1. Executive Summary

This report focuses on international experiences for financing and implementing large-scale infrastructure projects in general, and water enhancement projects in particular. The study is based on a literature search and information gathering exercise to capture the essential elements of experiences in Europe, the United Kingdom and closer to home and in more detail, in Australia. The experiences in some developing jurisdictions – Malaysia and developing member countries of the Asian Development Bank – are also reviewed. The study was assisted by a study tour of developments in Victoria, during which discussions were held on the experience with PPP processes operating in that state since 1994. Meetings were held with officials, private sector partners and users of infrastructure projects developed under the Victorian Public Private Partnership (PPP) models.

Emphasis is given here to PPP models for project implementation, because the details of traditional design and construct and design build options are well known in this country, and because of current interest in non-traditional implementation mechanisms for the suite of water enhancement proposals that are currently being developed.

PPP is a "partnership between various public administrations on the one hand and legal persons subject to private law on the other, for the purpose of designing, planning, constructing, financing and/or operating an infrastructure project. The key feature for a successful PPP is the allocation of the project’s risks between the public and private sector according to each party’s ability to manage and bear them, without destroying the economic balance of the project."1

The reasons postulated in support of the PPP model for infrastructure development include:

  1. greater cost-effectiveness in managing project risks;
  2. savings captured/benefits enhanced because of better time-to-delivery;
  3. accesses private sector innovation and management skills;
  4. lower demands on governmental operating budgets, reduced fiscal deficits;
  5. better value-for-money for government and community.

In reviewing the international experiences with the general PPP model and its variants, the study showed:

  1. PPP is not a panacea for delivering public infrastructure projects, but its use is increasing in all jurisdictions, albeit with substantial modifications to the original UK formulations to suit local circumstance.
  2. The most experience with PPP is in the United Kingdom and Europe. The Irish experience is relevant to NZ insofar as it has developed its polices with the benefit of lesson learned elsewhere and has adapted PPP processes to fit its own circumstances.
  3. There have been problems with PPP models where the private sector party deals directly with the communities receiving service – this is particularly evident in provision of water supply services, privately run prison and health services.
  4. The PPP business environment is becoming increasingly mature in some jurisdictions, but experience in NZ is limited. A common finding was that early experiences determine later success – success leads to increasing adoption, failure through inappropriate arrangements can lead to rejection by both parties.

Insofar as NZ is concerned, PPP experience is minimal. The first truly BOOT project for a small sewage system in Northland is under development with assistance of experienced advisers from the Victorian PPP industry. Toll roads are being proposed under BOOT for the Auckland region. There have been preliminary discussions between some farmer companies and private sector interests about water enhancement infrastructure provision in North Otago.

The report examines the issues that would need to be discussed if the NZ Government wanted to take the adoption of a PPP policy position further, based on the policy platform of the Victorian Government in this regard. The parameters of importance to the private sector in Victoria are also reported and analysed in the context of the NZ situation. From these analyses, the following general conclusions are drawn:

  1. Large scale water infrastructure projects are funded by Governments under traditional design and construct models in some developed economies and in many transition and developing economies.
  2. There is increasing use of a range of Private Public Partnership (PPP) funding models used in developed economies to provide core Government services.
  3. No completed examples of large scale water enhancement projects implemented under PPP were found, although the Deakin Irrigation project proposals in Victoria have been based on this model.
  4. There is a strong interest amongst private sector players to be involved in PPP projects in irrigated agriculture, so long as the investment climate is supportive. This is particularly so for interests in Australia and traditional PPP players in Europe.
  5. The use of PPP is now being suggested in local debate as a mechanism for providing public sector infrastructure, initially in the transport sector. The level of understanding in NZ of PPP is generally low and local experience inadequate to give confidence that lessons learned elsewhere have been taken into account.
  6. The role of Government in supporting and facilitating PPP in other jurisdictions involves interventions in the legislative and control environment, and substantial support in the early stages of the PPP process. In some EU countries, Government has taken a financial position in asset provision in situations where direct revenue steams were insufficient to support the investment, and total benefits justified the intervention.
  7. If the NZ Government was interested in creating an environment supportive of private sector interest in PPP developments of large scale water infrastructure projects there are several initiatives required:

    8. i) A more detailed analysis of private sector needs and constraints, than has been possible under resources devoted to this study.

    ii) Investment opportunities suitable for PPP need to be identified.

    iii) A commitment to pursue PPP implementation where appropriate.

    iv) Identification of a pilot PPP project with minimal difficulties to gain experience.

  8. In all of the countries where PPP has become an increasingly important method of developing infrastructure projects, there has been policy decisions based on extensive analysis, and subsequent specific support and procedures developed by Government. In some cases legislative change has been necessary. It is an unresolved question as to whether such initiatives are appropriate in the NZ context.

1 High-level Group on Public-Private Partnership Financing of Trans-European Transport Network Projects CTENS), Final Report

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