Allens

Construction & Major Projects

Increase text sizeDecrease text sizeDefault text size

Client Update: New infrastructure opportunities in New Zealand

19 March 2010

In brief: The New Zealand Government recently released its National Infrastructure Plan. The plan signals a move towards greater private sector involvement in infrastructure procurement and management. This move gives rise to opportunities for industry participants. Partner Emma Warren (view CV) and Senior Associate David Donnelly report.

Background

The New Zealand Government has embarked on an economic growth program. One of the six core policy drivers for this program is investment in productive infrastructure. The National Infrastructure Plan (available through the National Infrastructure Unit's website) fleshes out the New Zealand Government's planning around infrastructure.

The plan outlines New Zealand's changing demographics and infrastructure needs, and describes the capital constrained environment in which the required infrastructure will be delivered. These factors necessitate greater private sector involvement in the provision of public infrastructure. The plan examines New Zealand's infrastructure needs and issues on a sector-by-sector basis, focusing on:

  • road transport;
  • rail;
  • ports and airports;
  • energy;
  • telecommunications;
  • water; and
  • social infrastructure – health, education and corrections.

The New Zealand Government's stated focus is on making smarter, high-quality investments in new infrastructure and improving the management of its existing NZD110 billion portfolio of infrastructure assets. Key decision drivers include:

  • value for money;
  • whole-of-life asset management; and
  • appropriate risk allocation and mitigation.

In light of these drivers, the New Zealand Government has stated that it is keen to access the private sector's skills and expertise through public private partnerships, or other procurement methods, where appropriate projects exist.

Facilitating private sector involvement

In order to facilitate private sector involvement, the New Zealand Government has made a number of structural changes, including:

  • the creation of the portfolio of Minister for Infrastructure and the creation of two new supporting bodies: the National Infrastructure Unit and the National Infrastructure Advisory Board; and
  • legislative reforms aimed at facilitating private sector investment in infrastructure.

In addition to further improvements to the regulatory environment, there are plans to create an infrastructure investment framework based on a set of published principles. Given New Zealand's commitment to maintaining a single economic market with Australia, it is hoped that these principles will reflect existing Australian principles and practices.

Opportunities

The plan identifies five immediate infrastructure priorities: broadband, electricity transmission, regulatory reform, roads of national significance, and the Rugby World Cup 2011.

These priority projects are already largely funded.

Given the needs and issues examined in the plan's sector-by-sector analysis, it appears likely that opportunities for private sector involvement (at least initially) will arise in the social infrastructure space. Social infrastructure represents a significant draw on budgetary resources and stands to benefit the most from the introduction of private sector discipline. While the plan does not earmark specific projects for private sector involvement, it is possible to identify several sectors where opportunities are likely to arise:

Sector Current funding source Future infrastructure requirements Private sector opportunities
Education General taxation Significant:

Demand for new schools will mainly be driven by a redistribution of school-age children towards key centres.

Likely:

The media has recently reported that a trial school PPP will be announced in the May Budget.

Corrections General taxation Significant:

Demand for both new capacity and the replacement of beds.

Current estimate: NZD915 million over ten years.

Likely:

The New Zealand Government is currently investigating a prison PPP.

Legislative amendments have been made to allow for privately operated prisons.

Health Predominantly general taxation Significant:

Demand for both new capacity and upgrades (including significant upgrades of clinical equipment).

Likely:

A new business unit is being established within the Ministry of Health to investigate alternative ways of delivering health services.

Conclusion

The New Zealand Government's National Infrastructure Plan signals a move towards increased private sector involvement in infrastructure procurement and management. This will create opportunities for industry participants, particularly in the social infrastructure space.

For further information, please contact:

Share or Save for later

What are these?

 

To save this publication on your smartphone or
tablet for off-line reading (eg on a plane flight),
we recommend Pocket.