{"id":4184,"date":"2014-11-18T03:26:47","date_gmt":"2014-11-18T03:26:47","guid":{"rendered":"http:\/\/neweconomics.net.nz\/?p=4184"},"modified":"2014-11-19T01:39:03","modified_gmt":"2014-11-19T01:39:03","slug":"ppp-infrastructure-finance-a-case-of-public-pain-for-private-profit","status":"publish","type":"post","link":"https:\/\/neweconomics.net.nz\/index.php\/2014\/11\/ppp-infrastructure-finance-a-case-of-public-pain-for-private-profit\/","title":{"rendered":"PPP Infrastructure Finance \u2013 A Case of Public Pain for Private Profit..?"},"content":{"rendered":"

The following is an article written by kiwi Joel Benjamin who is in the country for three months. Formerly from Hawkes Bay, he is currently a researcher for Goldsmith University in London and was formerly a campaigner for public finance.<\/em><\/p>\n

\"oblique-view-img4\"<\/a>It’s time for a serious public debate on infrastructure future.<\/p>\n

This week at the Auckland transport summit 2014<\/a>, experts from around New <\/p>\n

Zealand will gather in Auckland to discuss transport infrastructure planning <\/p>\n

solutions to address Auckland\u2019s growing urban transport problems.<\/p>\n

Entirely missing from the debate however, will be an open public discussion of <\/p>\n

how such infrastructure will be paid for by all New Zealanders, and paid to <\/p>\n

whom?<\/p>\n

Having recently returned to New Zealand after several years in financial <\/p>\n

campaigning in London, I was interested to see what was being proposed in New <\/p>\n

Zealand across the infrastructure planning and finance space. The answer is PPP.<\/p>\n

Upon leaving a planning role with Napier City Council in 2006, I spent 3 years in <\/p>\n

Melbourne with State transport authority VicRoads, before briefly entering the <\/p>\n

consultancy game.<\/p>\n

Through the experience of working on projects including the Calder Corridor and <\/p>\n

Geelong bypass in Melbourne and Sydney West Metro underground rail, I have <\/p>\n

seen the best and worst of what the private and public sector have to say and do <\/p>\n

on infrastructure development. <\/p>\n

Compared with Melbourne, Sydney is a transport infrastructure basket-case, <\/p>\n

suffering from 20 years of State Government decision making paralysis. <\/p>\n

While the construction companies hate the constant transport planning u-turns, <\/p>\n

for the planning and engineering consultants, it\u2019s a fee earning gold mine, with <\/p>\n

taxpayer funded \u201cteam-building\u201d gigs sailing on Sydney harbour all the rage.<\/p>\n

Ideologically I am not wedded to either public or private sector approach to <\/p>\n

infrastructure delivery. I am however extremely concerned about who pays for <\/p>\n

infrastructure, and that what is designed and built is fit for purpose and meets <\/p>\n

demonstrable public needs. <\/p>\n

In the mid 1990\u2019s Australia and the UK embarked on a infrastructure financing <\/p>\n

model called the Private Finance Initiative (PFI\/PPP)<\/a> to fund public <\/p>\n

infrastructure including schools, roads and hospitals \u201coff balance sheet\u201d using <\/p>\n

more expensive bank finance, instead of Government borrowing. <\/p>\n

Whilst PFI has proved a gold mine for private financiers and construction firms, <\/p>\n

it\u2019s been a disaster for the UK taxpayer. <\/p>\n

To pay back \u00a355 billion of PFI\/PPP infrastructure will cost UK taxpayers \u00a3301 <\/p>\n

billion over the next 30 years.<\/em><\/p>\n

Interest charges on PFI bank finance are at least double the cost of Government <\/p>\n

borrowing. In the NHS, academic Allyson Pollock<\/a> has stated PFI has frequently <\/p>\n

meant \u201cone hospital for the price of two.\u201d<\/p>\n

Our Prime Minister John Key spent his working life in London within a banking <\/p>\n

environment where such profits at taxpayers expense were considered not only <\/p>\n

desirable, but entirely normal.<\/p>\n

With the recent creation of the Auckland \u201csuper city\u201d and talk of local <\/p>\n

government mergers in Hawkes Bay where I grew up, I see plenty of warning <\/p>\n

signs that PFI\/PPP super profits are occupying the thinking of politicians here, <\/p>\n

and taxpayers have every right to be concerned.<\/p>\n

It turns out that the modern infrastructure industry is not especially concerned <\/p>\n

with financing development, its objective is developing finance. <\/p>\n

The aim is to get as much private bank debt out the door as humanly possible <\/p>\n

with unsuspecting taxpayers on the hook to pay for it. <\/p>\n

The public utility of any planned infrastructure (if it is even needed) is of <\/p>\n

secondary concern to authorities, whose job is to maximise private profits. <\/p>\n

Planned Public-Private (PPP) infrastructure projects including the Ruataniwha <\/p>\n

Dam in Hawkes Bay, and Transmission Gully in Wellington should be considered <\/p>\n

and scrutinised in this light. Coincidentally, both PPP projects which are financed <\/p>\n

by BNZ. <\/a><\/p>\n

The \u201cvertical integration\u201d or alignment of commercial interest between the <\/p>\n

infrastructure developers and the bank is so complete that Andrew Pearce, the <\/p>\n

Chairman of HBRICL who are developing the Ruataniwha Dam project also sits <\/p>\n

on the BNZ board.<\/strong><\/p>\n

There is no accusation of impropriety involved, but taxpayers should certainly <\/p>\n

question whose interests are being advanced through development of the <\/p>\n

Ruataniwha Dam \u2013 local rate payers, or BNZ shareholders? to whom Pearce has a <\/p>\n

\u201cfiduciary duty\u201d to maximise BNZ profits.<\/p>\n

PPP projects are typically designed to benefit from economies of scale and suck <\/p>\n

up thousands of hours of expensive private sector engineering and <\/p>\n

environmental consultants time.<\/p>\n

However spend a few hours reading through a typical economic business case <\/p>\n

used to justify a PPP project and you\u2019ll quickly discover more clouds of doubt <\/p>\n

than your average long range mountain forecast. <\/p>\n

Economic forecasting is frequently full of grandiose predictions, models and <\/p>\n

assumptions. Build it and they will come, as opposed to projects servicing <\/p>\n

demonstrable existing needs.<\/p>\n

PPP projects are fantastic business for the private sector, as lending to central <\/p>\n

government involves zero risk of default. Profits for private sector firms <\/p>\n

engaging in UK PFI\/PPP projects reach 60-70% returns<\/a>, as compared with 3% <\/p>\n

returns on standard construction projects.<\/p>\n

Tangible benefits for taxpayers however are much more elusive to pin down, <\/p>\n

with many PPP projects owned, controlled and run via offshore shell companies <\/p>\n

paying negligible taxes. PFI\/ PPP contracts are deemed \u201ccommercially sensitive\u201d <\/p>\n

and are not made available for scrutiny in the public realm.<\/p>\n

Despite the criticisms, let\u2019s be clear about one thing. We need good public <\/p>\n

infrastructure. That much is obvious. <\/p>\n

Road and rail networks connect trade and commerce, ports connect us to global <\/p>\n

markets and modern schools and universities ensure a skilled and innovative <\/p>\n

workforce. <\/p>\n

We must however question an \u201cinfrastructure at any costs\u201d philosophy, designed <\/p>\n

to indebt future generations for decisions made today in the interests of private <\/p>\n

sector profiteers, not the taxpaying public.<\/p>\n

There are other means of funding infrastructure which much be explored before <\/p>\n

committing future generations of taxpayers to the folly of PPP.<\/p>\n

A 2011 UK Treasury Select Committee Report on PFI\/ PPP found the cost of bank <\/p>\n

borrowing to be at least twice as expensive as Government finance.<\/em> <\/p>\n

Questions must be asked why direct Government financing of projects like <\/p>\n

Transmission Gully, Auckland rail development and Ruataniwha Dam is not on <\/p>\n

the table alongside PPP. Where is the alternative?<\/p>\n

We also have the option of public banks, like the Bank of North Dakota in the <\/p>\n

USA. The Bank of North Dakota has a mandate to support the local economy, <\/p>\n

support other local banks and fund rural businesses, infrastructure and <\/p>\n

irrigation projects of a type identical to Hawkes Bays Ruataniwha Dam.<\/p>\n

The difference however, is that interest payments and profits at public banks <\/p>\n

(being State owned) are reinvested in the state, not siphoned off by private <\/p>\n

profiteers such as Australian owned BNZ – who finance both Transmission Gully <\/p>\n

and Ruataniwha Dam PPP projects.<\/p>\n

When a public bank like the Bank of North Dakota<\/a> makes lending decisions, we <\/p>\n

can be reasonably assured both the infrastructure project itself, and the profits <\/p>\n

that derive from it are aligned with, and ensure benefits for, local citizens.<\/p>\n

When private banks like BNZ are involved in infrastructure planning and finance <\/p>\n

on a strictly for-profit basis, we have no such assurances, and should remain <\/p>\n

vigilant to the corrupting effects that for-profit private infrastructure finance <\/p>\n

can, and demonstrably have had on democracy in the UK.<\/p>\n","protected":false},"excerpt":{"rendered":"

The following is an article written by kiwi Joel Benjamin who is in the country for three months. Formerly from Hawkes Bay, he is currently a researcher for Goldsmith University in London and was formerly a campaigner for public finance. … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[69,291],"tags":[739,741,738,737,740],"_links":{"self":[{"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/posts\/4184"}],"collection":[{"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/comments?post=4184"}],"version-history":[{"count":13,"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/posts\/4184\/revisions"}],"predecessor-version":[{"id":4198,"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/posts\/4184\/revisions\/4198"}],"wp:attachment":[{"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/media?parent=4184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/categories?post=4184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/neweconomics.net.nz\/index.php\/wp-json\/wp\/v2\/tags?post=4184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}