PPPs suck, toll roads do too

Written By: - Date published: 10:00 am, December 1st, 2010 - 61 comments
Categories: privatisation, transport - Tags:

By backing a (soft) privatisation policy, David Cunliffe is throwing away a vital point of difference with National and allowing National to move rightwards. Worse, Labour appears to be determined to give up political advantage for dumb policy: public-private partnerships and tolling have a terrible track record.

There’s no reason to think, even in theory, that PPPs should save money compared to the government building and running infrastructure itself, even if it has to borrow the money. It’s not as if the private sector has magical powers to save money and, unlike the government, any private investors have to turn a profit, which increases the cost of a PPP, everything else being equal.

People claim that PPPs put the risk on to the private sector – as if the private sector investors are chumps who take on risk for free. Of course, they don’t. Any private investor who is taking risk off the government is going to make sure that cost is covered by government contributions or tolls. In practice, it is the government that is the chump: contracts often explicitly put the risk of on the government by requiring it to top up private investors revenues if its below expectations. And, at any rate, the government is can’t afford to let major infrastructure collapse, so its always going to be there to step in with money if things get really desperate. This creates ‘moral hazard’ for the private investors: they get the gain if things go right but not the loss if things go wrong, that’s all borne by the poor old taxpayer.

New South Wales has been a major proponent of PPPs. In nearly every instance, the business case has massively overestimated patronage and toll revenue. This has led to the private companies running the PPPs collapsing and government bailouts. A new report estimates the NSW government would have saved AUD$4.6 billion if it had borrowed the money and done the projects itself without the PPPs.

PPPs are just a gravy train for lazy private investors. You can understand why National would be all for that, but why the hell would Labour be?

PPP roads are inevitably funded through tolling, which is awfully inefficient.

Take a look at the Northern Gateway road north of Auckland. NZTA built this toll road with a loan from the Ministry of Transport, which it is repaying at $6 million a year. In the past year, it collected $10.4 million in tolls (after GST) and paid $5.3 million for its toll collecting system. So, NZTA is spending nearly as much on collecting tolls as it is repaying the loans it took from the Ministry of Transport to build the road.

We’re going to end up expending probably over a hundred million dollars just to collect money for one government body to repay another government body for the cost of a road, whereas other road users elsewhere in the country just pay for their roads via their taxes. How is that a good use of the economy’s resources? The hugely expensive toll system contributes nothing to our wealth as a nation. We would be better off to pay through our taxes and not have the added expense of the toll system.

Take another example, the Tauranga Eastern Link – one of National’s Roads of National Significance. NZTA calculates that the Government’s decision to put a toll on it will increase costs and decreases usage so much that the benefits to the country will fall from $2.10 for every dollar spent to $1.80. Tolls are going to cost over a quarter of the net value of the project.

This is where we get to the real reason why some bad governments like PPPs and tolls. They allow the public cost of projects to be hidden. The government pays less up front and the rest is collected from taxpayers via tolls, rather than taxes. Unlike simply borrowing the money, which also spreads the costs into the future for the government and doesn’t carry the risks, PPPs don’t appear as a debt on the government books.

This doesn’t mean we don’t pay, of course, it just means those costs are hidden, less transparent, and often much larger.

61 comments on “PPPs suck, toll roads do too ”

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  1. pollywog 1
    1 December 2010 at 10:20 am

    PPPs are just a gravy train for lazy private investors. You can understand why National would be all for that, but why the hell would Labour be ?

    dunno eh…

    you tell me ?…looking to grease their palms with lazy corporate dollars to fill up the party coffers ?

  2. just saying 2
    1 December 2010 at 10:48 am

    According to Bomber at Tumeke:

    “Savings, welfare top election agenda
    Moves to boost household savings and an overhaul of the welfare system are set to top the Government’s agenda heading into next year’s election, Prime Minister John Key has revealed. He has also ruled out the complete sale of any state-owned assets if National wins a second term, saying that if the Government campaigns on any asset sales policy at the next election, it will be to offload minority holdings only. ”

    So how is Labour going to answer the above?
    A bold promise to part-privatise less shit than National – A real vote-winner.
    Slightly less bene-bashing.
    A committment to somewhat different household savings schemes.

    A mighty achievement from Cunliffe. A pre-match own goal for next years election.
    Labour will have to act quickly if it intends to undo some of the damage. Problem is, I really don’t know if its parliamentarians are capable of admitting it to themselves when they are wrong, and so all “moving back to the grassroots” can only ever be window-dressing.

    • Draco T Bastard 2.1
      1 December 2010 at 10:58 am

      Labour will have to act quickly if it intends to undo some of the damage. Problem is, I really don’t know if its parliamentarians are capable of admitting it to themselves when they are wrong, and so all “moving back to the grassroots” can only ever be window-dressing.

      Yeah, been wondering that myself. Despite the much lauded lurch to the left of the meeting they don’t seem to have moved at all. They’re still seem to be in the centre-right, market before all else mindset.

    • Colonial Viper 2.2
      1 December 2010 at 11:36 am

      So how is Labour going to answer the above?
      A bold promise to part-privatise less shit than National – A real vote-winner.

      No, you say – “John Key promised in 2008 that there would be no GST increase. Now he’s promising that he will only sell off a few minor public assets. Yeah right.”

      Further – working with the private sector in a co-owned venture to get brand new stuff done is NOT privatising state assets. If a question is to be examined here by the Progressive Left it is to look very hard at:

      -what is the role of Government in NZ society
      – the role of the private sector in NZ society
      – how should they best relate to each another for the maximum wellbeing of NZ’ers.

      • just saying 2.2.1
        1 December 2010 at 12:43 pm

        Quote CV: “Further – working with the private sector in a co-owned venture to get brand new stuff done is NOT privatising state assets”.

        Prospective state assets, retrospective state assets – its still part-privatising state assets. LAB won’t win the PR battle by labouring the distinction.

        Pointing out what a pathological bullshitter Key is is a separate issue, though certainly one of the most important things to campaign on.

      • felix 2.2.2
        1 December 2010 at 2:25 pm

        No, you say – “John Key promised in 2008 that there would be no GST increase. Now he’s promising that he will only sell off a few minor public assets. Yeah right.”

        To which the response is “Yeah, well Labour aren’t going to lower GST and they want PPPs too so what’s the problem?”

        Sorry CV but the battle over PPPs has been lost already by Cunliffe. You can talk details and nuance all you like but you can’t put the shit back in the donkey.

        • just saying 2.2.2.1
          1 December 2010 at 2:53 pm

          Thing is,

          As I showed above, Key is already saying there will be no asset sales just PPPs. Whether or not he’s bullshitting isn’t the point. Cos Labour has now said that PPPs can be okay. So when Key campaigns on a PPP of ACC, say, Labour has already conceded that PPPs in themselves, aren’t necessarily a bad idea. So instead of a choice between privatisation/no privatisation, Labour and National now differ only on which things they believe should be partially privately funded.

  3. Draco T Bastard 3
    1 December 2010 at 10:53 am

    We’re going to end up expending probably over a hundred million dollars just to collect money for one government body to repay another government body for the cost of a road, whereas other road users elsewhere in the country just pay for their roads via their taxes. How is that a good use of the economy’s resources? The hugely expensive toll system contributes nothing to our wealth as a nation. We would be better off to pay through our taxes and not have the added expense of the toll system.

    Which is the reason why roads have always been made by the government and not private “investors”. We’ve known that for centuries and all the new technology that we’ve made in the last few decades hasn’t changed it one iota. It is, quite simply, damned expensive to get people to pay to use a public good. Taxes are the most efficient means of raising money for such infrastructure.

  4. vto 4
    1 December 2010 at 11:12 am

    I don’t think PPPs etc are necessarily hopeless. And I would discount any Australian examples – that place is so corrupt it was entirely to be expected.

    It is all in how they can be structured. A similar example would be the sale of Tranzrail. It was done so incredibly badly that it was like looking a gift horse in the mouth for those horrible New Zealanders Fay and Richwhite. They sucked everything they could out of it knowing full well the system was being rundown and that eventually the state would step back in (Toll bought from them with same knowledge). Just like Hotchin and Watson et al in Hanover (in slightly different, but not really, circumstances).

    The trick must surely be to ensure there are sufficient covenants in place that if a project fails to meet certain targets etc and the state is required to step in then it is the privat investor that suffers and not the taxpayer. A tranzrail example may have been covenants around maintaining rolling stock and the tracks.

    But at the end of the day the essential problem is that you have wealthy private investors negotiating with probably bureaucrats. The rewards and incentives point still to the private investors outsmarting the bureaucrats, who would lack such rewards and incentives and so simply fail to measure up, given human nature. It is unbalanced from the start. I would bet my money on the privat investor coming out on top. These people are world champions at commercial transaction negotiation.

    Perhaps this can be overcome by entering into a PPP to negotiate such PPPs on behalf of the govt?? (gawd, the potential for corrupt behaviour and failed chinese walls and backhanders…).

    And also, at the end of the day the taxpayer / road user pays the cost so they may as well own it. Because you are correct that a margin, required by investors, puts the cost up.

    Some 2c.

    • Colonial Viper 4.1
      1 December 2010 at 11:42 am

      But at the end of the day the essential problem is that you have wealthy private investors negotiating with probably bureaucrats. The rewards and incentives point still to the private investors outsmarting the bureaucrats, who would lack such rewards and incentives and so simply fail to measure up, given human nature. It is unbalanced from the start. I would bet my money on the privat investor coming out on top. These people are world champions at commercial transaction negotiation.

      What this says is that Government needs to develop officials who are awesome at business operations, enterprise and business governance. Completely do-able, and it would frak (in multiple ways) the Right Wing agenda in one foul swoop.

      This is what the Singapore Govt has with Temasek, for instance.

      • vto 4.1.1
        1 December 2010 at 11:57 am

        “Completely do-able” ?? I would reserve judgment until seen in action. Doubt of the highest order …

        • Colonial Viper 4.1.1.1
          1 December 2010 at 12:01 pm

          Well do-able in the way that Singapore, Hong Kong and Norway have been able to do it, not in the way that Ireland and Iceland have been able to do it…OK perhaps I should be a tad more restrained.

      • Draco T Bastard 4.1.2
        1 December 2010 at 12:37 pm

        There are three things the government officials in such negotiations need to know:

        1.) How much they have to spend. This is not to be communicated to the private investors
        2.) How much the actual plant/materials will cost
        3.) What skills are needed to complete the project

        Once they know those things then they no longer need the private investors and that, really, is the crux of the matter. Private investors are not needed for any government work and all they’ll do is make it more expensive.

      • Jeremy Harris 4.1.3
        1 December 2010 at 2:51 pm

        What this says is that Government needs to develop officials who are awesome at business operations, enterprise and business governance.

        Margaret Thatcher once said to the executives of British Rail, “if you were any good as businessmen you’d work for real companies”…

        – What makes you think the majority of talented business people won’t leave for the higher wages in the private sector..?

        Where wages match private sector ones:
        – Why should consumers continue to suffer from an inefficient government monopolies (or effective monopolies: power generation and transmission)..?
        – Why should taxpayer money be put at risk, often for minimal returns or even losses, and in uncertain industries (Air NZ)..?

        • Colonial Viper 4.1.3.1
          1 December 2010 at 3:37 pm

          – What makes you think the majority of talented business people won’t leave for the higher wages in the private sector..?

          – Belief and values around serving the public good
          – Anyone who was dead keen on 30-40% higher pay has already gone to Australia
          – Singapore and Norway seem to have done it successfully.

          Margaret Thatcher once said to the executives of British Rail, “if you were any good as businessmen you’d work for real companies”…

          Lots of fully publicly owned or part publicly owned operations out there run very smoothly and very profitably Jeremy, from transport companies to sovereign wealth funds.

    • Policy Parrot 4.2
      1 December 2010 at 12:15 pm

      Agree with vto here –

      PPP’s are not necessarily hopeless – it usually depends on how they are designed and implemented. Of course it is not possible to anticipate every possible outcome, but there needs to be safeguards that anticipate reasonable possibilities like the liquidation/bankruptcy of the private partner, so that the taxpayer is not left holding the can.

      Projects for development need to meet all the usual CBR criterion, with room to spare – especially for projects that wish to reobtain revenue from their users. For example, there are many people who would not act in manner considered economically rational – they might act more on ideological instinct/principle – e.g. “they object to paying for roads” – yet because there will be at least slightly reduced traffic volumes on the old route, they will also enjoy a tangible benefit for which they do not personally pay – i.e. less traffic congestion.

      The idea, of developing a National Gallery for works currently stored at Te Papa, as a PPP, as has been suggested, is not a bad idea.

  5. mickysavage 5
    1 December 2010 at 11:14 am

    I would invite everyone to read the speech first and then comment. The speech was carefully crafted and a nuanced analysis is required. It can be found at http://cunliffe.co.nz/?p=582

    The “support” for PPPs is one line in a quite long speech and for “privatisation” is another line.

    David said:

    We can expand public-private partnerships for new transport infrastructure. The project scale must be right and the PPP benefits must outweigh any increase in cost of capital, but that leaves plenty of scope for win-wins .

    We can unleash State Owned Enterprises to create and grow new subsidiaries with private partners and shareholders, without diluting the taxpayer’s equity, or wholly or partially privatizing the SOE.

    The first sentence is no more than a restatement of the party’s current position. Labour invited PPP proposals for the Waterview connection. Details are at http://www.treasury.govt.nz/publications/informationreleases/waterview

    The fact that none have materalised shows how difficult a test it is.

    And a careful reading of the second sentence shows that privatisation is not intended. The proposal only applies to new subsidiaries, essentially joint ventures between the public and private. No, repeat, no privatisation of existing entities is proposed.

    As for the politics of the speech I am not sure how to address this. Labour could have come out and said “NO PPPs” and then be accused of being doctrinaire and not practical. It has come out and said “NO PPPs unless there is a sufficiently robust economic case”. I suspect the actual result would be the same. It is not as simple a message but do you actually want simplicity over a nuanced approach?

    One last comment, the NZTA investment in the tolls system was meant to be able to handle all toll roads. The fact that only one has been developed has of course made the economics of it look bad, but if future roads are added in then the economics improve considerably.

    • JoelW 5.1
      1 December 2010 at 11:23 am

      100% Correct MickySavage! Not to mention the fact that the entire speech focuses on a more progressive role of government in the new economic age that we live in. Unfortunately due to the financial mismanagement of the economy by NACT the coffers will not be full when we return to office. We need a plan to ensure that the state can play a bigger role in the management of the economy, but in an entirely realistic way, thus NOT RULING OUT PPPs.

      • Colonial Viper 5.1.1
        1 December 2010 at 11:48 am

        Cunliffe has actually posited a strategy which should strike fear into the hearts of the Righties: enable Government to become a heavier, more active player in the real economy. And not just in terms of hands off finance wonk policy settings.

        This is about changing completely how business views Govt in NZ: Govt not simply as a gateway to cutting costs and taxes (= NACT) but as a partner in business and industry sectors to grow jobs, deliver innovative value and make money (=LAB).

        My speculation is that Cunliffe has got a very ambitious long term agenda in mind.

    • vto 5.2
      1 December 2010 at 11:27 am

      Too sensible Mickey, too sensible. Cuts across the politics of it all and destroys the advantage labour seemed to have. Take a leaf out of Key’s and probably Clark’s books and go for the jugular. You can always look at them once back in power – they take years to implement anyway.

      (can’t believe I just said that)

      • Colonial Viper 5.2.1
        1 December 2010 at 11:38 am

        Damn it man, are you a Lefty who not just owns a knife but knows how to gut and fillet as well?

        • vto 5.2.1.1
          1 December 2010 at 12:00 pm

          I aint a lefty at all. Nor a righty in the normal sense either probably. Just confused with politics and its settings and so wandering aimlessly …

          But I do like fush.

        • Draco T Bastard 5.2.1.2
          2 December 2010 at 12:01 am

          To be honest, I think vto is one of those rare creatures of the political-right that acknowledges reality.

    • OleOlebiscuitBarrell 5.3
      1 December 2010 at 12:34 pm

      Jesus fuck Mickey. Are you saying it is not as simple as “privatisation = bad / public ownership = good”?

      Don’t expect a sympathetic hearing from anyone who visits this site on that one.

      • Draco T Bastard 5.3.1
        2 December 2010 at 12:09 am

        I’m of the opinion that government services should be done by government. I also hold that once a service, such as eft-pos, becomes ubiquitous and that natural monopolies, such as roads and telecommunications, should be done by government. Profit is, after all, a dead weight loss but it has it’s benefit in encouraging development.

        • Colonial Viper 5.3.1.1
          2 December 2010 at 12:20 am

          DTB are you saying that once a new product or service like ATMs, EFTPOS, internet, mobile phones and txt messaging has proven so successfully designed, implemented and marketed by the private sector that it is very widely used by the public, it should be nationalised?

          I suspect firm regulation and direction to ensure a beneficial mix of competitive/co-operative market place activities and strategic market direction would sometimes prove a better idea.

          • Draco T Bastard 5.3.1.1.1
            2 December 2010 at 1:17 am

            implemented and marketed by the private sector that it is very widely used by the public, it should be nationalised?

            Yes.

            I suspect firm regulation and direction to ensure a beneficial mix of competitive/co-operative market place activities and strategic market direction would sometimes prove a better idea.

            There needs to be some sort of mix i.e. MS Windows.

            Windows is, for all intents and purposes, ubiquitous. If the governments of the world declared that as a standard (all OS must be written to that standard) then we get the value of an actual free-market – millions of programmers will program to the “Windows” standard brining in all the creativity that MS cannot do alone.

            In this way backwards compatibility is ensured (you’ll be able to run the applications that you already have) but developments aren’t constrained as anyone would be able to introduce a new standard. If that standard become ubiquitous then it becomes, over time, mandatory within the OS.

            The idea is that we want to encourage people to invent new stuff rather than re-inventing old as happens now. WINE is great but it’s just a reinvention of old stuff and Linux has a hell of a lot of new stuff that makes Windows look old (and vice versa).

            • Colonial Viper 5.3.1.1.1.1
              2 December 2010 at 1:49 am

              Windows is, for all intents and purposes, ubiquitous. If the governments of the world declared that as a standard (all OS must be written to that standard) then we get the value of an actual free-market – millions of programmers will program to the “Windows” standard brining in all the creativity that MS cannot do alone.

              I’m not sure that govts declaring Windows to be the standard to be adhered to is going to help us get O/S technology innovation. And since as you say, Win is already ubiquitous, it is already the defacto PC standard. I’m not sure that legislation is going to add much to that.

              By the way Window’s need to maintain backward compatibility is a huge shackle on the development of the operating system (and on AMD/Intel microprocessors). it is extremely difficult to introduce new standards within this technical ecosystem and still maintain full backward compatibility. Inevitably stuff breaks (the introduction of Vista demonstrated this all too well) and all hell gets let loose until a patching cycle or three can be completed.

              And I really don’t think that Govt should be involved in this as its starting to get further and further away from the fundamental welfare of the people.

              • Draco T Bastard …
                2 December 2010 at 2:42 am

                And since as you say, Win is already ubiquitous, it is already the defacto PC standard.

                ATM, writing to Windows standard will get you sued and out of programming. When I say that Windows is to be declared a standard I mean that such law suits are outlawed. My idea is that people would be able to program to such standards without fear that they will be attacked and destroyed.

                By the way Window’s need to maintain backward compatibility is a huge shackle on the development of the operating system.

                I’m aware of that. Backwards compatibility is both a strength and a weakness. It’s a strength in that people don’t have to update critical programs immediately but a weakness in that new understandings aren’t incorporated.

                IBM guaranteed backward compatibility which helped in the dominance of the PC but once the hardware compatibility was ensured MS progressed their OS. I can still run Total Annihilation on Win 7 but some other programs from the same time frame (1997) can’t be run. I don’t expect, or want, total compatibility back to the stone age but I do expect and want a reasonable, and expecting to run a program from 13 years ago is actually unreasonable, compatibility for programs that I bought, say, two to five years ago.

                And I really don’t think that Govt should be involved in this as its starting to get further and further away from the fundamental welfare of the people.

                Wrong and the introduction of Vista is actually proof that the monopoly of MS is bad. It broke everything. The introduction of Vista could have been done a lot better if it hadn’t been done by a monopoly. Each version of Linus isn’t exactly compatible with any other version but it’s close enough that the application programmers aren’t completely overwhelmed with the changes. Most Linux compilations will update every 6 months.

                The government, by mandating the standards (please note, not setting the standards) allows the creativity of all programmers to the actual benefit of the community. The programmers set the standards but the government mandates them.

                Linux is a great OS but it falls down in not being compatible with Windows and the reason why it’s not Windows compatible is because of the laws of copyright and patent which actually prevent the creativity that’s out there being used for the benefit of mankind.

                What I’m asking for is that OS’s be compatible within a reasonable time frame and that new developments be incorporated as they become ubiquitous. A developing standard not one that’s fixed in the past.

    • felix 5.4
      1 December 2010 at 2:38 pm

      The speech was carefully crafted and a nuanced analysis is required.

      Mickey you’re probably right, but it’s not going to receive much nuanced analysis and Labour should know this by now.

      The take away message should have been “No privatisation under Labour”.

      Instead the take away message is “Well, only a little bit and it’s not really privatisation if you think about it, and anyway it won’t be as much as National would do and it’s for better reasons. Also I’m setting a fairly high bar so it’s unlikely to happen anyway.”

      Do you get the difference?

      Not that it matters now, that particular battle is lost and privatisation is no longer an election issue.

      • Craig Glen Eden 5.4.1
        1 December 2010 at 3:28 pm

        Felix privatisation is a election issue, Labour are not selling anything National are!

        • just saying 5.4.1.1
          1 December 2010 at 3:33 pm

          CGE

          Key has announced that there will be no full privatisiations, just PPPs. See 2.2.2.1 above.

          • Craig Glen Eden 5.4.1.1.1
            1 December 2010 at 3:58 pm

            Labour are not selling anything!!! National are selling stuff that NZers have already paid for.

            John Key to voters: read my lips peps we are not selling state assets, we wont raise GST, you will see tax cuts of greater than 50 bucks a week, no redundancies of public servants we just wont replace them when we they leave. National will close the wage gap with Australia, and finally we will have accountability and integrity in Government!

            Voters to Key yeah yeah pull the other one mate.

            • felix 5.4.1.1.1.1
              1 December 2010 at 6:32 pm

              I get the difference Craig. You get it too.

              What most voters are going to hear though is “National and Labour both support PPPs”. That’s how the media will present it, and to most people it really is that simple.

              I agree that it should be an election issue – it should be a bloody important one – but it’s a pretty fucking weak position to take when National can just turn around and say “We’re just going to do PPPs, same as Labour is.”

              To make this an election issue in a soundbite media environment, Cubliffe needed to say loudly and clearly “No privatisation under Labour“.

              He fucked it up. He conceded the fight. Game over.

              • mickysavage …
                1 December 2010 at 9:56 pm

                Kia ora Felix

                I sense that we are not disagreeing. You are saying that politically the speech was bad, I am saying that the speech does not represent any change in position and was carefully crafted for a sophisticated audience.

                Such is politics. I did say “As for the politics of the speech I am not sure how to address this.”

                I heard Cunliffe to say “no privatisation under Labour”. I agree he did not say it with flashing red lights.

                The soundbite media environment is a problem. But the sophisticated groupings that demand that our responses show an understanding are also a problem. Do we give them a simplistic answer or try to persuade them that our (Labour’s) representatives actually understand?

                Do you have a solution? If so the Labour MPs would love to hear it.

                • Draco T Bastard …
                  2 December 2010 at 12:49 am

                  Do you have a solution?

                  Yes, point out that PPPs have failed worldwide and that that option is now off the table.

        • Draco T Bastard 5.4.1.2
          2 December 2010 at 12:42 am

          But that’s not how it comes across. I was highly disappointed when i read the speech and DC mentioned PPPs as if they were actually viable.

  6. Colonial Viper 6
    1 December 2010 at 11:24 am

    We’re used to the Right Wing misrepresenting LAB’s positions. Well why would the Left decide to do that too.

    Cunliffe is not backing the privitisation (soft or hard) of public assets. He is saying that brand new mass transport projects may not always have to be fully publicly owned and operated. And that SOE’s (which will stay in state ownership) can work more closely with the private sector in new entrepreneurial ventures when it makes sense.

    Now this post makes a simple implied statement: mass transport projects in NZ should always be publicly owned and operated. Fine. There is upside in that, plus more simplicity and transparency. So, make the statement explicit. But do not turn Cunliffe’s one liner into a position which I believe cannot be justified at this point – that Labour is backing a broader examination of privatisation (soft or hard) of any existing state asset.

    Now I get that PPP’s have been frequently used by Right Wingers to suck value out of the public purse. Yes NSW have screwed up (deliberately or accidentally) the business cases behind many of their PPPs. Nevertheless, Cunliffe/LAB appear to be very aware of the pitfalls, and have indicated that any proposals for new transport project PPP’s are going to be very carefully scrutinised.

    Can I also raise the case of Air NZ. Air NZ is a critical backbone of NZ’s transport infrastructure. It is part owned by the Govt and part private. So just asking the question: would we back complete nationalisation of Air NZ at this stage? Would we back Air NZ becoming a non-profit public transport utility for NZ?

    NB Hong Kong’s MTR (rail) Corporation, which since partial privatisation in ~2000 (the Hong Kong Government now owns 76% of the MTR corporation) is a highly successful profitable and entrepreneurial operation.

    • Draco T Bastard 6.1
      1 December 2010 at 12:46 pm

      would we back complete nationalisation of Air NZ at this stage? Would we back Air NZ becoming a non-profit public transport utility for NZ?

      I would. I would also point out that “non-profit” != “running at a loss”.

      NB Hong Kong’s MTR (rail) Corporation, which since partial privatisation in ~2000 (the Hong Kong Government now owns 76% of the MTR corporation) is a highly successful profitable and entrepreneurial operation.

      But was the partial privatisation needed for it to become profitable?

      • Colonial Viper 6.1.1
        1 December 2010 at 3:56 pm

        But was the partial privatisation needed for it to become profitable?

        Actually no, it was quite profitable before partial privatisation, and Hong Kong probably didn’t need the money all that desperately.

        • Draco T Bastard 6.1.1.1
          2 December 2010 at 12:43 am

          So, why the privatisation?

          • Colonial Viper 6.1.1.1.1
            2 December 2010 at 12:51 am

            I’d have to investigate the politics behind it to really know. From the news reports of the day it seemed like the Hong Kong government was making a show of encouraging more business/small investor investment to allow a withdrawal of government involvement in utilities and infrastructure.

            Notice however that the HK government didn’t give up that much of a share in the mass transit system to make this gesture. It still owns a dominant controlling stake.

            • Draco T Bastard 6.1.1.1.1.1
              2 December 2010 at 1:21 am

              Notice however that the HK government didn’t give up that much of a share in the mass transit system to make this gesture. It still owns a dominant controlling stake.

              Which it didn’t have to give up and in doing so just added the dead weight loss of profit to it’s books and that profit was guaranteed. Great for the private owners but not so good for the public.

              • Colonial Viper …
                2 December 2010 at 1:40 am

                *Shrug* I know what you are saying but sometimes you have to refresh the way an organisation is financially and organisationally structured and bring new blood in. Today, as far as I know, HK’s MTR corporation has increased profits and is a much more aggressive and successful real estate/retail developer than it was when it was fully government owned.

                To my mind, a Govt’s objective cannot simply be about building up public net asset worth/ public income from those assets – and of course that is a very high priority – it is also about creating an energetic, innovative, fast adapting, productive business environment which convinces people to stay in a country and creates high income jobs that they can hold and enjoy.

                • Draco T Bastard …
                  2 December 2010 at 2:59 am

                  Today, as far as I know, HK’s MTR corporation has increased profits and is a much more aggressive and successful real estate/retail developer than it was when it was fully government owned.

                  Did it actually need to be?

                  To my mind, a Govt’s objective cannot simply be about building up public net asset worth/ public income from those assets – and of course that is a very high priority – it is also about creating an energetic, innovative, fast adapting, productive business environment which convinces people to stay in a country and creates high income jobs that they can hold and enjoy.

                  See, this is where I differ. The private sector should be used by the government to push needed government innovation but this is small scale stuff with the government being the producer of that innovation (i.e. the private sector develops a new weapon for the army but the government then produces that weapon). The private sector should also be looking to develop such things as that which the government doesn’t do until it becomes ubiquitous (DARPA Net, when first developed, wasn’t useful to everyone but it became so over time).

    • Jeremy Harris 6.2
      1 December 2010 at 2:58 pm

      Why is that the same lefties who are convinced the world is ending due to carbon emissions and that oil is about to peak are so opposed to selling Air NZ and it’s pathetic returns..?

      Surely the Socialists, Green and Labour Parties and Communist supporters of Juche like DTB here should be crying out for it’s imminent privatisation to let the foolish private sector watch it crumble and die..?

      Or could it be that the left just doesn’t really believe in peak everything and climate change, they are just a means to a political end..?

      • Draco T Bastard 6.2.1
        1 December 2010 at 3:39 pm

        Have you missed the bits where I keep mentioning Renewable Resource Base? It doesn’t mean that we get rid of everything but that we fit what we need/want within that limit.

      • lprent 6.2.2
        1 December 2010 at 4:18 pm

        It is pretty basic.

        1. Air NZ is the primary company for outgoing freight in NZ. If there is no air-freight or it is unreliable then there are a number of businesses that would not be able to operate in a timely manner (like where I work for instance). The value of that air-freight is such that the carbon ‘cost’ (even if it was fully factored in) is a minute fraction of the cost. So these are not low-value returns for the cost. At various times the available air-freight to and from NZ has fluctuated wildly from other companies. The only stable air-freight company has been Air NZ. This means that Air NZ is regarded as a infrastructure decision by the government in that it provides a supporting role for a large number of other businesses.

        2. Aircraft jet-turbine engines are just a heat generator. They can and have been run on damn near anything from alcohol to rape-seed oil. They are also a bloody great lump of industrial equipment that can be upgraded with a relatively low cost compared to their value. Currently they’re run on the kerosene mix that is aircraft fuel. But it is extremely unlikely that high value cargos will stop being flown around in planes. They’ll just have a changed fuel mix and a different cost structure.

        Oh and Air NZ also flies people around, although why anyone would want to get into a airborne cattle truck is something that I’ll never understand. As far as I’m concerned that part of the business is a very low value return relative to the actual cost of providing the service. The sooner the full carbon cost (or the fuel is changed to something not polluting) is placed on all air-transport, the sooner the pollution inherent in that part of Air NZ’s business will diminish.

        BTW: Only an idiot (like you?) that characterize the debate as the world ending because they’re too moronic to debate anything on a sensible basis and would prefer instead to try to put words in the mouths of their opponents (generally I’ve observed that is the result of not having any interesting ideas of their own).

        The world will wobble on regardless of what humans do. The question is if our civilization totters along with it in anything like its current form. What is at issue increasing the cost of using fossil carbon to reflect its true cost to our civilization both now and in the future. That would allow a more rational allocation of resources that doesn’t depend on a non-replenishment and found resource sold too cheaply causing a distorted market signal.

        So if you’ve finished being a dickhead…

      • Jeremy Harris 6.2.3
        2 December 2010 at 8:41 am

        1). Well we could get into a debate about whether if Air NZ was privatised the private sector would suddenly stop flying freight or if they didn’t would another company pick up the slack…

        2). Yes they can but can they run safely on those fuels..? Not at the moment, there are compelling reasons we use today’s jet fuels…

        Only an idiot (like you?) that characterize the debate as the world ending because they’re too moronic to debate anything on a sensible basis and would prefer instead to try to put words in the mouths of their opponents (generally I’ve observed that is the result of not having any interesting ideas of their own).

        This blog and it’s users providing comment regularly use the word catastrophic to describe climate change, one of whose definitions is a negative final event or conclusion and quite obviously many are using it in this context…

        Your protestations of moral and itellectual superiority would carry a lot more weight if you didn’t need to resort to childish namecalling…

    • Jum 6.3
      1 December 2010 at 5:00 pm

      Well Colonial Viper come the next election Labour had better have knocked out a soundbite of 5 words to explain all this and be ready to defend it coherently and in words of 1 syllable. Good luck with that!

      Remember, your critics are your best friends. They keep you grounded.

      • Craig Glen Eden 6.3.1
        1 December 2010 at 5:39 pm

        How about “We wont sell your stuff” or “we wont give your money to our mates” I know its six words but hey. What about a add with Oscar saying “Labour wont steal you stuff , not like the other fellas” I think some sort of add with Oscar in it would be great. Hopefully you get the idea.

        Limited creative genius I know,but I am sure some of our left wing creative actors/ comedians could come up with something pretty good.

  7. dave brown 7
    1 December 2010 at 2:34 pm

    Funny this, we have a massive global austerity hitting us because the bosses had no alternative but to speculate in existing values creating bubbles that burst. Showering us with their shit.
    But we passively sucked it up and agreed to buy their bad debts and pay the bill for the bailouts. These bailouts then become sovereign debts creating a club to beat us over the head with to force us to suck up rising prices, falling wages and a dissappearing social wage.
    So we are expected to mortgage our and our childrens and grandchildrens wages to pay off the bosses debts. Our real wages fall and poverty levels, disease, addictions, mortality rates etc climb.
    Tell my in what way is the PPP different from this guaranteed indemnification of profit at no risk?
    The only difference is that instead of waiting to be bailed out, the bailout is planned in advance. What starts as highway robbery turns into a ‘have a nice day’ as we lie down and roll over.
    The alternative is to tax the unearned increment, that element of land value that rises because land is a commodity in scarce supply (water and all other scarce natural resources likewise) to discourage rent farming and the private benefits that flow from public spending. Of course this is designed to eliminate the new landed gentry (capitalist farmers and property developers, infrastructure and building magnates) who are the NACT ruling class backers. It would also eliminate the international finance capitalists in the form of banks, equity funds, recycled bankrupts etc who speculate in existing values.
    A Labour Party that put forward this as its key economic policy plank would win over the majority of working class and those middle class voters facing economic ruin. Those who have mortgages would compulsorily have their mortgage pegged to property values, and the growing numbers without mortgages would have a better choice of buying property or paying much reduced rents. The Aussie banks would be replaced by Kiwibank as a single publicly owned bank.
    I do not expect the NZLP to go anywhere near this policy because it is completely subordinated to international capital, so we will have to wait until many more NZers are angry enough to throw out all political parties that prop up capitalists at their expense, and put a government into power that acts for the working majority.

  8. BLiP 8
    1 December 2010 at 6:34 pm

    Here’s what Cunliffe said about PPPs in August.

    The Government’s move towards public-private partnerships (PPPs) for big infrastructure projects is facing mounting criticism, with Labour saying it will inevitably lead to fire sales of state-owned assets . . . [snip] . . . Labour, the Greens, trade unions and the Public Service Association (PSA) have said PPPs make no sense and create risks for taxpayers.

    “This is one more desperate ploy by a government with no coherent plan for growing the economy or creating jobs,” Labour’s finance spokesman David Cunliffe said today. “It desperately hopes the private sector will finance projects it lacks the vision, courage or resources to do itself.” Mr Cunliffe said PPPs were a sop to private interests and had nothing to do with prudent asset management. “It will inevitably lead to bad decision-making, fire sales of crown assets and higher capital costs for taxpayers,” he said. “Negotiating PPPs with savvy investment banks requires specialist skills most crown entities simply don’t have, so National’s one-size-fits-all approach risks taxpayers being taken for a ride.”

    What’s changed, David?

    • mickysavage 8.1
      1 December 2010 at 10:11 pm

      The difference is that Labour will require the following:

      The project scale must be right and the PPP benefits must outweigh any increase in cost of capital, but that leaves plenty of scope for win-wins.

      I must admit hating the phrase “win-wins”. I hope the speech writer reads this. I also think that this requirement will mean there are no transport PPPs in the near future. But private enterprise should be able to try and make the case,

      • Draco T Bastard 8.1.1
        2 December 2010 at 12:52 am

        History shows us that most of the time PPPs don’t work. This indicates that it’s not even worth getting into the discussion with the private sector about them. The private sector wants profits, the government sector wants value for money – the two are mutually exclusive.

  9. ghostwhowalksnz 9
    1 December 2010 at 7:06 pm

    I see that another Aussie toll road , barely open is about to go ‘bankrupt’. Its Brisbane but you just have to type in ‘toll road bankrupt’ into Google to have a list worldwide.

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