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Transmission Gully: they profit, you pay

Written By: - Date published: 8:53 am, December 4th, 2013 - 34 comments
Categories: privatisation, transport - Tags:

The proponents of Public-Private Partnerships offer two justifications for the extra cost compared to normal government financing: 1) a mystical claim that the private sector will find efficiencies in a PPP that they wouldn’t find if they were just contracted to build a project normally and 2) risk is shared between the taxpayer and the private investors. Except it’s not.

In Australia, the PPPs worked by the private companies building the roads, maintaining them, and collecting tolls to fund it all. When it turned out the traffic projections were catastrophically wrong and people didn’t want to pay tolls, the government ended up bearing costs by paying bailouts and even closing publicly-owned roads to force more people to take the private toll road. But at least the private investors lost their shirts, first, because that’s how investment is meant to work – no reward without risk.

In New Zealand, National has learned from the Australian experience and found a way to make sure that the private investors in Transmission Gully make their profits, no matter what. It’s called an ‘availability model’. Instead of collecting tolls, the private company will be paid by $120-$130m a year by the taxpayer as long as the road is open (not exactly hard). Any tolls will be collected by the state, and go towards covering the cost of that payment (there’s no hope that tolls will actually cover the whole cost of the payments even on the government’s traffic projections because that would require a toll of $15 per trip).

So, in National’s model, all the risk is on the taxpayer. If traffic volumes are lower than expected, as is nearly always the way with these projects and especially likely with Transmission Gully because traffic volumes are already falling, the taxpayer pays just as much to the private investors but get less toll revenue to help offset that cost. The private investors make a mint – $3 billion over 25 yeas for building a $900 million road – no matter what.

That’s National’s New Zealand for you: all the risk is on the taxpayer, all the reward to the private investor. In Transmission Gully’s case, it’s particularly clear but if you look at all National’s corporate deals, it’s clear that any company that can convince National that its failure would impact on National’s political agenda has an effective taxpayer-funded guarantee.

34 comments on “Transmission Gully: they profit, you pay”

  1. Draco T Bastard 1

    Nice for some under this government.

    Always seems to cost the rest of us though.

    • Bob 1.1

      Huh, I though exactly the same thing around WFF and Interest Free Student Loans, these are nice for some, always seem to cost the rest of us though…..

      • Is that right, Bob? Pity for you then that John Key chose not to follow through on his initial criticisms of those “communism by stealth” policies (if I recall his words as opposition leader correctly). Seems he discovered through National’s internal polling that living up to his criticism and campaigning to get rid of these examples of “communism by stealth” would make him unelectable.

        Almost as if those pesky middle class NZ voters are actually far more left wing at heart than they sometimes realise, so much so that it would only vote National if they retain that “communism by stealth”. It’s been a long 5 years, but buyer’s remorse is finally setting in among them.

      • Draco T Bastard 1.1.2

        WfF is a subsidy to business so that they can continue to pay sub-par wages.
        Interest-free student loans shouldn’t exist because education should be freely available as its benefits for the country far outweigh the costs.

        • tc 1.1.2.1

          yes the sort of free education that most of the current MP’s would have enjoyed, especially the slippery one.

      • QoT 1.1.3

        I don’t think you understand the meaning of the word “loan”.

        • Ramsay 1.1.3.1

          I don’t think you understand the meaning of the phrase “interest free”

          • Draco T Bastard 1.1.3.1.1

            You know, it’s been known for thousands of years that charging interest inevitably causes the collapse of the economy and society. This is why all major religions that have come out of the ME ban charging interest.

  2. Tracey 2

    “1) a mystical claim that the private sector will find efficiencies in a PPP that they wouldn’t find if they were just contracted to build a project normally”

    Like up at Kaipara?

  3. vto 3

    This makes me so very cross….. f%#k!!*… arrrgh #@@nt&%$…..

    The National Party are a bunch of fucking losers and wankers.

    Pike River.

    Pike River

    Pike River

    Pike River

    Pike River

    Pike River

    29 men killed by these sorts of policies.

    29 men killed.

    Drop it you National Party arseholes. Drop it. Take your lessons.

    • Tim 3.1

      Don’t you mean “Take your learnings” ?
      That’s the latest buzz – linguistic invention, designed to spin and obfuscate.
      ….. trickle down
      ….. job creators
      ….. corporate citizenry
      …… stakeholders
      ……. etc, etc, etc
      …. Not long before we’ll be hearing “The NZ People” (a la “The American People” or “The Australian People”). I’m surprised Hooten hasn’t already tried it on.

  4. Ennui 4

    Another addition to the John Key Memorial Cycle-way……when the oil runs out!!!!! The “too big to fail” banks will be a long forgotten entity by then as will the debt. Perhaps we will have to swerve the overgrown diggers left on the roadside to rust….

    • infused 4.1

      1970: When the oil runs out…
      1980: When the oil runs out…
      1990: When the oil runs out…
      2000: When the oil runs out…
      2010: When the oil runs out…
      2013: When the oil runs out…

      Ok.

      • BM 4.1.1

        Why do you think they’re fighting the off shore drilling so hard.

        Probably enough oil and gas out in the oceans to last another 10,000 years, if we want to stay with petroleum.

        • Draco T Bastard 4.1.1.1

          There may be enough fossil fuels left to last a few more decades but we want to last the 10,000 years which we won’t be able to do if we burn it.

      • Lightly 4.1.2

        have you seen the price of petrol?

        peak oil isn’t about oil ‘running out’, it’s about not being able to produce enough to meet demand at an affordable price, leading to it become ‘too expensive to burn’, resulting in demand destruction…. which is what we’re seeing in a number of countries as oil demand falls/recession hit.

        • BM 4.1.2.1

          Most of what we pay at the pump is taxes.
          Remove those taxes and all of a sudden petrol’s looking cheap again.

          Thinking about it, if I was Key I’d say “if we strike oil offshore all taxes accept GST will be removed from the price of petrol.

          Then everyone would be like “DRILL,DRILL,DRILL” and National would win the next election by a landslide.

          Hmm, maybe I should email him.

          • fender 4.1.2.1.1

            Those petrol taxes you want to remove help pay for future roading projects, not to mention the extra few cents Bill English whacked on to help balance the budget this time last year. Better not send that email, he doesn’t need reminding how stupid his supporters are, he already knows.

            • BM 4.1.2.1.1.1

              Off shore drilling will pay for all the future roading projects.

              Four lanes + all the way from Auckland to Wellington.

              • fender

                That’s one way to scare the likes of Anadarko off..

                “Auckland to Wellington”

                What happened to the rest of NZ? Did Nact sell it off overnight?

              • McFlock

                Offshore drilling won’t even pay for the last round of tax cuts key gave himself and his cronies.

              • fender

                Reply went into moderation, will try again.

                “Off shore drilling will pay for all the future roading projects.”

                That will scare the Anadarko’s away, good plan.

                “Auckland to Wellington”

                What happened to the rest of NZ? Did National sell it off overnight?

              • Draco T Bastard

                Off shore drilling will pay for all the future roading projects.

                Wow, you really are gullible aren’t you?

                If that were the case then present drilling would be paying for the present roads and it’s clearly not.

          • Lightly 4.1.2.1.2

            no, remove the taxes and the price of petrol has still doubled over the past decade

          • Tracey 4.1.2.1.3

            yo do understand that anadarko isnt a charity right? And the oil will be going far far away if they find it? Even fiji has worked out that if foreigners want to make a shitload of money in their country then 20% has to go to the government coffers.

    • Bob 4.2

      Like the “too big to fail” power companies? We should keep 100% ownership in them then cos they are guaranteed income forever……..

      • Francis 4.2.1

        We should keep 100% ownership in them because power is a necessity for all households and businesses within New Zealand. Makes no difference if the companies are making a trillion dollars a year or 50c per year, we’ll still need the power from them.

        In the case of power generating companies, they’re not too big to fail. They’re too important to fail. Complete government ownership means they’re guaranteed not to fail, particularly if run under a non-profit model like they always used to be…

  5. Will@Welly 5

    Another one of Bill English’s “nice to have’s” unless you’re poor, working class or otherwise. The old double-standard rules. Another example of why the Treasury heads should have been king-hit back in the ’80’s for ever having dis-established the old Ministry of Works. These guys were geniuses – Treasury was/is a ship of fools. Transmission Gully will cost $3 billion – how efficient is that ?

    • Murray Olsen 5.1

      The Ministry of Works gave the nation a strategic ability to do things in a hurry. Now we get Brownlee and Fletchers and Christchurch dies. I’d swap MoW for Treasury any day of the week.

  6. Will@Welly 6

    Another one of Bill English’s “nice to have’s” unless you’re poor, working class or otherwise. The old double-standard rules. Another example of why the Treasury heads should have been king-hit back in the ’80’s for ever having dis-established the old Ministry of Works. These guys were geniuses – Treasury was/is a ship of fools. Transmission Gully will cost $3 billion – how efficient is that ?

  7. Barry 7

    Are the government going to add $3000 million to the national debt when they sign the contract?

  8. Macro 8

    PPPs are simply a massive scam

    Why must we continually repeat the mistakes of the past? Do we learn nothing from History? Can we not look offshore and learn from the mistakes of others?

    The UK has this year woken up to the realisation that PPPs are costing them big time

    http://norightturn.blogspot.co.nz/2012/07/ppps-are-scam.html

    Key and his cronies are nothing more than scammers.

  9. Ian 9

    5 billion extra dollars coming in to this little country courtesy of a few thousand forward thinking dairy farmers. Your a bloody ungrateful , lot that is forever biting the hand that feeds you.

    [this is a post about Transmission Gully. Are dairy farmers happy to pay $3b for the $900m Transmission Gully? JH]

    • Draco T Bastard 9.1

      Actually, the only thing the dairy farmers are doing is costing us billions of dollars because it’s going to cost us that much to clean up after the dirty fuckers.

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