Leveraging private capital and design innovation on Puhoi-Warkworth will make the budget go further
27 May 2015
A safer, more reliable and resilient road connecting Northland to the world is a step closer following the Minister of Transports announcement today that the Puhoi to Warkworth Road of National Significance will proceed as a public private partnership if the market can provide as good value for money as Transmission Gully, says Stephen Selwood CEO of the NZ Council for Infrastructure Development.
For a privately financed bid to succeed, the Transport Agency is going to have to be sure the design and construction of this vital road connection delivers a superior level of service to what can be achieved under a more conventional model it will have to be safer, stronger, faster and better.
Thats what is being delivered through the countrys first transport PPP along Transmission Gully, a project that last weeks flooding shows cant come soon enough.
The potential for a PPP to get better value for the tax payer is not limited to the requirement that Puhoi-Warkworth be superior to a conventionally procured project.
Financing major capital procurement through debt smoothes the funding pathway, promotes intergenerational equity and avoids boom-bust cycles in the construction sector which has been a significant handbrake on productivity in recent decades.
Use of debt funding means there will be more capital available in the National Land Transport Fund in the near term to resource other transport priorities across the country.
If Puhoi to Warkworth was totally funded out of pay-go annual revenue streams, then this priority billion dollar project would not only starve regions across the country of much needed transport investment in the medium term, it would take at least two years longer to deliver forgoing substantial economic growth opportunities in Northland in the meantime.
There has been strong market interest both locally and globally in this project following the success of Transmission Gully. Robust competition will help drive the efficiencies needed to generate whole of life cost savings which in turn are required to demonstrate better value for taxpayer money.
Critics of PPPs incorrectly compare the whole of life cost of PPPs to conventional costs to build an asset. This ignores long term maintenance and repair charges and mistakenly attributes the value of a dollar today to a dollar twenty years from now.
The process transport authorities will now undertake will be to challenge the PPP market to deliver a 30 year road solution at better value than 30 years of conventional contracts.
Without some combination of improved service delivery and cost savings, a PPP will not proceed and thats exactly the right process, Selwood says.