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New Zealand Infrastructure Commission: an innovative approach to infrastructure

April 26, 2019

Contacts

Partners Josh Cairns, Padraig McNamara, Jonathan Salter, Simon Vannini, Michael Weatherall
Special Counsel David Cochrane, Lisa Curran
Senior Associates Katherine Viskovic

Infrastructure (inc funding) Government reform and public policy Urban development

New Zealand needs to improve the way it plans and procures infrastructure projects. Frequent reports of cost overruns - some projects being stopped or deferred and others getting approval on grounds that are not always clear - are an increasing concern.

Recently announced major project costing blowouts and a light rail project full of uncertainties show the need for improvement. Overruns of estimates on smaller scale projects also demonstrate that this is not just an Auckland issue. For example, the Omāroro Reservoir in Wellington - costed at $29.5 million in 2017 (including a contingency allowance) is now estimated at $58.2 million before a sod is turned - and Kiwi Rail on the national stage can seemingly absorb every dollar sent its way.

Part of the Government’s solution to this issue is the proposed Infrastructure Commission/Te Waihanga. It has two broad functions:

  • strategy and planning of infrastructure throughout New Zealand; and

  • support and promotion of best practice for infrastructure delivery.

New Zealand Infrastructure Commission/Te Waihanga Bill

The New Zealand Infrastructure Commission/Te Waihanga Bill will establish an autonomous Crown entity with the following function:

[To] co-ordinate, develop, and promote an approach to infrastructure that encourages infrastructure, and services that result from the infrastructure, that improve the well-being of New Zealanders.

The Commission will take an approach to infrastructure planning that focuses on achieving outcomes and considering how those outcomes can best be achieved. This should result in more strategic decision-making as the Commission will have the technical expertise to consider different ways of solving problems. So, for example, in the transport sector the focus should be on the best mode, rather than the mode available to the proponent of the project.

The Bill has a broad definition of infrastructure, being “physical infrastructure in New Zealand or that results in services in New Zealand.” Although not explicitly stated, it is understood that the intent is for this to include the ‘classic’ types of infrastructure; transport, the three waters, energy transmission at least in bulk and perhaps generation and items such as flood control.

Should the Commission be successful in delivering on its functions we envisage that its role could be extended to other sectors, eg education, health or defence. Whatever “infrastructure” may be, the Government intends spending a net $42 billion on it over the next few years.

In addition to the broad function of the Commission, the Bill provides additional functions separated into two groups:

  • Strategy and planning functions:

    • to develop broad public agreement on the strategic approach developed by the Commission and the strategy reports that the Commission must provide;

    • to provide advice in relation to infrastructure; and

    • to provide regular strategy reports and to provide further specific reports when directed to do so by the responsible Minister.
  • Support functions:

    • to promote a strategic and co-ordinated approach to the delivery of infrastructure projects;

    • to provide and co-ordinate information in relation to infrastructure projects; and

    • to provide support services to those projects.

Strategy and planning functions

In delivering on the strategy and planning function, the Bill requires the Commission to develop a strategy report, on a two year then a 4.5 year cycle. The report will comment on the ability of existing infrastructure to meet community expectations for the next 30 years, and identify priorities for infrastructure for the next 30 years.

This signals an intention for a more strategic approach to be taken to infrastructure planning, and has the potential to identify shortcomings in existing infrastructure before assets come under stress.

Significantly, the Minister can direct that the Commission provide a report “on any matter relating to infrastructure”.

To enable the Commission to undertake its functions, the Bill proposes gives it powers to require specified classes of entities to provide it with information to enable it to perform its functions. The “entities” are all government entities. However, the Commission’s reporting function relates to “infrastructure” generally, so it might want information on privately owned and local government infrastructure and plans for their creation or expansion.

It will be a brave SOE, gentailer, or local authority that wants Government assistance but refuses to co-operate with the Commission. Indeed, some (such as NZX listed port companies and gentailers) may want to be included so as to gain the statutory confidentiality granted by the Bill.

Support functions

Beyond the identification of a support function for the Commission, the Bill does not delve into detail as to how these functions will work. Presumably, this will be determined over time, with reference to the needs of infrastructure owners and builders.

The Bill provides some guidance to what is intended to be included in the support function through the definition of “support services” which is:

support services are services that support the delivery of an infrastructure project (or a proposed project), and include—

(a)        providing advice in relation to a proposed project; and

(b)        providing services or staff to assist with the delivery of a project

For entities that own and provide infrastructure, but do not regularly undertake significant projects (eg smaller local authorities), the proposed support services have the potential to provide a significant and helpful resource. One that enables access to high quality information and project resourcing that is not required to be held within the entity on a day to day basis.

Skills and expertise supporting the Commission

While the Bill itself is relatively short, its objectives are broad and the operation of the Commission will be developed over time in response to New Zealand’s infrastructure needs, and the support required by those procuring infrastructure.

Treasury will have the responsibility of establishing the new entity. A panel of private and public sector experts have been appointed to support the establishment of the Commission, and will guide the shaping of advice on key issues.

The Commission will be an Autonomous Crown Entity. Not as free as an Independent Crown Entity, but nevertheless with the right people on its Board, the Commission should be well placed to speak truth to power (or at least to vested sector interests).

The Commission is intended to undertake some functions that are currently undertaken by Treasury’s Infrastructure Transactions Unit and the National Infrastructure Advisory Board. Minister Jones has already signalled the likely appointment of NIAB chair John Rae and SPV specialist and investment banker Simon Allen to the Board of the Commission.

Where to from here?

The New Zealand Infrastructure Commission/Te Waihanga Bill is currently before the Finance and Expenditure Select Committee. It went there unanimously, with National and Green Party support.

Submissions can be made until 17 May. Report back is no later than 26 August, and Minister Jones wants the Commission up and running by October.

Please contact any of the listed contacts if you are interested in making a submission.