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.
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