Infrastructure bonds way to spread cost

Issuing infrastructure bonds to investors could be a way for the Government to spread the cost of its $17 billion infrastructure plans, Craigs Investment Partners broker Chris Timms said yesterday.

Finance Minister Bill English said on Monday the National Infrastructure Plan meant the Government would invest more than $17 billion in infrastructure in the next four years.

Central Government would invest $7.6 billion on social assets such as schools, hospitals, state houses and prisons during the next four years, $6.5 billion on roads and about $1.5 billion each on broadband and rail.

Mr Timms said the plan did not appear to have opportunities for investors to participate in the development of those infrastructure assets.

"Unless you can invest directly in some of those companies building the assets, like Fulton Hogan and Fletcher Building, how else can you participate?"

Infrastructure bonds, similar to those issued recently by the Government to help rebuild Christchurch, could be the answer, he said.

Public, private partnerships (PPPs) were effectively rent-to-own plans where the Government and a private investor, such as the Infrastructure Fund, agreed on a return rate. The private investor took the risk, received a set return over a "reasonably long period" before the Government took back the asset.

The benefit of PPPs was the Government not having to put up the capital at the start of the project, although it did have to pay in instalments.

Infrastructure bonds would give the Government the opportunity to raise funds from the public, although it would still have to eventually pay the money back. However, it meant that not all taxpayers were "tapped" for the infrastructure building, Mr Timms said.

New Zealand did not tend to have long-term bonds such as those issued in the United States. New Zealand had a volatile interest rate market but it would be possible to index the bonds against inflation.

Government stock was at present issued on 10-year to 12-year terms with the latest ones issued to 2023 at 5.5%.

New Zealand did issue inflation-indexed bonds until 1999. While there was a discussion in 2009 about restarting those types of bond issuances, they were not proceeded with, he said.

Business New Zealand chief executive Phil O'Reilly said from Wellington the latest infrastructure plan was not as it could be, although he stressed his criticism was "very light" at the best.

"It's a good effort but they could do better and I think by the third plan, we will see those opportunities for investments."

There were several examples already of private investment being used to enhance public spending, PPPs and public spending coming after private investment, he said.

In Hamilton, Tainui had invested in rail infrastructure, freight handling facilities and a science park because of an upgraded rail network to Tauranga. Fonterra had invested in an inland port in the Waikato because of an upgraded rail network between Auckland and Tauranga.

PPPS could have been used to pay for the Waterview tunnel, in Auckland, and other major projects, Mr O'Reilly said.

"At this stage, the priorities described in the infrastructure plan are too high-level to provide businesses with specific information to guide investment decisions.

"Business would probably like to have seen more specifics that could lower the risks around decisions about where to locate or whether to invest in additional capacity or release project finance," he said.

Contractors Federation chief executive Jeremy Sole was more bullish about the plan, saying it would encourage foreign investment in New Zealand.

The plan was designed to reduce uncertainty for businesses by outlining the Government's intentions for infrastructure development over a 20-year timeframe.

"New Zealand needs to have a degree of long-term planning so it is very encouraging to see the Government continuing to be very proactive in this area.

"It is also very good for businesses, overseas investors and people coming to New Zealand because it helps them to make decisions based on improved infrastructure."

Ultimately, it could also help the boom-bust cycle which had dogged New Zealand for too long, Mr Sole said.

dene.mackenzie@odt.co.nz