New Zealand Infrastructure - Trends & insights NOVEMBER 2020 - Chapman Tripp
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NOVEMBER 2020 New Zealand Infrastructure Trends & insights
Contents
New Zealand infrastructure – ready for
1
lift-off?
Wild ride ahead for electricity sector 2
Sector hot spots: 4
Three waters
Social infrastructure
Transport
Housing
RMA Review – what next and how long? 12
Coasting on a COVID cash bonanza 15
Climate change – the elephant in the room
18
gets bigger
Infrastructure team 20
New Zealand infrastructure
– ready for lift-off?
Pressure on all forms of infrastructure remains high with little evident
physical progress since our publication of August 2018 What next for
infrastructure? But we may now be about to obtain lift-off.
This is mainly due to the huge As many of these reforms are And, although COVID-19 has opened
infrastructure spend the Government relatively recent, they have yet to the Government’s cash faucet, the
has embarked on as part of its translate into much physical activity border restrictions are exacerbating
response to the economic impact – but they will. And there are more New Zealand’s persistent skills
of COVID-19. However, there has changes on the way, most obviously, shortages and the COVID-induced
also been significant policy action and most significantly, the repeal recession has put many businesses
to address the pinch-points we and replacement of the Resource into retrenchment mode.
identified in our 2018 analysis – in Management Act.
particular a channel to attract So, while there are many reasons to
private sector funding and financing, This should facilitate timely believe that New Zealand’s decades-
but also across the broader infrastructure development. Whether long pattern of under-investment
regulatory framework. it is able to constrain the effects of in infrastructure may be about to
NIMBY-ism while protecting property end, delivery to the levels required
Examples include, but are not limited to: rights and democratic rights of to spark a meaningful improvement
participation in resource allocation in productivity, social wellbeing
• the creation of Te Waihanga: and decision-making will be a much or emissions reduction is still far
Infrastructure Commission sterner test. from guaranteed.
to develop a dependable
project pipeline Climate change will also create a
spur for investment, both through Paula Brosnahan
• the establishment of Kāinga Ora, its weather effects and increasingly, Partner
with the power of compulsory through the incentives created by the
acquisition to promote Zero Carbon Act and the Emissions Mark Reese
residential development Trading Scheme. Partner
“
• the National Policy Statement But the size of the job is huge,
on Urban Development requiring especially in the electricity sector
all councils to provide sufficient where Transpower estimates we will
land and infrastructure to meet
expected population demand
need a 55% increase in generation Although COVID-19 has
capacity to achieve New Zealand’s
Paris Agreement commitment to net opened the Government’s
• the three waters package
carbon neutrality by 2050. In our view, cash faucet, the border
• the amendments to the Building it will take a paradigm shift to pull
Act to reduce the barriers to pre- this off. restrictions are exacerbating
fab construction, and New Zealand’s persistent
• the fast track process for shovel skills shortages
”
ready projects.
Infrastructure Trends & Insights | 1
Wild ride ahead for
electricity sector
Within weeks of Rio Tinto’s announcement that it would close the Tiwai
Point smelter by August next year, Transpower put out a paper updating its
central planning scenario for New Zealand’s energy future.
The modelling assumes that to meet Meanwhile, Contact Energy has put In the meantime, acting on
New Zealand’s commitment to be a new geothermal power station at recommendations from the
net carbon zero by 2050, electricity Tauhara on hold and Meridian Energy Productivity Commission and the
demand will be pushed up by 55% – has deferred the Harapaki wind Interim Climate Change Committee
which will require the construction of farm in the Hawke’s Bay pending a (ICCC), the Government is exploring
25 new grid-scale renewable power final decision about the smelter’s ways to provide more direction to
stations and battery storage schemes close date. consenting authorities, including
within the next 15 years. through amendments to the National
Towards a more positive Policy Statement (NPS) for renewable
That is a frighteningly short timespan investment environment electricity generation.
given the levels of investment that
The Labour Government has
would be involved, the long lead times And it is trying to broker a cheap power
committed to replacing the Resource
associated with large infrastructure deal to entice Rio Tinto to maintain
Management Act (RMA) along the
projects, and the uncertainties current employment at the Southland
lines recommended by the Randerson
around trying to predict movements in site over the next three to five years
report (see our discussion on page 11),
wholesale electricity prices. and to work with the Government on
which include moving to an outcomes
finding future uses for the plant.
It was in recognition of these based approach rather than focusing
factors that Transpower shot out its on effects. But...
publication. It created a context to
The Labour-Green Co-operation
guide investment decisions and to
Agreement also commits both parties
Working against these
mobilise a collective action response.
to achieving the purpose and goals positives are major
of the Zero Carbon Act through
This included an assurance to potential
investors that Transpower will do its decarbonising public transport and the uncertainties that
bit to expand capacity in the national public sector, increasing the uptake of may deter the private
grid. The Clutha to Upper Waitaki zero-emission vehicles and supporting
Lines project is already underway the use of renewable energy for sector from making the
and it will consult on further upgrades industrial heat. In short, strengthening
the commitment to stimulate material
necessary investments
and expansions.
increases in demand for electricity. at the required volume
and velocity.
2 | Chapman Tripp
Even if Rio Tinto is persuaded to delay Labour has linked the 100% goal to Historically it is the state that builds
its departure, it will be a reprieve rather the use of pumped hydro, in particular generation – even in large economies
than a rescue, and there are currently through a huge facility at Lake Onslow like the UK where the Government has
question marks over a number of other in Central Otago, although Energy and contracted China General Nuclear
major power users, among them the Resources Minister Megan Woods Power Group to develop a new
New Zealand Oil Refinery at Marsden says other smaller options in the North nuclear plant, and has absorbed the
Point, the Tasman Mill at Kawerau, Island will also be investigated. economic risk by locking in a long-term
New Zealand Steel’s Glenbrook Mill, pricing curve.
the methanol production facilities But the Lake Onslow proposal would
at Taranaki, and the James Hardie take four to five years to complete In New Zealand, the Government owns
cement factory at Penrose. and a further two to fill the reservoir, Transpower and holds a majority stake
would be eye-wateringly expensive to in three of the four major gen-tailers:
The Government has compounded build (at least $4b and probably closer Genesis Energy, Mercury Energy and
this uncertainty by advancing its 100% to $6b), and would have wafer thin Meridian Energy. But the 49% private
renewable electricity target from 2035 profit margins. The Government has shareholding in these companies will
to 2030. It did this against the advice only committed $100m for a detailed restrain the Government’s ability to
of both the Productivity Commission business case. strong-arm them into making major
and the ICCC. investment decisions.
And, even if the project proceeds, it will
• The Productivity Commission take many years for the design detail to Will that mean acting as under-writer
advised in August 2018 that be finalised so that the market knows to the private sector or entering
“no options exist to completely exactly what is proposed. How would it Public Private Partnerships? Or will
eliminate greenhouse gas emissions operate? As well as providing dry year the Government incentivise private
from electricity generation without supply, would it also intervene to smooth investment through a sky high
greatly increasing wholesale price peaks in a more usual year? If so, Emissions Trading Scheme – and how
electricity prices”. when? And how would that not crowd would that affect low income earners
out other generation investment? or the broader economy.
• And the ICCC advised in 2019
that, while technically feasible, the Would you advise your board to These are the issues which the
last few percentage points would approve a major construction project Government and the energy sector will
be very expensive to achieve for new generation while all these balls need to work through in the current
– pushing up residential power were still up in the air? term. Transpower has laid out a path.
prices by 14% and industrial prices Everyone else now needs to chart
by 39% – which would slow the How to achieve the a course.
decarbonisation of the rest of necessary paradigm shift
the economy. These questions underscore the fact Andy Nicholls
that we have a market model in New Partner
Zealand which is geared to incremental
change. So, to power a massive
increase in electrification, a paradigm
shift will be needed.
Infrastructure Trends & Insights | 3
SECTOR HOT SPOTS:
Three waters
The 2016 Havelock North drinking water
contamination has catalysed significant reform
to the country’s three waters infrastructure.
This will be administered by Taumata This is deft politics which achieves
Arowai – a Crown agent created territorial amalgamation without
by statute this year to regulate the buying into parochial turf disputes.
provision of drinking water, and to As Infrastructure Commission Chief
oversee wastewater and stormwater Executive Ross Copland says:
services across the country.
“The decision to focus this investment
To address persistent structural on Councils who commit to work
problems of council fragmentation with the Government on three waters
and under-capacity, the Government reform is a pragmatic, incentive-
is dangling a $630m carrot for based approach to unlocking the
distribution as grants to councils procurement and operational
which agree to amalgamate their three efficiencies which can be gained
waters infrastructure with others in through consolidation”.
the region. The allocations range from
Canterbury on $100m to Gisborne on Local government forecasts have
$11.04m. investment reaching $17.2b over the
next 10 years, which is an increase
Participating councils will receive in numerical terms of 60% over the
50% of their allocation directly. The previous decade.
remaining 50% will be assigned to
the regional grouping, members of And yet, Infometrics considers
which must sign a Memorandum of this may not be enough to
Understanding that commits them meet the costs of previous
to develop and enter into service depreciation, population growth,
delivery entities: urban densification and higher
water standards.
• of a scale that will enable benefits
from aggregation to be achieved
over the medium-to-long term
• with balance sheet separation
to support improved access to
capital, and
• with competency-based boards.
4 | Chapman Tripp
Investment in New Zealand water assets set to rise
$m, historical and forecast capital investment in water assets
Combined water assets Waste and stormwater Water supply
2,000
1,500
1,000
500
0
10 12 14 16 18 20 22 24 26 28
Source: Infometrics
“
The decision to focus this investment on Councils who commit to work with the
Government on three waters reform is a pragmatic, incentive-based approach
to unlocking the procurement and operational efficiencies which can be gained
through consolidation.
”
Infrastructure Trends & Insights | 5
SECTOR HOT SPOTS:
Social infrastructure
In our 2018 publication we said that New Zealand’s social infrastructure
– public housing, schools, hospitals, prisons etc – was in poor shape
because it had played Cinderella to debt reduction for decades.
In this metaphor, the debt The first four-year allocation, made The public health sector in particular
mountain created by the Muldoon in 2019, was for $10.4b. At Budget is struggling against tight budgets
Government’s borrowing binge 2020, $4.4b was still in the kitty. The and tired infrastructure with large
through the mid-1970s to the Government increased this by $1.7b, project pipelines and inconsistent
mid-1980s becomes the wicked taking it to $14.8b, and committed to a procurement. Structural reform
stepmother with the GFC in 2007 further $8b capital expenditure in the is coming through the Heather
and the Canterbury earthquakes in current financial year. Simpson-led health and disability
2010 and 2011 playing the two ugly system review. But the pressure on
sisters. Now we have COVID-19 which, The priority areas for capital the Government’s balance sheet will
in this narrow context, is in the role investment over the last three budgets constrain both the scope and the
of Fairy Godmother because it has have been health around $3.5b; and pace of change.
released large amounts of cash for education around $2b.
infrastructure spending. The area of greatest achievement
So loads of dosh sloshing is probably in social housing where,
The Government’s ‘wellbeing according to the Government’s
approach’ has also loosened the around but so far, not Housing Dashboard, between June
purse strings. And the shift to a rolling much to show for it on 2018 and 30 September 2020, 7,378
four-year budget capital allowance state and community houses had
(from single year allowances) should the ground. This is not been either built or were under
provide more investment certainty surprising given the long construction. Labour is committed to
– although this effect should not be increasing this to 18,000 by 2024.
over-stated as budget decisions are lead times associated with
always vulnerable to changes in the construction projects, And yet this will not be enough to
accommodate the current waiting
fiscal position or in the balance of
political power. but it is a source of list which is at record heights with
some frustration. around 20,000 applicants.
6 | Chapman Tripp
Capital investment – education At Budget 2020
$2b $14.8b
$8b
Capital investment – health
$3.5b capital expenditure in the
current financial year.
Between June 2018 and 31 August 2020
7,313
houses built
or under
construction.
Infrastructure Trends & Insights | 7
SECTOR HOT SPOTS:
Transport
Transport in all its forms has been a big beneficiary of COVID-19 and the
2020 general elections. COVID-19 because of the need to stimulate job-
heavy investment, the election campaign because Labour and National
see new roads as vote-winners (the Greens, not so much).
The Government Policy Statement These large numbers carry their own The Auckland Light Rail tender
(GPS) for 2021, released on 17 kind of comfort, especially in a sector process was officially pulled in June
September, provides for $48b of which has the benefit of coordinated, this year because of opposition from
transport spending over the next mode neutral planning by Waka Kotahi New Zealand First, but should get the
decade, $10b of which will be spent NZ Transport Agency. green light now that Labour’s got a
on driving down the road toll. The clear majority and is in control of its
$48b is on top of the $6.8b already And yet the two hero projects – own destiny.
allocated to the New Zealand Transmission Gully in Wellington
Upgrade Programme, across road, and Auckland Light Rail – have been And the current review by the
rail, public transport, walkways and beset with difficulty. But easier Infrastructure Commission into the
cycle ways. times may be ahead. Transmission Gully Public Private
Partnership (PPP) may create an
opportunity to reset the contract
terms to the benefit of both parties.
8 | Chapman TrippSECTOR HOT SPOTS:
Housing
KiwiBuild was set up for failure by the impossibly ambitious 100,000 new
homes within 10 years target. As at 30 September 2020, the Housing
Dashboard had just 645 completed and another 912 under construction.
But much has been done at the • the NPS on Urban Development, Most of these only came into effect
policy level to unblock some of the requiring all councils to provide in the second half of this year so have
blockages in the system, in particular: sufficient land and infrastructure yet to register an impact. But they can
to meet expected demand over only improve housing availability and
• the creation of urban development the short, medium and long affordability at the margins because –
authority Kāinga Ora, with term, and imposing specific like all markets – the housing market
the power to compulsorily density requirements on the five is governed by the laws of supply and
acquire land and to fast highest growth areas – Auckland, demand, and the facts are brutal.
track developments Hamilton, Tauranga, Wellington
and Christchurch, and
• changes to the Building Act to
reduce the barriers to pre-fab • the Infrastructure Funding
construction and Financing Act giving local
authorities access to off-balance
sheet finance.
Median house prices across
New Zealand increased
by 19.8% from $605,000
in October 2019 to a
new record median
high of $725,000
in October 2020
Infrastructure Trends & Insights | 9SECTOR HOT SPOTS:
Housing
(continued)
Fact One Fact Two
New Zealand over this period,
population grew by housing stock
2010 to 2020
17% increased
12.5%
Fact Three Median house price
That creates
a shortfall of 19.8%
74,000 year to October. Now
– half of it in Auckland. $725,000
10 | Chapman TrippPopulation vs housing stock
Annual change in resident population and private dwellings (estimates)
Population change Dwellings change
2.0
1.5
PERCENT
1.0
0.5
0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Source: Stats NZ
Infrastructure Trends & Insights | 11The RMA – what next
and how long?
It all seems very promising. We have a general acceptance that
the Resource Management Act (RMA) has done its dash, an expert
panel report that has broad support across the political spectrum,
a Government with a clear majority and, in David Parker, a Minister
with a proven record in managing complex reform processes.
Parker is confident in his mandate • the number of local government At the time this publication was
and has confirmed his commitment resource management plans released, however, we were still waiting
to implement the Randerson Panel should be drastically reduced to for detail on the reform timeline.
package within this three year term. one per region (which would bring
it down to 14 from more than 100 Good process will be essential
The Panel has recommended that the currently), and Replacing the RMA with a framework
RMA be replaced by three separate
that will be workable and durable will
Acts: a Natural and Built Environment • there should be more national
require huge amounts of consultation,
Act (NBEA), a Strategic Planning direction to better protect
patience and skill – especially as it is
Act (SPA), and a Managed Retreat environmental bottom lines for
extremely unlikely that the consensus
and Climate Change Adaptation Act biodiversity and ecosystems, and
around the RMA’s repeal will carry
and that: to enable urban development.
over into a consensus around the
RMA’s replacement.
12 | Chapman Tripp“
I must warn that statutory
spring cleaning is not
going to lead to peace,
harmony and goodwill
towards planners. Some
of the conflicts that are
giving rise to current
dissatisfaction are eternal
and will persist no matter
what statutory framework
is enacted.
”
Minister Parker echoed this sentiment
last week, saying the RMA shouldn’t
be blamed for the “ills of society”.
The fact that often neither party
is entirely satisfied with an RMA
outcome may mean that an
appropriate accommodation has
been found.
This is not to suggest that the balance
between development and protection
cannot be struck more efficiently and
with greater public confidence, but
to walk into this exercise expecting to
secure your full wish list of resource
management outcomes is to set
It will not be a simple matter of Tensions will remain
yourself up for disappointment.
implementing the Randerson
The job of the RMA, and of whatever
review as many of the review’s RMA as scapegoat
replaces it, is to weigh competing
recommendations give considerable
interests – economic development The RMA has been endlessly tinkered
room for interpretation and creative
against environmental protection, with over its 30 year history, gaining
licence so would need to be
regulation in the public interest more pages and losing a little more
developed and refined before they
against private property rights, new coherence with each amendment.
could be translated into law. They are
housing against an environmentally Over that same period, the
also not universally agreed.
significant wetland, network population has increased by almost
It is worth remembering that the infrastructure against outstanding two thirds, house prices have gone
RMA was largely developed under natural landscapes. stratospheric, agricultural land uses
the Fourth Labour Government and have intensified, and we are starting to
It controls almost all decision-making
was passed by the Fourth National bump up against severe resource and
relating to the way we manage the use
Government. Yet despite this bi- infrastructure constraints.
of land, air and water – from major
partisan inception, it has been through
new motorways to whether you can Whether the RMA, properly
18 rounds of amendments since its
add a second storey to your home. administered and enforced, could
passage in 1991 – a frequency rate of
These tensions cannot be legislated have managed or prevented these
more than one every two years.
away – a point the Parliamentary outcomes we will never know because
Commissioner for the Environment, it was never really given a serious shot
Simon Upton, made recently, saying: at success.
Infrastructure Trends & Insights | 13The intention was that it would be Our view For these reasons, there may be value
reinforced by NPSs and National in circulating exposure drafts of the
The Ministry for the Environment will
Environmental Standards (NES) but NBEA and the SPA before proceeding
be tasked with dividing the reform into
these were slow to develop. The first to the Bill stage. This would allow a
manageable parts. Our strong view is
NPS came into effect 17 years after further opportunity for public input,
that the proposed NBEA and the SPA
the RMA came into force, and the first and it is important that there are as
should be developed and progressed
NES, 13 years after. many opportunities for public and
in tandem. The Managed Retreat and
stakeholder engagement as possible.
Central government could also have Climate Change Adaptation Act could
done a lot more, carrot and stick, be dealt with separately to reflect Take-outs
to improve the administration and its more specific subject matter, and
the inherent property law and fiscal The regime that replaces the RMA
enforcement of the RMA at the
complications it presents. will reach across business and the
local level.
economy, influencing what is possible
However, this is all academic now. We expect that aspects of the in the infrastructure space and the
The fact is that, fairly or not, the RMA recently passed COVID-19 Recovery compliance costs associated with
is now widely perceived as a failure. (Fast-track Consenting) Act will be new developments.
Here’s Minister Parker on why reform transferred across to the NBEA – in
particular the more stringent Treaty The earlier you engage the better as
is needed:
it is easier to influence the direction
“
of Waitangi tests and the ‘consistency
with national policy statements’ test. and content of reform before
policy design decisions are taken
We also expect that the place of and before momentum builds in a
The RMA has doubled environmental ‘bottom lines’ will be a particular direction.
in size from its original key issue, with contrasting positions
already being advocated by the Chair It is essential that the Government
length. It has become of the Panel Review, Justice Randerson, and the infrastructure sector
engage constructively to avoid
too costly, takes too and the Parliamentary Commissioner
for the Environment, Simon Upton. RMA reform having a stifling effect
long, and has not on infrastructure projects, which
Resource management is a complex form the bedrock of New Zealand’s
adequately protected business. Even if all the experts COVID-19 recovery.
the environment. There agreed on the end objectives,
So now is the time to start thinking
they could still have quite sharp
are significant pressures differences of opinion on how best about what the problems are that we
need to fix, and how that might be
on both the natural and to deliver those objectives.
achieved. You might also consider
built environments that Already we have subtly different models joining forces with others who share
from the Randerson Panel and the your interests or perspective to
need to be addressed Environmental Defence Society, and provide a strong coherent voice.
urgently. Urban areas a significantly different model from
Simon Upton, who considers that the
are struggling to keep improvements sought by the Panel could
Paula Brosnahan
pace with population be “easily dealt with within a recast RMA”.
Partner
growth and the need for
affordable housing. Water
quality is deteriorating,
biodiversity is
diminishing and there is
an urgent need to reduce
carbon emissions and to
adapt to climate change.
”
14 | Chapman TrippCoasting on a COVID
cash bonanza
The funding and financing issue we identified in our 2018 infrastructure
report was how to access private capital in an environment where
central government was focused on paying down debt and councils were
constrained in how much borrowing they could carry on their balance sheets.
In particular, we argued the need for We offer a quick overview of the The PPP was used for numerous
“a robust and replicable transaction market dynamics currently in play and projects throughout 2012-2017 but
structure to match the vast resources the various funding options available. has been less available since due to
of pension and sovereign wealth Labour’s objection to using PPPs for
funds to the demand for infrastructure Equity social infrastructure projects and
projects”. A large step in this direction Sovereign funds, including the to the issues which have affected
has now been delivered through the New Zealand Superannuation Fund Transmission Gully.
Infrastructure Funding and Financing and ACC, and insurance companies
Act 2020, although it only passed in A revised PPP model and a
and managed funds, are on the look-
August and no transactions have yet pathfinder IFF transaction should be
out for infrastructure assets which
been completed under it. prioritised to provide investors with
can deliver relatively certain income
confidence about the opportunities
streams that match the relevant
There is still an enormous amount of for investment.
investor’s investment profile. The
money under institutional management
NZ Super Fund’s unsolicited bid with Risk allocation will need to reflect the
around the globe which is on the hunt
CDPQ Infra to deliver the Auckland risk appetite of different investors:
for long-haul investments offering
Light Rail project is a high profile case
secure returns in politically stable
in point. • sovereign funds may be prepared
countries, like New Zealand.
to take a long term NZ Inc view
To facilitate private sector and invest in both the construction
What’s changed is that those funding
investment in infrastructure, there and operational phases of a
sources are now in competition with
needs to be a well understood and project, but
the huge amounts of cash released
replicable framework.
by the Government directly, and to a
lesser degree, by the Reserve Bank of
New Zealand (RBNZ) indirectly, to support
the economy through the COVID crisis.
Infrastructure Trends & Insights | 15• private capital is typically There is also a risk that international Debt
more cautious about taking on capital (and debt and contractor
As financial markets start to
construction risk and may prefer resources) will be in simultaneous
factor in the prospect of negative
to wait until the asset is in the demand across multiple jurisdictions
interest rates, bank debt is cheap
operational phase, depending on as all governments look to kick start
(in nominal terms) and looking for
the nature of the asset involved their economies – the obvious case
a home – which should support
and the way in which those risks in point being our friends across
infrastructure investment.
are managed. the ditch.
But this stimulatory effect is being
COVID and private infrastructure New Zealand may be less attractive
blunted by the higher capital
investment due to our remoteness and lack of
requirements that the RBNZ is also
scale, and the Government may
While infrastructure assets have bringing in. Aware of the policy
need to do something special to
historically offered a ‘safe’ investment, clash, the RBNZ has deferred
counter-balance this. The de-
in the post-COVID world other implementation of the new capital
politicisation of the future project
asset classes, like health care, may adequacy rules until 1 July 2022.
pipeline represented by Te Waihanga:
offer a safer and more profitable
Infrastructure Commission is Government funding
investment opportunity.
important to attract this capital.
Labour’s fiscal plan, released during
In particular, we expect that equity
Other inducements could include: the election campaign, anticipates
investors will not readily be prepared
borrowing $42b over the next four
to accept revenue models based • a revised set of risk allocations years for infrastructure spending. This
on demand without significant that make it easier to price, is on top of the $12b New Zealand
compensation through cost of capital, transact and trade equity Upgrade Programme, announced on
and will instead look for those based participations in New Zealand, and 29 January, which signified a new
on availability with stronger protection
(pre-COVID) willingness by Finance
in the event of Force Majeure. • agreed transaction modes and
Minister Grant Robertson to relax his
alliance/partnering models to
debt reduction target in order to take
encourage and support long term
advantage of historically low global
presence and investment.
interest rates.
16 | Chapman TrippGrants As the asset will generate revenue via
the levy, borrowing can be undertaken
Most of the $3b assigned to the
on the strength of the levy.
Infrastructure Reference Group’s
“shovel ready” projects, and some of While the IFFA is silent on this
the disbursements from the Provincial point, our understanding is that
Growth Fund, have been advanced the Government will likely provide
as grants which are repayable in a government support package to
limited circumstances. facilitate access to the debt capital
markets (and to perhaps cover
The objective is speed, which was
other ‘tail risks’), in line with similar
a key driver for the “shovel ready”
transactions overseas.
projects. Legal documentation is
simpler and financial due diligence is Private Public Partnerships (PPPs)
more limited, meaning funds can be
advanced faster. The Level 4 lockdown created all sorts
of problems for the construction sector
Loans – not just closing sites but disrupting
procurement lines and relationships with
In some cases, the Government has
sub-contractors. For the Transmission
chosen to advance funds by way of
Gully PPP, which was already behind
debt – often on terms that are more
deadline, it just compounded some
attractive than bank lending, and
already existing issues.
sometimes because the banks were
unwilling to lend. The review by the Infrastructure
Commission should offer some
This practice has evolved out of the
valuable lessons and a chance
Provincial Growth Fund and has very
(if needed) to put the project on
much been a feature of the COVID
to a firmer footing by resetting
intervention. Our view is that it will
the governance and structuring
be replaced by more conventional
arrangements and the risk allocation.
funding options once some form
In addition, Kāinga Ora has borrowed
of normalcy returns and the focus PPPs tend to be high profile because
$5b to fund the construction of
switches to chiselling back the of their public sector element, and can
8,000 public houses over the next
COVID-created debt mountain. be controversial with those segments
four to five years, and $48b has been
allocated to the Waka Kotahi NZ of the population who are opposed
Regardless, a lot of the loans that have
Transport Agency through the GPS on to any form of privatisation. However,
been advanced by departments and
land transport 2021. they provide a format to attract private
crown entities are on terms of five to
capital and commercial disciplines to
10 years and the Government will need
A caution – Government funding is public enterprise, and to share risk.
to monitor, and potentially restructure
cheaper and can be easier to access
some of, this lending. A recent evolution of the PPP market
than commercial bank lending but
there are reasons why bank lending in New Zealand is the PPP for the
Infrastructure Funding and
should be encouraged. Banks have a Auckland South Corrections Facility,
Financing Act (IFFA)
number of practices in place which which was developed by an SPV (with
put controls around a project in The IFFA is targeted to the local three equity investors) through the
order to ensure that it is delivered on government sector, where the construction and operational stages
time and on budget, and with a clear ability to borrow is limited by debt under contract to the Department
allocation of risk. constraints, and is expected to of Corrections.
be taken up by councils in high
growth areas. InfraRed sold a 40% equity stake in
Direct government the SPV to AMP Capital in January this
funding can support an It creates a multi-year levy on the year and John Laing sold a 30% equity
beneficiaries of infrastructure assets stake in the SPV to AMP Capital in
infrastructure project in which is paid to a Special Purpose the months following – pioneering the
full or alongside other Vehicle (SPV) so that the development development of an active secondary
costs are appropriately allocated to PPP market in New Zealand.
financing mechanisms. the people who will most benefit from
the investment. Mark Reese
Partner
Infrastructure Trends & Insights | 17Climate change – the elephant
in the room gets bigger
From the perspective of 2030, assuming effective vaccine distribution,
COVID-19 will be fading from the collective consciousness, but climate
change will be a clearer and ever more present danger.
The physical disruption effects on • the passage of the Zero Carbon • provision in the RMA for
infrastructure will be large, with $14b Amendment Act (ZCAA) which greenhouse gas emissions to be
in local government assets alone introduces binding long term considered in resource consenting
at risk from sea level rise. But there emissions reduction targets and for planning decisions to link
will also be opportunities, both in reinforced by “stepping-stone” back to ZCAA policy documents.
the development of replacement emissions budgets and ongoing
infrastructure and in harnessing new mitigation and adaptation plans Although much of the impact from
technologies to improve existing these changes is yet to be felt in the
asset resilience. • reforms to the Emissions Trading infrastructure sector, the initial ripples
Scheme (ETS) which change how are evident. Climate change is (and
New Zealand has significantly emission units are priced and should be) on the board agenda of most
strengthened its institutional and supplied and provide a backstop infrastructure owners and operators,
structural climate change response in date for the inclusion of agriculture insurers are already building in climate
the last 12 months through: in a carbon pricing system, and risk to the price of policies, and
emission unit prices have skyrocketed
(up 40% on this time last year).
To assist with this task, the 1 2 3 4
following timeline picks 6 6 7
out the key known and 9 9 10
anticipated events over the 11 11 12
Government’s next term:
2021 2022
Key ETS Events 1 17 Mar 2021 4 30 Jun 2021
ETS: First NZUs auction Climate Change Commission to
Key RMA Events advise the Minister on progress
2 31 May 2021 towards farm level obligations
Key ZCAA Events ETS: Final surrender round with
$35 fixed price option available 5 31 Dec 2022
ther relevant climate
O Ministerial report due on
change events 3 23 Jun 2021 a system to put a price on
First NZU auction - subsequent emissions from agricultural
auctions scheduled for June, activities as an alternative to
September and December 2021 joining the ETS
18 | Chapman TrippAnd that is not the end of it. The • the development of a As this river of reform flows
Government’s climate change reform National Direction under the into existing large work streams
agenda will continue throughout this RMA that enables regional to implement 2019/20 climate
term, including: and district plans to more change reforms, the challenge
proactively and directly manage for the infrastructure sector will
• a major focus on achieving near emission-intensive activities be identifying:
term emission reductions through
the setting of emissions budgets • anticipated legislation enabling • where the real risks/opportunities
supported by a national emissions the forced retreat of buildings lie, and
reduction plan (Minister Shaw told and assets from climate change
• how engagement and watching
a conference last week that he is affected areas (i.e. affected by
brief efforts can be targeted
“absolutely committed to following anticipated sea level rise and
to achieve business drivers
the advice of the Commission” flooding and fire risk), with the
within COVID-19 balance
and that he expects the country’s potential for compensation.
sheet restrictions.
first carbon budgets will be “pretty This has been recommended as
shocking to a lot of people”) part of the overhaul of the RMA, The timeline below traces key events
although it is likely to be a longer for the next three years (to the end
• mandatory climate-related term prospect given the inherent of 2023).
financial disclosures for all NZX- complexities and competing
listed companies and most large values, and
fund managers and financial and Alana Lampitt
insurance entities • the impending regulation of Senior Associate
embodied emissions in building
• direct government intervention materials – the initial Ministry
through infrastructure investments of Business, Innovation and
to speed the transition to a Employment (MBIE) consultation
low carbon economy – e.g., paper relates only to new buildings
Auckland Light Rail, hydrogen fuel but there are obvious parallels for
infrastructure, and (depending infrastructure projects.
on the business case analysis)
the Lake Onslow pumped
hydro project
5
8
12 13
2023 2024
6 Early - mid 2021 9 February - 14 March 2021 11 Early - mid 2021
Proposed RMA National Direction • C
limate Change Commission’s Consultation expected on draft
on greenhouse gas (GHG) emissions first package of advice to legislation on climate-related
anticipated to be consulted on the Government open for financial disclosures for listed
*Opportunity to engage consultation. Will cover: and financial entities
• emission budgets 2022 - 2035
7 31 Dec 2021 12 FY 2022/2023
Earliest date that GHG emissions • emission reduction plans the Obligations on climate-related
become relevant to RMA planning agricultural emissions target financial disclosures expected
and consenting decisions • NZ’s Paris Agreement target to commence.
8 30 Nov 2022 10 31 Dec 2021 13 By end of 2023
Latest date that GHG emissions Goverment must have an First Paris Agreement global
will be relevant considerations emission reduction plan and stocktake
in RMA planning and emissions budgets for 2022 -
consenting decisions 2035 in place Infrastructure Trends & Insights | 19Infrastructure co-leads
Paula Brosnahan
Partner
Auckland
T: +64 9 357 9253 M: +64 27 216 3952
E: paula.brosnahan@chapmantripp.com
Mark Reese
Partner
Wellington
T: +64 4 498 4933 M: +64 27 231 1925
E: mark.reese@chapmantripp.com
20 | Chapman TrippInfrastructure team
Hamish Bolland Matthew Carroll
Partner Partner
Auckland Auckland
T: +64 9 357 9055 M: +64 27 225 2246 T: +64 9 357 9054 M: +64 27 473 2244
E: hamish.bolland@chapmantripp.com E: matthew.carroll@chapmantripp.com
Luke Hinchey Leigh Kissick
Partner Partner
Auckland Wellington
T: +64 9 357 2709 M: +64 27 599 5830 T: +64 4 498 6358 M: +64 21 415 638
E: luke.hinchey@chapmantripp.com E: leigh.kissick@chapmantripp.com
Ross Pennington Ben Williams
Partner Partner
Auckland Christchurch
T: +64 9 357 9030 M: +64 27 442 2161 T: +64 3 353 0343 M: +64 27 469 7132
E: ross.pennington@chapmantripp.com E: ben.williams@chapmantripp.com
Greg Wise Matthew Yarnell
Partner Partner
Wellington Wellington
T: +64 4 498 2404 M: +64 27 285 1943 T: +64 4 498 6325 M: +64 27 441 6365
E: greg.wise@chapmantripp.com E: matt.yarnell@chapmantripp.com
Infrastructure Trends & Insights | 21Chapman Tripp is a dynamic and innovative commercial law firm at the Every effort has been made to ensure accuracy in this publication.
leading edge of legal practice. With offices in Auckland, Wellington However, the items are necessarily generalised and readers are urged to
and Christchurch, the firm supports clients to succeed across seek specific advice on particular matters and not rely solely on this text.
industry, commerce and government. Chapman Tripp is known as
© 2020 Chapman Tripp
the ‘go to’ for complex, business-critical strategic mandates across
the full spectrum of corporate and commercial law. Chapman Tripp’s
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and finance, restructuring and insolvency, Māori business, litigation
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