No Right Turn has a piece on the Transmission Gully project – which appears to be turning into mush. The title “A death-knell for PPPs?” says it all.
When the then-National government approved a public-private partnership (PPP) funding model for Transmission Gully, it claimed it was all about building it quicker and cheaper. Paying a private company’s profit margin would supposedly give “certainty of delivery and… better value for money”. So how has it turned out? The cost has blown out by $191 million, a third of the road has failed quality checks and needs to be torn up and re-laid, the project is now delayed until 2021, and rather than face these costs, the PPP contractor is planning to walk away and dump everything back on the government:
That last NewsHub link indicates that NZTA said in February that a cost overrun of more than a fifth would push the total cost up to over a billion dollars and have a delay in completion from May to December. Now, presumably as a result of missing crucial periods during lockdown before the winter months and the inability to fly staff back in from overseas, they appear to be saying that it will complete some time in 2021.
But the NewsHub article also suggests that the primary contractor CPB HEB may be looking to pull out of the contract. That it has already dropped sub-contractors and that equipment is already being moved off-site. The urgent negotiations could be that or or could be who is going to have to pay for the costs related to the pandemic.
No Right Turn’s conclusion is that..
The entire project looks to be an expensive failure. Rather than transferring risk to the private sector, it turns out to be the usual scam of privatising profits and socialising losses. And its hard to escape the impression that we could have built it quicker and cheaper and without the quality issues caused by the contractor shaving costs and using substandard materials to increase its profits by just getting the government to do it in the first place. And hopefully it will be a death knell for PPPs in this country.
It is hard to disagree about the lack of public value with PPPs. At least if you aren’t a blind ideological idiot with delusions that the private market is always more efficient. While there must have been the mythic ‘good for the public’ PPPs. But I have never observed them when looked retrospectively from 20 years in a developed non-corrupt country. The best that I have seen have been ones that would be about the same what would be expected if the government agencies built it themselves. Except those always look like lowball build to get higher toll profits.
I’d also observe that just having PPPs appears to correlate pretty well with increases in public servant corruption – even if you just look at aussie. The way that PPPs cover themselves in ‘commercial sensitivity’ and highly prejudicial contract clauses disguises from the public the true risk costs of public projects.
The worst one I saw was for a toll motorway in Sydney that if the toll revenue wasn’t sufficient, would cause the state government to close the free roads to drive revenue to the private operators of the toll road – the roads that were meant to provide a non-tolled alternative. There are quite a few examples listed in this NSW state government report in particular Chapter 3.
When you look at the cost overruns and delays on commissioning projects compared to the government builds after the fact. It’d be interesting to find if any one has done a decades after analysis of comparable projects. But to my eye the results really don’t look different, and certainly don’t indicate any real advantage in private involvement.
In effect, as No Right Turn states PPPs seem to be designed to “be the usual scam of privatising profits and socialising losses”. They also seem to be perfectly designed for politicians to take lowball bids and push the true costs into the future. But which also allow them to view with alarm at a later date. Cue our ex-minister of transport Simon (no) Bridges.
While the current circumstances with the pandemic of this PPP are pretty unusual for NZ, I suspect that we’re going to see the other unfortunate effect of PPPs. A discontinuity in the build whilst the parties have a legal obligation and who bears the costs disagreement – that further delays the project.
As Jenny Michie said here back in 2011 in “Are PPPs the best we can do?“
PPP is privatisation with a better name. It’s no surprise that National is in favour of them: getting rich on the public purse is in their DNA. What is more concerning is that people like Len Brown want to use them to help build infrastructure in Auckland.
Are we really so bereft of ideas as a nation that PPPs are the best we can come up with?