The government has a new NZ$800m (US$600m) toll road and a new schools PPP ready to hit the market. These will bring to more than NZ$2bn (US$1.4bn) worth of PPP projects that the government has undertaken in the last three years.
Next month the government will be releasing its 2015 Infrastructure Plan with an estimated 3,659 infrastructure projects worth more than NZ$110bn that will be needed within the next 10 years. The projects range from energy infrastructure to transport and to social infrastructure such as schools, prisons and hospitals. One of its key measures will be to find ways to attract private capital.
A recent report to the government from its own National Infrastructure Advisory Board & National Infrastructure Unit on what is needed to advance infrastructure said: “New Zealand has made commendable progress on infrastructure issues over the past decade. However, two decades of lost expertise across planning, funding, procurement and delivery of mega-projects is yet to be recovered. We are approaching expensive, transformational and inherently risky initiatives in much the same way we approach standard delivery. This is out of step with international best practice.”
It report said ”mega-projects are more than just big roads, railways and housing developments. They transform the activities of residents, communities and businesses impacting social, economic and cultural well-being – on a grand scale. For this reason, they require the commitment and input of all of society, bringing together all levels of government and the private sector. They demand a different approach to planning, funding, procurement and delivery, one that we in New Zealand must seek to understand as we move forward.”
And, there is no doubt that the country is moving forward. The NZ Transport Agency was given approval late last month to ask private sector companies to put forward proposals to design, build and pay for a motorway north of Auckland.
The Puhoi to Warkworth road is the second road of national significance to be considered as a public-private partnership. As the main road link for the freight industry, the new route will better connect Northland to the markets of Auckland and the central North Island to stimulate economic growth in Northland and the Upper North Island.
The agency is currently sending out requests for EOIs. The Transport Agency hopes construction of the new section of state highway between Puhoi and Warkworth will begin late next year and be completed by 2022. The existing motorway on State Highway 1 will have 18km of four-lane motorway added. The agency has previously estimated the construction cost at NZ$760m but the cost is likely to be higher as it includes maintenance and finance repayments.
The next steps in the PPP procurement process for the project will see a shortlist of PPP consortia expected to be identified by the third quarter of 2015, which will be followed by the selection of a preferred bidder by mid-2016, and the awarding of the PPP contract in the last quarter of 2016.
The new road project is likely to use the same structure as the NZ$1bn Transmission Gully PPP in Wellington. It was the first state road PF funding project in the country’s history. The project has a 25-year concession and the government will use availability payments to service the debt.
Wellington Gateway Partnerships (WGP) comprising Leighton Contractors, HEB Construction Ltd, InfraRed Infrastructure General Partner Ltd, BTMU and Accident Compensation Corporation (ACC) was selected as the preferred bidder. WGP is funding the seven-year, NZ$1bn loan through BTMU, CBA, BNZ/NAB, UOB and Scotia. BTMU was the adviser.
The majority of the debt commitments (NZ$915m) were provided by the banks but a 29-year NZ$125m debt instrument was arranged to accommodate the NZ Accident Compensation Corporation.
The inclusion of this debt piece reduces the refinancing risk for the project, and provides a template for additional tranches of long-tenor debt to be included in the project at later refinancing points. The 29-year loan is fixed-rate, which required agreement with NZ Treasury to establish a forward curve, as there are no observable rates in NZ dollars for instruments of that tenor.
Around NZ$130m of equity will be contributed by the equity investors, with the majority of equity LC-backed and injected towards the back end of construction for financing efficiency. However, the Accident Compensation Corporation’s (ACC) contribution was made at financial close by way of a convertible note instrument, due to its inability (under its enabling legislation) to raise a letter of credit to secure its equity.
There is little doubt that the ACC will be the first port of call for advisers to any bidding groups for the Puhoi-Warkworth PPP. The ACC is by any standards a large corporation and provides comprehensive, no-fault personal injury cover for all New Zealand residents and visitors to New Zealand.
The NZ government is planning to bring a third schools PPP to the market. The government told PFI that “we are in the very early stages of determining the feasibility of procuring another PPP project. We are commencing work on an initial business case to identify whether we have a business need for new schools that meet the criteria to be included in a potential PPP. We have advertised for financial and technical advisers to support us to develop the business case.”
Any new schools PPP will likely follow the same pattern as the Hobsonville schools PPP and the closing last month of the Aranui Community School and Rolleston Secondary School in greater Christchurch, Wakatipu High School in Queenstown, and a new school in Auckland.
The Future Schools Partners consortium won the bidding for the NZ$200m second round of schools PPP. The funding will come from the Public Infrastructure Partners Fund, ANZ and Westpac. The concession is 25 years.
In 2013, the Learning Infrastructure Partners consortium funded by Westpac reached financial close of the NZ$60m Hobsonville schools public-private partnership with the schools opening in 2014. At the time this project was a test case for the government to use as a model for other projects.
The government is about to announce the financial close of the NZ$200m PPP project to build a maximum security wing for the East Auckland prison. The deal was awarded to Next Step Partners (NSP) in April. The project has a 25-year concession and will be funded by Westpac.
NSP, a consortium that brings together Fletcher Construction Company Ltd and the Public Infrastructure Partnership equity fund, was selected last year. NSP and the government are working through the details.
After a quiet start, NZ PPP projects are now gathering pace and the country is set to use the model in its forthcoming infrastructure plan
