Govt increases private role in state sector

Retail investors have the chance to own a piece of a school, prison or hospital through a $125 million fund launched by Craigs Investment Partners.

The New Zealand Social Infrastructure Fund is the first opportunity individuals have to enter into the public private partnerships (PPPs) through building public assets that will be leased by the Government.

Craigs plans to raise $125 million by the end of next month for the fund, which will then invest the money into a wider pool to be managed by infrastructure specialists Morrison and Co.

The Morrison Public Infrastructure Partners (PIP) fund has the support of the New Zealand Superannuation fund which has committed $100 million.

Last March, the Government set up a national infrastructure unit inside Treasury and released guidelines on PPPs.

Finance Minister Bill English had earlier indicated the Government was investigating PPPs both in the education area and for a proposed prison at Wiri and said the Government hoped to make a decision by June.

PIP managing director Peter Coman said the minimum investment in the Craigs fund was $20,000 with 10% called on the first day.

The rest would be called over the next five years as and when needed because it would take time for social infrastructure to be designed, built and developed.

The concept was that private enterprise took the risk in designing and building the "bricks and mortar", then Government delivered social services, over a 20 to 30-year period.

The Crown would pay the cost of that investment at a pre-agreed rate.

At the end of the concession, the asset was transferred to the Crown at no cost, he saidThe risk for PIP was to build the asset on time and to budget, and to maintain it to the required standard.

If that was done, the cash flows were government-backed, he said.

Asked about the political risk of such investments, particularly if the National-led Government lost power and was replaced by an administration that did not favour public-private partnerships, Mr Coman was ambivalent.

International examples illustrated that the private sector played a role in providing "value for money".

Another risk was that the fund was not guaranteed to win a particular project.

Projects were likely to be open for tender.

Mr Coman said it was a competitive industry but he believed the fund had as good a chance as any of winning a tender.

Labour Party associate finance spokesman David Parker said it was unlikely that a Labour-led government would override any contracts in place unless they were "outrageous proposals".

He was not convinced PPPs would save governments money, but stressed the fund was not doing anything wrong.

It was responding to government initiatives.

However, Mr Parker was concerned that the Government would be tied to a pre-agreed rate of return with the private investors, even if its borrowing costs increased through the period.

Taxpayers would then be liable for any shortfall in the returns to be paid.

The Government could also disguise the true state of the fiscal deficit by shifting the liability off the Crown balance sheet and on to the balance sheets of the private sector.

"Who believes this will save taxpayers money? How can someone build things like roads cheaper than the Government?"

The private sector already built and maintained the roads under contract and on behalf of the Government, Mr Parker said.

Anyone who thought schools were wasting money on property only had to visit a school and inspect the building and maintenance programme to know the pressures boards were under, he said.

The New Zealand Social Infrastructure Fund is initially offering 50 million shares at $1 each, with provision to issue up to a further 75 million shares as oversubscriptions.

Craigs executive chairman Neil Craig said the time was right for New Zealand to introduce PPPs as a means of delivering public infrastructure and to offer the investing public the opportunity to gain some exposure to the sector.