No free lunch when it comes to infrastructure

The time has come for a new approach to the funding of infrastructure that takes into account its true cost, according to law firm Bell Gully.
Its report today focuses on bridging New Zealand’s more than $200 billion infrastructure deficit.
But while co-author and Bell Gully partner Angela Harford says it is possible to defy the deficit with better delivery, Kiwis may need to learn there is “no free lunch” when it comes to infrastructure.
She points out that the opportunity cost of not investing enough in infrastructure and not pricing the use of infrastructure is becoming increasingly apparent.
The deficit may require the exploration of lightly trod models like public-private partnerships, city deals and user-pays systems like congestion charging or toll booths, she says.
“We have had the luxury for a long time to not have to directly put our hand in our pocket when we want to use infrastructure.”
But the confluence of events like Cyclone Gabrielle or the still-slipping Brynderwyn section of State Highway One have shone a light on infrastructure as an issue for the everyday Kiwi – which may in turn increase the collective will needed to do something about it.
“There’s a much greater understanding of the deficit when people are seeing pipes overflowing,” she said. “The rubber is hitting the road and it is becoming something that people can actually see and which is affecting their daily lives.”
Harford said at this stage, collaboration across numerous sectors is needed so all good ideas can be put on the table.
She pointed to recent moves by Minister for Infrastructure Chris Bishop, who has championed a work programme including public-private partnerships and establishing a national infrastructure agency to bolster procurement relationships and work pipelines since he was on the campaign trail a year ago.
The Government’s recently released plan of attack for the next quarter includes a number of infrastructure-focused objectives, including creating a framework for city and regional deals and opening a $1.2 billion fund for regional infrastructure projects.
These announcements follow complaints from local government in recent years over who should be left holding the bag when it comes to funding big projects, including Auckland Mayor Wayne Brown’s calls for more financial support for the country’s biggest city.
Brown’s Manifesto for Auckland, sent to Wellington around the time of the election last year, called on the new Government to finish, fix and protect existing infrastructure with tools to fund and finance the major investment needed to deal with the deficit.
Harford said local governments themselves have a range of infrastructure needs competing for scarce funding resources, and it’s always more challenging to spend money on long-term needs than current problems.
“Those that shout the loudest are often the ones that are heard when it comes to making funding decisions” she said. “And the reality is there is always an opportunity cost to the choices we need to make.”
Meanwhile, co-author and fellow Bell Gully partner Ian Becke says asset management has fallen by the wayside in the past, leading to mounting costs in the current day.
“Conceptually, there’s something inherently appealing in something shiny and new. And asset management isn’t necessarily that.”
According to Te Waihanga, between 2013 and 2022, depreciation costs were equal to 58 percent of new capital investment.
That means for every $10 spent, $6 worth of infrastructure would wear out and need replacing.
Becke pointed to initiatives underway to improve that ratio and make the most of current infrastructure, such as Wellington City Council’s underground asset register.
This catalogue of subterranean pipes and cables could apparently save a significant sum of infrastructure investment dollars – a sum that would only grow if the project were extended to the rest of the country.
And while the deficit has reached eye-watering levels, Becke and Harford are optimistic. The former reports a new relationship he noticed in the post-pandemic years between infrastructure providers and contractors.
“There’s a level of collaboration I’ve not seen before, and real desire to tackle this problem together; while in the past there has sometimes been a very one-off procurement pattern or adversarial relationships over the allocation or risk.”
Covid was a fork in the road, where the relationships could have become more hard-line as risks increased – but instead, risk was shared more and negotiation was given priority, Becke says.
“I think stakeholders are seeing that a sensible outcome can be seen in sharing risks, and the maturity of the market has increased.”
Becke says going forward it is important for New Zealand to approach infrastructure issues while both thinking “outside the box” and keeping an eye on what other countries are doing.
He gives the example of tolled roads in Sydney, where the recent Toll Review found motorists were much more likely to use and pay for the system if it was clear exactly how the toll was levied and functioned and they didn’t have to adapt to a new process on each different motorway.
“We will close the gap if we ‘think outside the box’ and thoughtfully consider the different ways we can approach impediments to infrastructure funding and delivery, including by taking on board lessons learned from previous successes and failures, both domestically and from abroad,” he says.
“We are facing a fast-changing landscape and it will be important for those in the sector to bring their understanding of what will work, and what may not, to this process.”
Meanwhile, Harford urges now is the time to pull out all the stops and listen to every idea.
“We have to – for our future generations.”
Read the report here: The Big Picture: Infrastructure – Defying the deficit with better delivery – Bell Gully.