This week at the Auckland transport summit 2014, experts from around New Zealand will gather in Auckland to discuss transport infrastructure planning solutions to address Auckland’s growing urban transport problems.
Entirely missing from the debate however, will be an open public discussion of how such infrastructure will be paid for by all New Zealanders, and paid to whom?
Having recently returned to New Zealand after several years in financial campaigning in London, I was interested to see what was being proposed in New Zealand across the infrastructure planning and finance space. The answer is PPP. Upon leaving a planning role with Napier City Council in 2006, I spent 3 years in Melbourne with State transport authority VicRoads, before briefly entering the consultancy game.
Through the experience of working on projects including the Calder Corridor and Geelong bypass in Melbourne and Sydney West Metro underground rail, I have seen the best and worst of what the private and public sector have to say and do on infrastructure development.
Compared with Melbourne, Sydney is a transport infrastructure basket-case, suffering from 20 years of State Government decision making paralysis. While the construction companies hate the constant transport planning u-turns, for the planning and engineering consultants, it’s a fee earning gold mine, with taxpayer funded “team-building” gigs sailing on Sydney harbour all the rage.
Ideologically I am not wedded to either public or private sector approach to infrastructure delivery. I am however extremely concerned about who pays for infrastructure, and that what is designed and built is fit for purpose and meets demonstrable public needs.
In the mid 1990’s Australia and the UK embarked on a infrastructure financing model called the Private Finance Initiative (PFI/PPP) to fund public infrastructure including schools, roads and hospitals “off balance sheet” using more expensive bank finance, instead of Government borrowing.
Whilst PFI has proved a gold mine for private financiers and construction firms, it’s been a disaster for the UK taxpayer.
To pay back £55 billion of PFI/PPP infrastructure will cost UK taxpayers £301 billion over the next 30 years.
Interest charges on PFI bank finance are at least double the cost of Government borrowing. In the NHS, academic Allyson Pollock has stated PFI has frequently meant “one hospital for the price of two.”
Our Prime Minister John Key spent his working life in London within a banking environment where such profits at taxpayers expense were considered not only desirable, but entirely normal.
With the recent creation of the Auckland “super city” and talk of local government mergers in Hawkes Bay where I grew up, I see plenty of warning signs that PFI/PPP super profits are occupying the thinking of politicians here, and taxpayers have every right to be concerned.
It turns out that the modern infrastructure industry is not especially concerned with financing development, its objective is developing finance.
The aim is to get as much private bank debt out the door as humanly possible with unsuspecting taxpayers on the hook to pay for it.
The public utility of any planned infrastructure (if it is even needed) is of secondary concern to authorities, whose job is to maximise private profits. Planned Public-Private (PPP) infrastructure projects including the Ruataniwha Dam in Hawkes Bay, and Transmission Gully in Wellington should be considered and scrutinised in this light. Coincidentally, both PPP projects which are financed by BNZ.
The “vertical integration” or alignment of commercial interest between the infrastructure developers and the bank is so complete that Andrew Pearce, the Chairman of HBRICL who are developing the Ruataniwha Dam project also sits on the BNZ board.
There is no accusation of impropriety involved, but taxpayers should certainly question whose interests are being advanced through development of the Ruataniwha Dam – local rate payers, or BNZ shareholders? to whom Pearce has a “fiduciary duty” to maximise BNZ profits.
PPP projects are typically designed to benefit from economies of scale and suck up thousands of hours of expensive private sector engineering and environmental consultants time.
However spend a few hours reading through a typical economic business case used to justify a PPP project and you’ll quickly discover more clouds of doubt than your average long range mountain forecast.
Economic forecasting is frequently full of grandiose predictions, models and assumptions. Build it and they will come, as opposed to projects servicing demonstrable existing needs.
PPP projects are fantastic business for the private sector, as lending to central government involves zero risk of default. Profits for private sector firms engaging in UK PFI/PPP projects reach 60-70% returns, as compared with 3% returns on standard construction projects.
Tangible benefits for taxpayers however are much more elusive to pin down, with many PPP projects owned, controlled and run via offshore shell companies paying negligible taxes. PFI/ PPP contracts are deemed “commercially sensitive” and are not made available for scrutiny in the public realm.
Despite the criticisms, let’s be clear about one thing. We need good public infrastructure. That much is obvious.
Road and rail networks connect trade and commerce, ports connect us to global markets and modern schools and universities ensure a skilled and innovative workforce.
We must however question an “infrastructure at any costs” philosophy, designed to indebt future generations for decisions made today in the interests of private sector profiteers, not the taxpaying public.
There are other means of funding infrastructure which much be explored before committing future generations of taxpayers to the folly of PPP.
A 2011 UK Treasury Select Committee Report on PFI/ PPP found the cost of bank borrowing to be at least twice as expensive as Government finance.
Questions must be asked why direct Government financing of projects like Transmission Gully, Auckland rail development and Ruataniwha Dam is not on the table alongside PPP. Where is the alternative?
We also have the option of public banks, like the Bank of North Dakota in the USA. The Bank of North Dakota has a mandate to support the local economy, support other local banks and fund rural businesses, infrastructure and irrigation projects of a type identical to Hawkes Bays Ruataniwha Dam.
The difference however, is that interest payments and profits at public banks (being State owned) are reinvested in the state, not siphoned off by private profiteers such as Australian owned BNZ - who finance both Transmission Gully and Ruataniwha Dam PPP projects.
When a public bank like the Bank of North Dakota makes lending decisions, we can be reasonably assured both the infrastructure project itself, and the profits that derive from it are aligned with, and ensure benefits for, local citizens. When private banks like BNZ are involved in infrastructure planning and finance on a strictly for-profit basis, we have no such assurances, and should remain vigilant to the corrupting effects that for-profit private infrastructure finance can, and demonstrably have had on democracy in the UK.