Bank of Tokyo–Mitsubishi, Macquarie Group in rival consortiums short-listed for Transmission Gully highway PPP project

Bank of Tokyo–Mitsubishi, Macquarie Group in rival consortiums short-listed for Transmission Gully highway PPP project

The Bank of Tokyo–Mitsubishi, which has a growing presence in New Zealand as a corporate lender, features in one of two consortiums short-listed by the Government for the Transmission Gully public-private partnership (PPP) roading project.

Transport Minister Gerry Brownlee says the Bank of Tokyo–Mitsubishi is a member of the Wellington Gateway Partnership, a consortium led by Leighton Contractors Pty Ltd, and which also includes HEB Construction Ltd, InfraRed Infrastructure General Partner Ltd, and the Accident Compensation Corporation.

The second consortium, Positive Connection, includes Macquarie Group Holdings New Zealand Ltd. It's led by John Laing Investments Ltd, and includes Fulton Hogan Ltd, The Fletcher Construction Company Ltd, and Woodward Infrastructure Ltd as general partner of the Morrison & Co managed Public Infrastructure Partners LP.

The Bank of Tokyo-Mitsubishi, which operates in New Zealand as a specialist lender to big companies, grew corporate loans by more than two of the country's big four banks in the December quarter. It operates in New Zealand as "the Auckland Branch" of Japan's Bank of Tokyo-Mitsubishi UFJ Ltd, and has grown assets to a level where it's bigger than SBS Bank, plus new banks Heartland Bank and the Co-operative Bank, with total assets of NZ$2.86 billion.

Brownlee says the 27 kilometre Transmission Gully highway will form a key part of the Wellington Northern Corridor, one of seven key state highway routes being progressed by the Government as Roads of National Significance. The road's price tag was initially put at NZ$1 billion, but opposition MPs reportedly claim it could rise as high as NZ$3.4 billion.

Brownlee says Cabinet's approval last year of an application from the New Zealand Transport Agency (NZTA) to pursue a PPP to finance, build and maintain the highway had allowed the project to progress.

"The announcement of a short-list is another important step towards beginning construction of the Transmission Gully project in 2014 and opening the road by 2020, delivering the economic and safety benefits to New Zealanders within eight years," says Brownlee.

Successful bidder to be named in 2014

NZTA chief executive Geoff Dangerfield says the announcement of the short-listed consortium came after a "rigorous evaluation and selection process." A request for proposal will be issued to the consortiums in May, with NZTA planning to announce the successful bidder in early 2014.

"The NZTA is proposing to use an availability and performance-based PPP contract for the design, construction, operation and maintenance of the Transmission Gully highway," says Dangerfield. "This is what the two short-listed consortiums will bid on."

"A key requirement for either consortium to be successful would be to demonstrate that their proposal would provide better value for money over the life of the road than could be achieved using traditional procurement models."

Under a PPP the successful bidder would put up the capital to design and construct the highway, and would then operate the publicly-owned road for 25-years. The consortium would recover the initial construction costs and ongoing financing and maintenance costs through regular, fixed payments from the NZTA.

"Under the terms of the PPP contract, the successful consortium would only be paid when the road is open to traffic and specified performance levels have been met. Payments would be linked to the road’s performance, not to the volume of traffic using the road," says Dangerfield.

Interest.co.nz reported last year that NZTA paid out NZ$30.8 million over six years to bidders for national roading projects, including unsuccessful bidders, to help cover the cost of their bids.

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11 Comments

Great PPPs work so well for the Tax payer and as we have no money as a country that is the best answer for us. Oh dear.  It is well known that PPPs only work for the financiers and then only some times. The NZ taxpayer si going to guarantee to make fixed payments to a Japanese bank or whatever for 25 years! Great.
Why are we doing this- it makes absolutely no sense at all
 

Given Transmission Gully is one of those things that should have been done years ago and will make life easier for folk living in Kapiti and surrounding areas to commute to Wellington, how do you propose the tax payers finance the project?

Craig,
See my answer below to Plan B, which crossed yours..
If the road does make sense- and this particular one, I agree, does make sense to me anyway- then if money has to be printed to fund it (and absolutely certainly the Japanese money will be printed, directly or indirectly), then we should print it ourselves, and not burden ourselves with interest or other offshore costs for decades to come.

Stephen
Cheapest way I can see us funding this particular project is issue some long dated Govt Bonds and sell them to Sovereign Wealth funds and other institutional players.

Craig,
I understand that sort of investment is the current paradigm; and probably better than a PPP (and certainly so, if the Bonds are sold to NZers). Selling them to foreigners not only means international commitments indefinitely, (or at least for the life of the Bonds), but has the double whammy of lifting the exchange rate further when it is already massively overvalued.
If there is a good business or social case for infrastructure, then local NZ bonds are fine; if there is not enough money here, then the RBNZ could print some and loan it to Treasury, as nearly every other country is doing to build their economies and improve infrastructure.

Craig
The taxpayer is financing the project. The 25years of guaranteed Government payments are the thing that props the whole thing. The thing is that what was once a relatively straightforward exercise has been financialised to the benifit of those doing the financialisation and to the cost of everyone else. Over time this sort of thing becomes normalised and we end not even knowing that there is a simplier less expensive option for building New Zealand. This is a rort that only works when you have real political influence. Finance has this influence now. So we see PPP prisons, schools, roads. We are told that government has no money but banks do as if a Bank in Japan is stuffed full of New Zealand dollars. They don't. Financialisation is a curse on an economy. It is rent seeking behaviour at its worst. We end up paying for stuff over and over again.
 

Plan B,
Couldn't agree more.
The following ironies are also true:
The Bank of Tokyo Mitsubishi will inevitably be using money printed by the Japanese government. I know from experience that most readers of this site- and Bill English- are vehemently opposed to money printing. But if it is printed yen coming in to NZ that has no different effect on the money supply as printing our own money and paying for this road. Except that then we make free gifts presumably forever to the Japanese to pay for the road twice.
But wait, it gets worse; even Bill English yesterday admitted that the exchange rate was indeed overvalued ( a little before he admitted that the business case was dubious for the Roads of National significance; or generally better named Provincial highways with limited use, and they were really only building them as they were in the National manifesto).
Giving a free gift to the Japanese in this way not only guarantees a national loss for most of our lifetimes, it lifts the exchange rate further as the Japanese buy NZD to make the investment. That lift in the exchange rate does all sorts of damage to our economy at its current elevated rate.
See an excerpt from yesterday's Hansard:
Hon BILL ENGLISH: Yes, I do tend to agree with the Reserve Bank and the IMF on this matter, and I also agree with both of them that there is no easy or obvious fix to a relatively high exchange rate. That high exchange rate is driven by the relative health of the New Zealand economy compared with other developed economies. I would expect the exchange rate is likely to come down when other economies stop printing money and their interest rates start rising.
A very easy way to not make the exchange rate worse is for the government itself not to kneecap it by transactions such as this road deal; or by his Debt management office accessing printed offshore money to fund the fiscal deficit. If there is not enough money supply here with NZ investors, and money has to be printed to keep the supply at an appropriate level, then print our own. Don't make free gifts to foreigners for nothing.
 

Positive Connection, includes Macquarie Group Holdings New Zealand Ltd.
Wellington Gateway Partnership, includes InfraRed Infrastructure General Partner Ltd.
 
http://www.macquarie.co.nz/mgl/nz
Macquarie Group is a leading provider of financial, advisory, investment and funds management services.
 
http://ircp.com/
InfraRed manages specialist funds, creating value through investing in projects in infrastructure and real estate.
 
Niether of these companies appear to own a shovel. Betcha they have a shed load of ticket clipping machines though.

With a BCR of 0.6 it simply does not make business sense to build the thing, even if NZL printed the money 40% of the build cost would effectivley be just inflating away peoples NZD savings.
 
Geoff Dangerfields statement "Payments would be linked to the road’s performance, not to the volume of traffic using the road," is telling...What's the purpose of a road if it's not linked to the economics of carrying a volume of traffic.
 
Why build redundant capacity? - in some county's they call that a "White Elephant".
 
A different funding construct does not make a White Elephant change from being anything other than a White Elephant.
 
The irony is the Japanese have experience with funding this sort of infrastructure,  and it hasn't been a good experience see this article ...>
http://www.nytimes.com/2009/02/06/world/asia/06japan.html?pagewanted=all&_r=0
 

 "over-enthusiastic" spruikers of transport projects are "adding zeroes" to revenue forecasts to get public-private partnerships off the ground. INFRASTRUCTURE Australia boss Michael Deegan says
This week's lapse into receivership of BrisConnections, less than seven months after its $4.8 billion Airport Link Brisbane toll road opened, is the latest in a string of failures of the public-private partnerships model.
http://www.theaustralian.com.au/national-affairs/politics-news/toll-road...
 
Modelling toll roads - where have we gone wrong?
http://www.atrf11.unisa.edu.au/Assets/Papers/ATRF11_0193_final.pdf
 
http://www.infrastructure.gov.au/infrastructure/public_consultations/pat...
The Australian Government Department of Infrastructure and Transport is investigating the causes of over-optimistic patronage forecasts with the purpose of identifying potential remedies. This report contributes to that investigation via case studies of selected toll road projects to identify challenges in processes and opportunities for improvements, so that lessons from the past may guide practice in the future.
 
http://www.infrastructure.gov.au/infrastructure/infrastructure_reforms/f...
- found errors are common and are commonly Large - lol
 
given its the same bods trying it on here there could be lessons to be learned from Ozz.
 

TMG PPP

BCR = < 1? Go figure
IRR for PPP =>NZGov int? Go figure
Ticket Clipping =>$0. Now that figures