Infrastructure overhaul will create an independent project pipeline and new Crown agency for private sector collaboration

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.