and ideas that address some of the big issues our current system presents has been immense, and we are now in a sprint to have this work completed in the next few months. The conversations I’ve had, and the visits to PPP project sites like Waikeria Prison, have been helpful to my understanding of the opportunities for improvement.
Risk allocation and disputes
We know many in the sector feel they signed up to an undue level of risk on past PPP projects. We understand that frustration and recognise that in some cases it has not been in either the client’s or the contractors’ interest to set the performance and scope bar high, and the price low.
Nonetheless, we expect public sector agencies to maximise public and taxpayer value in how they manage those existing contracts. And we won’t be losing sight of this baseline requirement as we move into the next wave of PPPs.
New Zealand’s PPP Framework must recognise that contractual risk allocation incentivises proactive and effective risk management, but that there are some risks we may not be able to efficiently transfer.
Certain risks may be best retained by the client, if they can’t be accurately priced based on the information available when we enter into a contract, or if they are critical to the client’s accountability for public service delivery.
However, strong performance incentives will always be a core feature of PPP procurement. Rather than defaulting to taking back risk, we first intend to place an increased emphasis on pre-procurement planning and collaboration to de-risk the project for all parties during the procurement process.
With reasonable time, cost, scope, and performance parameters agreed, all parties should be expected to be, and happy to be, held to account. This includes validation of the Affordability Threshold at key milestones to ensure it is sufficient to deliver the project outcomes.
Tendering and collaboration
We know that PPPs can be complex and expensive to bid. We are committed to measures that reduce the costs and time required through the procurement process, as well as providing clear guidance on the circumstances where a financial contribution to offset the costs of the procurement process might be expected.
In making bidding faster and cheaper, we do not want to dilute the engagement and feedback that occurs during the interactive tender process. In fact, we want to enrich the quality of these engagements so that they are not overly constrained by probity concerns and enable exchange of ideas and feedback that lead to the best possible solutions to our infrastructure problems.
Engaged clients
We also want to make sure that we have client-side teams that are appropriately skilled and resourced, supported by centralised expertise through the new NIA announced yesterday. We should not be afraid of funding this capability well as it will lead to greater value from our total project spend. We expect high performance from our contractors, and you should expect the same from your clients.
Strategic leasing
PPPs are not the only long-term performance-based delivery model we are interested in. There will be some circumstances where the Crown does not need to own an asset, and it can procure infrastructure services under simpler strategic leasing arrangements. Strategic leasing guidance will be included alongside our PPP Framework.
The funding piece
While there is a lot to be excited about, we must recognise that PPPs are not necessarily a funding solution, unless we can get the private sector to take significant revenue and demand risk.
Minister Simeon Brown has spoken about transport revenue opportunities, and tolling is a big opportunity, but in the New Zealand context availability-based PPPs will continue to be an important tool in incentivising high performance and whole of life optimisation of project outcomes. This means fronting up the money will continue to be a key element.
Looking forward
We are excited about the momentum in the prospective PPP pipeline and encourage you to continue engaging with delivery agencies to help shape their projects and set them up for success.
There are other issues I have not addressed but which are firmly in our sights, such as right-sizing liquidated damages, the potential role of Crown finance, and a Public Sector Comparator that adequately accommodates the whole-of-life benefits a PPP.
I am expecting final advice on the future New Zealand PPP Framework by the end of September and that we will be publishing our approach to future transactions later in the year.
CONCLUSION
What all this work reflects is that we have reached another inflection point in New Zealand’s history. The 1970s and early 80s were a period characterised by excessive government intervention, mounting red tape and poor productivity. This was followed by a period of de-regulation and rapid growth in private sector investment. That unlocked productivity gains which lasted well into the 2010s before being severely eroded in the last decade.
By reforming the planning system to make it predictable and simple, and refreshing our infrastructure system and delivery culture, we can make New Zealand attractive for the private sector to invest in public infrastructure again.
This government’s reforms will restore New Zealand’s productivity and focus on growing our wealth as a nation. I look forward to working with you to achieve that outcome.
Thank you.
