National’s infrastructure bank

advantage
4 years ago
Categories: assets, Deep stuff, Economy, national, privatisation, Public Private Partnerships, transport, uncategorized

National’s infrastructure bank proposal bugs me.

It’s yet another entity out of the hands of politicians – and that brings with it a high risk of trouble.

LIGHT RAIL

The first comparison I’m making is to NZ Superannuation. They are the people that brought in the Canadians to form NZ Infra to propose an entirely different light rail proposal for Auckland.

NZ Superannuation actively undermined NZTA’s light rail proposal for over a year. They will claim that they have the mandate to do it as they are statutorily directed to pursue local investments in local assets for the benefit of New Zealanders. But they damaged the reputation of the government and in particular that of the Minister of Transport. They also pushed around MoT and Treasury and kept going right over their heads and lobbied Ministers directly. Instead of issuing an apology to the Minister for the damage, they are going for the costs of the proposal from MoT and NZTA.

TRANSMISSION GULLY

OK there are multiple faults coming out of the woodwork on this job, and plenty of cause and effect on both sides of the public and private sector ledger. ACC has been an important investor in Transmission Gully, together with Infrared Capital Partnership, and Pacific Partnerships PTY, as part of the Wellington Gateway Partnership.

But the government review coming out of the mess in Transmission Gully will raise both operational and governance questions, guaranteed. The further out each level of commercial structure takes you from actual Ministerial political control, the faster and bigger it can get out of control.

And I’m not knocking NZ Super: I’m issuing a stern warning to future governments about setting up massive entities with control over large policy goals and who contain vast amounts of public money.

OTHER EXAMPLES

There have been a number of partnerships between the public and private sectors to finance delivery of infrastructure projects, including:

Auckland Harbour Bridge, completed in 1959 financed privately by user tolls
Lyttleton Tunnel completed in 1964, financed privately by user tolls
Tauranga Harbour Bridge completed in 1988 financed privately by user tolls
Route K Expressway in Tauranga completed in 2003 funded by Tauranga District Council as a toll road
A few of our jails have been Build, Operate, Transfer models

Not all Public Private Partnerships turn out badly, such as the Ara Tuhono expressway which includes in its PPP ACC, HRL Morrison (one of the Infratil family), Acciona Concesiones, Fletcher Building, and Higgins. It won’t meet its completion date, but then again honestly very few large projects do.

But sometimes similar arrangements go really, really bad. In December 2007 Kaipara District Council awarded a $53 million Design Build Finance Operate contract for delivery of wastewater services in Mangawhai. That went wrong in about every way you could think.

Distance from democratically elected accountability is a massive risk factor when it comes to keeping a big project under control. Alliancing is popular and the moment – but it doesn’t usually involve the constructor having an equity stake in the outcome, so the degree of control is still pretty high.

INFRASTRUCTURE BANK

So the first problem is National’s proposal yesterday for an infrastructure bank will have the effect of cheating the Government’s accounting system to make it look like it is reducing debt. Other entities do that already.

But the second problem is the degree of political autonomy of the bank to write deals for projects will get it right out of political accountability. Being able to scorch a Minister for poor project performance is what Ministers, not bank executives, are paid for. Ministers, not bank executives, must react to the public, form reviews, carry them out, improve, respond to actual citizens.

Whereas we have seen multiple times over the last decade, entities that have near full independence from political oversight can turn into steaming dumpster fires with very bad smells coming out of them, and they are very hard to put out precisely because of that independence. And yet the public pressure will continue to fire on the relevant Minister, and can only put out the fire with their cash – and lots of it.

SUMMARY

I’m not knocking the principle of multiple investors for large infrastructure jobs per se. The necessary interventions are getting bigger and bigger, and the money available to NZTA will continue to be constrained. Pressures from urban growth, societal needs, electricity and transport network age, climate change, and local government incapacity, are already getting well beyond the scope of our little central government to cope with.

But the more you separate public money and public policy outcomes from direct public accountability through a democratically elected Minister, the higher the risk this will blow up like a bomb in a fish factory, and the rest turns into frenzied seagulls eating the remains up. The proposed Infrastructure Bank is an accounting trick, with very high risks that the entire power of our political order for anyone affected by these monster projects will weaken citizens’ rights.