Simon Wilson’s recent article on road tolls, public-private partnerships (PPPs), and the Investment Summit raises important questions about the models used to deliver infrastructure projects in New Zealand. 

The discussion focuses on infrastructure as a key priority for New Zealand given the pressing need to address New Zealand’s infrastructure challenges in developing effective methods of planning, funding and delivering critical projects (including exploring different procurement models for infrastructure delivery).

In that context, PPPs are a valuable tool to meet New Zealand’s infrastructure challenges, but are by no means a universal solution.

The challenge – New Zealand is playing catch-up in its infrastructure deliverables

It is uncontroversial that infrastructure is a priority for New Zealand, both in terms of maintaining existing infrastructure and expanding capacity. Yet New Zealand has long faced significant infrastructure challenges, stemming in part from an inconsistent approach to investment in infrastructure across the political spectrum, though there has been a general trend of increased investment in infrastructure between 2018 and 2024.

Sense Partners estimated last year the cost of addressing a shortfall in New Zealand’s infrastructure investment at around $200 billion, which if translated into a tax, would amount to roughly $5,200 per household in expenditure per year.

These rough figures highlight that simply spending more is not enough, New Zealand must also build smarter. This includes focusing in on improving infrastructure delivery, which includes exploring different models for project procurement, delivery, and financing (including PPPs).

With rising construction costs and inflationary pressures, the most cost-effective project is, in many ways, the one that was built yesterday. PPPs are one procurement model that enables us to get essential projects moving now and pay them off over time.

PPPs – not a universal solution

A PPP will not be the best model for every project. While there may be ideological considerations that drive a preference to use PPPs (i.e. a preference to increase private sector participation in delivery of infrastructure projects), PPPs are essentially a tool. Choosing the tool that is the best model to deliver a particular project, should be project specific.

Regardless of the model used, infrastructure projects carry inherent risks, and failures can occur. New Zealand has a poor track record of managing mega-projects effectively but the cause of this is multi-layered. From premature political announcements of projects, inadequate early budgets, long delays and indecision in business case development, to a complex consenting environment, weak ground conditions and susceptibility to natural hazards: the list goes on.

Using a PPP model will not resolve these challenges. Early investment in planning and business case development, then ‘staying the course’ can significantly contribute to the success of an infrastructure project, regardless of the delivery model used. A well-planned and vetted project, where relationships between the Crown and its delivery partners are collaborative rather than combative is more likely to be completed on time and within budget.

As highlighted in Infrastructure New Zealand’s commentary on financing models, PPPs are one of many models available to assist with project delivery. Using a PPP model will not necessarily be cheaper, result in effective risk management, create the right incentives to motivate best behaviour, or create enduring benefits in terms of institutional knowledge.

However, there are a number of potential benefits from using a PPP model. Benefits can include improved whole-of-life outcomes due to maintenance budgets being locked in and not susceptible to being cancelled by the next government, greater budget and programme certainty, access to private sector expertise, efficient use of private capital, and economies of scale that can drive productivity and economic growth, and innovation. PPPs also enable us to get started with infrastructure developments that we cannot otherwise afford to complete now, and pay them off over time. Much like many Kiwis do with their household mortgages.

These benefits underscore the importance of considering PPPs as a viable option for infrastructure development in New Zealand. PPPs can be used in appropriate circumstances to build capacity across the New Zealand market to help to ensure delivery of difficult projects, and get us the infrastructure that we need.

How to shape a PPP into a tool that works?

One of the goals of the PPP framework is to set up a regime that has programme and cost certainty. But there can be challenges with getting the risk allocation right, to ensure that unmanageable risks are not being transferred to the supply chain and, equally, that the taxpayer is not paying a premium to the private sector to accept risks that may never eventuate.

In using a PPP model, the emphasis should be on fostering a genuine partnership between the public and private sectors, ensuring that the selected approach aligns with the project’s unique requirements and creating effective incentives for efficient and effective project delivery.

International experience can provide valuable insights into the benefits and challenges of PPPs. Canada, for example, has embraced the PPP model, achieving success within a facilitative legislative environment that creates stable contractual frameworks, an established project financing environment, and predictable payment models.

The legal and regulatory framework in Canada has helped streamline project execution, contributing to the successful delivery of over 300 PPP projects, many of which Dentons has been involved with (see our previous article on the merits of enhancing collaboration in project delivery, drawing from the Dentons’ Canadian experience, here).

The expertise and lessons learned from these experiences are a valuable reference point for New Zealand policymakers and industry participants considering using a PPP model.

Choosing the correct model is only one part of the wider equation

The debate surrounding pros and cons of PPPs is somewhat illustrative of New Zealand’s current politicised approach to infrastructure.

Taking a bipartisan approach to the delivery of infrastructure projects would allow the spotlight to be focused on addressing more effective procurement and project delivery (why we are spending more, but achieving less compared to our OECD counterparts, and globally?). It would also avoid the disruptions in the infrastructure pipeline which are driven by shifts in political priority, result in efficiency losses when viewed on a multi-project basis, and create a boom and bust cycle in the industry as it is unable to plan and resource its teams consistently.

A politicised approach to infrastructure creates uncertainty, and means our local infrastructure sector is not healthy, resilient and able to grow and invest in its people for the projects of tomorrow. It is these core issues – rather than a preference for one contracting model over another - that need to be addressed to ensure the essential infrastructure NZ needs is built and maintained.

This article was written with the assistance of Ella Arbuckle Page, Senior Associate in our Major Projects and Construction team.