2. Objective and Scope
The objective of this study is to assemble and review relevant information about the ways that the funding of large-scale water enhancement projects is managed in other countries, and to relate the findings to the current situation in NZ.
The scope of the investigation has been limited to economies and political environments that are similar to those existing in NZ, in order to identify aspects that may be readily transferable.
2.1 Traditional Funding Models
This report does not review traditional methods of procuring infrastructure by the public sector for the delivery of public good services. This model is often referred to as the Design and Construct Model (D&C). The D&C models used in each jurisdiction are similar:
- a policy decision taken and budget provision made by the state to provide infrastructure;
- a government agency deals with the design of the infrastructure and preparation of tender documents;
- contracts are awarded competitively in the private sector according to set procedures;
- payment is made under contract terms to the contractor;
- supervision is provided by the agency or its agents; and
- the completed infrastructure is passed to the state after contract requirements are met.
There are variations on this traditional model. The most common is the Design and Build (D&B) option where the private sector provides all finance for the design and construct stages, and payments are made and infrastructure passed to the state after contract terms are met. D&B is being used routinely in NZ by local government, and local experiences are reviewed in the study 2 report.
2.2 Genesis of Public Private Partnership Models
This report explores a range of public private partnership (PPP) models utilised internationally for infrastructure provision in an international context.
The PPP model has been defined as follows:
"a partnership between various public administrations and public bodies 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 a 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."2
In Britain, the PPP concept was launched in 1992 as the Private Finance Initiative (PFI) as an initiative to increase access to private sector capital flows for infrastructure projects at a time when public capital resources were constrained. This was the basis for the first PPP policy developed in the State of Victoria, Australia – Infrastructure Investment Policy Victoria (IIPV)3. After a change of Government in Victoria, a modified version of the IIPV policy was adopted – Partnerships Victoria (PV)4.
Interest in PPP in the EU member states has been extensively documented, and shows that a number of variations of the original British model have been used for infrastructure projects, mainly in the transport and urban water supply sectors.5
In Britain, there are two main types of PPP transactions that have developed since 1992:
- Financially Free Standing Projects – where the private sector designs, builds, finances and operates the project, recovering all costs through direct charges to the private users rather than payments by the public sector. The role of the state is to facilitate the process.
- Joint Ventures – where costs are met by a combination of user charges and state subsidy related to asset development. This form of transaction arises because the non-user community receives some benefits and direct user charges are not sufficient on their own to support the investment.
The question that is addressed here is whether these non-traditional funding models have relevance to NZ. The current situation in NZ is that there is no formal policy in regard to PPP as described above. The reason that NZ has not followed the international initiatives in regard to PPP is not clear. An influential factor may be the public sector reforms of the early 1980s, and a limited need for access to private capital resources for a modest public sector infrastructure investment programme.
The five studies have been commissioned because of the potential need for access to substantial capital if economically desirable water enhancement infrastructure projects are to proceed. This report examines international experience with PPP models in other jurisdictions that may have relevance to the funding of such projects.
2 High-level Group on Public-Private Partnership Financing of Trans-European Transport Network Projects (TENS), Final Report
3 State Government of Victoria, Department of Treasury, Infrastructure Investment Policy for Victoria, June 1994
4 State Government of Victoria, Department of Treasury and Finance, Partnership Victoria Guidance Material, 4 volumes.
5 Report to the Inter-Departmental Group in relation to PPP, Farrell Grant Sparks et al, July 1998.
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