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Rortwatch: closing prisons to justify Wiri

Written By: - Date published: 9:15 am, March 23rd, 2012 - 15 comments
Categories: capitalism, prisons, privatisation - Tags:

1,200 prison beds, 1 in 8, are empty plus the 1,300 bed reserve. Prisoner numbers are projected to keep falling. So, why are the Nats spending a billion dollars on the Wiri private prison? And where will they get the prisoners? By closing existing public prisons. Rather than upgrading what we have more cheaply they’ll let a foreign company make a profit off locking people up.

This is part of the problem with private prisons. The prison owners have a profit motive to make sure they have enough prisoners. In the States, that often means they fund ‘tough on crime’ lobby groups (btw, how come Sensible Sentencing never releases a list of its major donors?). Here, it’s closing down existing private prisons. I would love to see the correspondence between the government and Serco over these prison closures (you would never get it, they would claim commercial sensitivity – a nice fig leaf for National to hide its privatisation plans behind).

And the government has an incentive to direct prisoners to private prisons, as well. Beyond the political motives of needing a full prison to show private prisons work there is a fiscal element. The old prisons’ capital value is long depreciated on the government’s books but it will be shelling out $300m to build this new prison and then be locked into paying for its $30m+ operating costs for 25 years. It makes more sense in the government’s accounts to keep the private prison well stocked, since it’s paying for it regardless, and stop using some old prisons that have a minimal cost associated with them if they sit empty. The alternative is to let the new prison sit empty, which is what happened with a lot of the public-private partnerships in the UK and those PPP ‘ghost roads’ in Australia, until the government realised the ‘solution’ was to cut public capacity.

Even Treasury sees that paying someone a profit for providing a service the government does on a non-profit basis just means more costs and being locked in for 25 years adds to the costs: “there is little reliable empirical evidence about the costs and benefits of PPPs” and that there “are other ways of obtaining private sector finance”, as well as that “the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail”. Simply, government’s cost of capital is lower than the private sector’s – for that reason paying the private sector to provide a public good like prisons or electricity is always going to be more expensive. Unless you think there are ‘productivity fairies’ at the bottom of the garden that only the private sector knows about for some reason.

Of course, the more sensible thing is just not to build this white elephant prison in the first place. The old prisons need upgrades but its hard to see how that could cost as much as a new prison plus all the transition costs for prisoners and staff. And, by not signing into a quarter-century long deal with a profit-making entity, the government wouldn’t be locking us into a situation of having to pay for beds whether we need them or not so that some foreign shareholders can make a profit.

But can you see this privatisation-obsessed government taking the sensible option?

15 comments on “Rortwatch: closing prisons to justify Wiri”

  1. Clashman 1

    Time to get the pitchforks out and head to Wellington, methinks.

  2. ghostwhowalksnz 2

    AS I pointed out before the ’empty prison beds’ you refer to is just a sleight of hand most of which is double bunking.

    And total prison numbers projected to fall ? They have NEVER been correct in any projection of prison numbers before. Why should they be suddenly have clear foresight now. And if you think falling crime numbers will be responsible, that is a political figure now which is massaged to give the result the politicians want.

    In New York city they have an emphasis on stats so you get crimes that are ‘armed robbery’ which become ‘lost property’ for statistical purposes. And if you are a serving policeman who becomes a whistleblower on the stats falsehoods, then you end up in a psychiatric hospital after a raid on your home by the equivalent of a police superintendent and a assistant commissioner

  3. (A different) Nick K 3

    Putting aside the economic argument (which itself stacks up against private prisions) there are certain functions that should always be the government’s responsibility and running prisons is clearly one of them.

    • tc 3.1

      Problem is that with the NACT ‘certain functions that should always be the government’s responsibility ‘ doesn’t fit in to their ideology so you can forget about them taking any responsibility.

  4. DH 4

    The big alarm with these PPPs is the finality of the contracts. The Audit Office advised that contracts of this type should not be longer than about 5yrs after auditing the Papakura Council water contract. It’s standard business practice to insert an escape clause in contracts of this nature. No-one signs up to an inescapable payout for 25-35yrs, it’s just not done.

    If Labour has any business nous they’d concentrate on the length of these PPP contracts and the inability of the Govt to end them. They should IMO be pushing for criminal investigations into every PPP contract that doesn’t have a reasonable escape clause. Keep it simple; if the contract can’t be broken then someone needs to go to jail for reckless incompetence or actual fraud.

    (any Govt contract with the private sector should be for no longer than 5-6yrs with right of renewal options)

    • Bored 4.1

      Could not agree more with where Labour needs to keep the pressure: limiting contracts to 5 years would have one salient benefit….the private sector would probably not invest. I base this observation on the cost of capital which tends to reward longer term “safe” contracts with lower interest rates. Most PPPs I have observed are highly marginal in terms of profit unless subsidised or offset against expected inflation effects.

      • DH 4.1.1

        I don’t think it would stop private investment, just establish a reasonable balance of the risk. With PPPs where the private sector is financing the building the contracts just need a 5-6yearly escape clause whereby the Govt can buy the prison or whatever at residual book value and end the contract.

        There is no commercial justification for unbreakable 25yr contracts, none whatsoever.

        • Bored

          Which sort of raises the question of why go private if the state can borrow at a lesser rate and does not have to receive minimized tax returns on any profits etc?

          • DH

            Yes it does raise questions. The fans of PPPs claim up to a 25% cost reduction which is really only the project management side of it; they reckon they can build the structures a bit cheaper. On the financial side a 25% saving doesn’t translate into any saving at all for the taxpayer because PPPs are essentiallly a mortgage and the interest rate from the private sector is a whole lot higher than what Govt can borrow for.

            The only real advantage from Govt perspective is it keeps debt off the books. The debt is still there but it’s not in the Crown accounts as debt.

  5. joe90 5

    Perhaps they’ve given their mates a guarantee that they’ll maintain a 90% occupancy rate for at least 20 years.

  6. Mount Crawford in Wellington is part of a Treaty settlement so we will see what they do with it.

  7. Draco T Bastard 7

    (you would never get it, they would claim commercial sensitivity – a nice fig leaf for National to hide its privatisation plans behind)

    An agreement with the government is an agreement with the people and thus the people have a right to see that agreement, what brought it about and the results of that agreement. Anything else is dictatorial oppression as it removes peoples freedom to govern themselves.

    The old prisons need upgrades but its hard to see how that could cost as much as a new prison plus all the transition costs for prisoners and staff.

    Actually, it could easily cost more to upgrade the old prisons. A lot of them just won’t be up to modern earthquake standards and so the upgrade would be less cost effective than a new prison but the new prison should be in the same geographical area.

  8. yeshe 8

    These things I believe to be true .. currently at Mt Eden there is no chaplain or equivalent for any prisoner to talk with or receive counsel from; all numeracy and literacy classes, even those offered by outside volunteers have been stopped; inmates are kept locked up together in larger numbers for longer due to staff shortages … ah yes, the free market. And when I tell people here in Auckland that American Express is one of the biggest owners of prisons in the USA, they can scarce believe it. Mr Key must be in line for some very big payoff at the end of his great And rapid destruction of New Zealand’s way of being and living.

  9. weizguy 9

    I’m 100% in agreement on the issue of private prisons. However, I can advise that it is cheaper to build a new prison than it would be to upgrade the older prisons – Wellington Prison is in an awful state, New Plymouth isn’t much better, and the Waikeria ones are the worst of the lot.

  10. Campbell Larsen 10

    Three birds with one stone?

    Corrections $$$ for private prison operators, land opened up for developers and a new park for Sir Peters Mirimar studio. Nice.
    Who said the Nats weren’t generous? Know the right people and anything is possible.

    Sir Peter Jackson is reported to have advocated a public park on the land, which overlooks his Miramar-based film studio.

    Courtesy of a Stuff ‘consult the businessman’ patsy interview with the far from impartial Enterprise Miramar spokesman.

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