Infrastructure

Projects in pipeline, but how many spades?

A list of projects to plug New Zealand’s infrastructure gap will be released on Tuesday morning, but will it provide the kind of certainty industry is looking for? Dileepa Fonseka previews the release of the new Infrastructure Commission’s first big list. 

A "pipeline" of guaranteed infrastructure projects will be announced by the new Infrastructure Commission, which hopes to convince industry players to remain committed to the New Zealand market.

New projects are not expected in the announcement, it will instead be a list of infrastructure projects that have already been signalled and that those in industries like construction can count on being built.

The Infrastructure Commission was formed in late September, taking over from the former Treasury Infrastructure Transactions Unit, which previously had the job of compiling a pipeline of infrastructure projects across a number of areas like health, education and transport.

The new commission aims to develop a 30-year infrastructure strategy and provide a quarterly outline of confirmed projects for ten years ahead.

The first set of projects in the pipeline was published in May on Treasury's website, with a list of 174 projects totalling $6.1 billion. It has since been moved to the Commission’s own website.

The credibility gap

Announcing former Reserve Bank Governor Alan Bollard’s appointment to the new independent commission on August 21, Infrastructure Minister Shane Jones said he and Deputy Prime Minister Winston Peters had met with Bollard personally to “unreservedly” express their desire to see more shovels in the ground on infrastructure projects. 

But the next day Transport Minister Phil Twyford announced there wouldn’t be “spades in the ground” on Auckland’s Light Rail project in 2020.

Two weeks later a commitment to build 100,000 Kiwibuild homes was ditched, and in October the once-popular incumbent Labour Mayor of Wellington, Justin Lester, was unseated by an opponent who wants to renegotiate a $6.4b regional transport plan announced in May.

“To an extent it’s unhelpful to announce too much if you don’t have everything locked in."

Getting ready for an election-year Budget

The Coalition Government hamstrung itself before the election by committing to National’s target to reduce net debt to 20 percent of GDP. It has achieved that target two years early and has indicated it is ready to increase infrastructure spending to help the Reserve Bank boost the economy and inflation now that interest rates are close to zero percent.

The Infrastructure Commission’s report will be a key ingredient for the Government as it prepares its Half Yearly Economic and Fiscal Update (HYEFU) for release on December 11, which may signal new spending in the May Budget next year — four months ahead of the election. The 10 year Government bond yield is the closest proxy for Government borrowing costs. It fell to as low as 0.98 percent in August and closed on Monday at 1.39 percent.

Brad Olsen, an economist at Infometrics, believes the continuing gap between projects announced and spades in the ground will hurt the credibility of the Government’s infrastructure pipeline. He is the lead economist on Infometrics’ own measure of the Infrastructure pipeline profile.

“If you’ve got a lot of the projects that don’t have that level of detail and you can’t stand behind and say this is what’s going to happen at this time with this certainty, it probably doesn’t achieve its purpose to be honest,” Olsen said.

Olsen said questions around certainty was something the new Infrastructure Commission would have to deal with in its next infrastructure pipeline document, but was unlikely to be able to fix with Tuesday’s release.

“To an extent, it’s unhelpful to announce too much if you don’t have everything locked in,” Olsen said.

It is all a far cry from the plan it is meant to imitate: Australia’s Infrastructure Priority List - an A$58b project pipeline to be delivered over 15 years. 

With time, the Infrastructure Commission is likely to deliver a more cohesive infrastructure pipeline list, similar to Australia's with "joined-up" priorities, but Olsen believes that is unlikely to come on Tuesday.

“You look at some of the examples around light rail [in Auckland], you know that’s going to happen, we don’t know how much exactly that’s going to be yet, we sure as heck don’t know when it’s going to be built at this point.”

“So yes it’s going to be in the pipeline [but] does that give the industry enough information about what’s going to be in the pipeline?”

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