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National's infrastructure policy

17 November 2008

National’s infrastructure policy is aimed at increasing New Zealand’s medium term productivity growth.

The policy comprises:

  • a new national infrastructure plan
  • a commitment to spend $8b more than is currently budgeted over the next six years 
  • a greater role for the private sector, and 
  • a dedicated minister.

The clear focus on productivity growth will be useful and National has presented an ambitious framework. Much of the detail, however, remains to be worked out.

A national infrastructure plan

National will develop a 20 year plan, which will cover the planning, regulation, governance and financing of infrastructure across a range of sectors. National has mentioned telecommunications, electricity generation, Transpower’s grid, roads, public transport, schools and prisons. Ports are a curious omission and have possibly been parked pending the outcome of the Auckland governance review. National will also develop a national transport plan to co-ordinate all transport modes.

Specific proposals

A short list of specific proposals has already been identified:

  • $1.5 billion on a Fibre To The Home open access network (over which all telecommunications competitors can deliver services)
  • the Waikato expressway (costing $750 million over 10 years)
  • $500 million on schools over 3 years, and
  • a new prison ($315 million).

Working out the rest…

Beyond this, most of the plan is still to be fleshed out, including identifying where we have significant infrastructure deficits and prioritising the $8 billion public spend. Three areas are likely to receive early attention.

First, the telecommunications fibre network. As we noted above, National has committed to funding the roll out of fibre. The outstanding issue is the vehicle for the investment – who will roll it out, who will own it, and who will set terms of access for competing telcos?

Second, electricity security of supply. Unlocking the answer to security of supply in the electricity sector remains elusive. National proposes some initiatives:

  • removing the ban on new thermal electricity generation (which had been significantly watered down by the select committee and the Electricity Commission in any event), and 
  • reviewing the regulation of Transpower.

These do not materially change the policy settings on electricity security of supply. What will?

Third, Auckland roading and public transport nationwide. If you are looking for bottlenecks holding back productivity, this is it.

Tolling

While $8 billion sounds like a lot (and it is), infrastructure is expensive to build. Demand for infrastructure is likely to outstrip available funds very quickly. Look for reforms to the road tolling legislation.

Although during the election campaign John Key twice distanced himself from comments made by Maurice Williamson about tolling, he was reacting to the prices Williamson was proposing rather than to the principle. Key commented in October, for example, “there is no point in us making comments about what the price of a toll road would be, because we haven't even identified what roads would be tolled, so it's far too premature to be talking about numbers".

Williamson was talking about tolls of $3 to $5. Key said $2 was more likely and that he rather than Williamson would be deciding the criteria for tolling.

So look for:

  • consultation being broadened to remove the bias against tolling by including the views of potential users who benefit from a better road, sooner (as well as those who live, work or study near the road); and streamlined to remove duplication
  • tolling of existing roads as part of a wider plan. If there is ever to be a second harbour crossing for Auckland, why not toll both the existing bridge and the new bridge or tunnel, even if the money must all be spent on the new road
  • integration of tolls with wider objectives. Tolls at peak hours only could subsidise development of related public transport, for example.

The private sector

There is little detail, beyond Resource Management Act reform, on how National will encourage more private infrastructure investment. We do not yet have National’s views on the role of the Commerce Commission in regulating private infrastructure such as telecommunications, electricity lines, and gas pipelines, or on whether the Commission is delivering sufficient certainty and return on investment.

Instead the policy focus seems to be on involving the private sector in public infrastructure. Features of the package include a willingness to:

  • consider PPPs. The objective is to take advantage of private sector management and risk-taking expertise
  • use funding mechanisms such as infrastructure bonds tied to particular projects and tolling of roads, and 
  • subsidise infrastructure provided by private sector participants, such as the $1.5 billion to be spent on Fibre To The Home.

A new minister in search of solutions

The new minister will be tasked with pulling all this together. Solutions will need to be found to some interesting challenges, including the governance of subsidised infrastructure, the regulation of private infrastructure and getting New Zealanders comfortable with price signals. There is plenty of scope for engagement.

The infrastructure bonds developed by the Labour-led Government were really just government stock in drag. We would expect more innovative instruments to be introduced under National. This is an area in which Chapman Tripp has significant expertise to offer.

Chapman Tripp will continue to monitor the infrastructure area and will keep you informed of developments as they occur.

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