Latest / Best of Business / Liam Dann: Business Editor explains what Public Private Partnerships are

Transcript

Liam Dann: Business Editor explains what Public Private Partnerships are · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talks Be follow
• 0:12
  Speaker 1: this and our wide range of podcasts now on iHeartRadio.
• 0:16
  Speaker 2: What to help us break down what is a private
• 0:19
  Speaker 2: public partnership how it all works? We're joined by New
• 0:22
  Speaker 2: Zealand Heral Business Editor at Large, Liam Dan. Liam, thanks
• 0:25
  Speaker 2: very much for jumping in.
• 0:26
  Speaker 3: No worries, Liam, How do private public partnerships differ from
• 0:31
  Speaker 3: just contracting a company to build your piece of infrastructure.
• 0:35
  Speaker 4: Well, there's an issue about really, and there's a bit
• 0:39
  Speaker 4: of contention about whether this is a privatization. So in
• 0:42
  Speaker 4: some cases the private company may own it or own
• 0:46
  Speaker 4: half of it, or the government will have a partnership
• 0:48
  Speaker 4: around ownership, or they'll have contracted that it will return
• 0:53
  Speaker 4: to public ownership in fifty years or something like that. Essentially,
• 0:58
  Speaker 4: the risk is being borne by the private company and
• 1:01
  Speaker 4: the money is coming up front from the big money
• 1:03
  Speaker 4: is coming up from the private upfront from the private company.
• 1:07
  Speaker 3: So how does the investor make money?
• 1:10
  Speaker 4: Well, then investor makes money by charging a fee back
• 1:14
  Speaker 4: to the government to use the asset. Right, So I
• 1:18
  Speaker 4: guess it's pretty simple. Most people get it for roads
• 1:20
  Speaker 4: and like the idea of another harbor bridge Auckland Harbor Bridge.
• 1:25
  Speaker 4: You can say, well, we're going to get a private
• 1:28
  Speaker 4: company in to build this. There's going to be a
• 1:29
  Speaker 4: fifty year contract on it. It's going to have tolls and
• 1:31
  Speaker 4: service fees, will the asset will either be still technically
• 1:38
  Speaker 4: a public asset or it'll revert to a public asset
• 1:41
  Speaker 4: in fifty years something like that, you know, fairly straightforward.
• 1:44
  Speaker 4: It gets a bit more contentious around hospitals, schools, that
• 1:48
  Speaker 4: sort of thing, but essentially, you know, you could still say,
• 1:52
  Speaker 4: you know, a government is paying as they go for
• 1:56
  Speaker 4: the healthcare and for the contract to the hospital, so
• 2:01
  Speaker 4: they are you know, it's sort of like, you know,
• 2:05
  Speaker 4: difference between buying a car up front. It's kind of
• 2:07
  Speaker 4: cheaper to car up front, right if you've got cash,
• 2:10
  Speaker 4: But if you need to you don't have cash, and
• 2:13
  Speaker 4: this government doesn't have cash, then then you can go
• 2:17
  Speaker 4: see a dealer and pay a little bit every week for.
• 2:19
  Speaker 3: The next So it's essentially a higher purchase.
• 2:23
  Speaker 4: Yeah, it is, sort of. There are some other other
• 2:28
  Speaker 4: factors in there, I mean, you know, weirdly, you know,
• 2:33
  Speaker 4: critics will say governments can borrow more cheaply than private
• 2:38
  Speaker 4: the private sector, so it actually maybe puts more cost
• 2:41
  Speaker 4: into the project when you get the private sector to
• 2:45
  Speaker 4: fund it. But then there's a lot of skepticism, the
• 2:49
  Speaker 4: skepticism in this government and on the right generally, and
• 2:53
  Speaker 4: you know, you can find plenty of examples in history
• 2:56
  Speaker 4: of governments not doing a great job and of building assets,
• 3:01
  Speaker 4: and of massive cost overruns and things not getting finished
• 3:05
  Speaker 4: on time.
• 3:06
  Speaker 3: And so essentially, because it's the company bottom line, they
• 3:09
  Speaker 3: have to make money, they'll do it efficiently.
• 3:11
  Speaker 4: Yeah, and it costs them if they at the cost
• 3:13
  Speaker 4: if it overruns or you know, it isn't finished on time,
• 3:20
  Speaker 4: that's borne by the private company, so you're out, you're
• 3:22
  Speaker 4: outsourcing some risk away from the government.
• 3:25
  Speaker 2: We've been pretty keen on these PPPs as a country
• 3:28
  Speaker 2: for some time, or our governments have Are we unique
• 3:31
  Speaker 2: in that or is this quite a common theme in
• 3:33
  Speaker 2: other Western countries as well to try and form these
• 3:36
  Speaker 2: private public partnerships.
• 3:38
  Speaker 4: Yeah, they're probably used more extensively around the world. In
• 3:42
  Speaker 4: the UK, for example, they've used them for big infrastructure
• 3:47
  Speaker 4: projects like you know, revitalizing their underground. Canada I think
• 3:51
  Speaker 4: actually does have a lot of PPPs around hospitals. I know,
• 3:56
  Speaker 4: you know, I think you know at the moment we've
• 3:59
  Speaker 4: got to bipartisan agreement. You can see labors on board
• 4:02
  Speaker 4: with big roads, bridges, all that sort of stuff. Yeah,
• 4:05
  Speaker 4: but they draw the line at the hospitals and schools.
• 4:08
  Speaker 3: Right, So, because you could have a situation because some
• 4:10
  Speaker 3: people might not like a prison being run prisons the
• 4:13
  Speaker 3: other one.
• 4:13
  Speaker 1: Ye.
• 4:14
  Speaker 3: But if it's just around the infrastructure, the building of
• 4:17
  Speaker 3: the actual building but not the running of it, is
• 4:20
  Speaker 3: that still of interest to companies to invest in.
• 4:24
  Speaker 4: Well, they've got to get a return, right, so they
• 4:26
  Speaker 4: have to get there's got to be a contract where
• 4:29
  Speaker 4: there's money coming back to that company over a period
• 4:32
  Speaker 4: of time to make the right return. So I guess
• 4:34
  Speaker 4: it doesn't necessarily have to involve running the prison, but
• 4:37
  Speaker 4: there is going to be fees to pay on the prison,
• 4:40
  Speaker 4: and so it's a cost. It's still a cost of taxpayers.
• 4:42
  Speaker 4: It's just spreading the cost over time, spreading the risk,
• 4:47
  Speaker 4: or you know, outsourcing the risk. Critics might say, look
• 4:51
  Speaker 4: over time, like that car at the car dealers, you'll
• 4:54
  Speaker 4: have paid a lot more for the asset. But again
• 4:58
  Speaker 4: that'll come back to that debate about whether you think
• 5:00
  Speaker 4: governments are just absolutely terrible at building this stuff and
• 5:03
  Speaker 4: that they're just you know, because if we're borrowing masses more,
• 5:07
  Speaker 4: well maybe at a lower interest rate, but if we
• 5:10
  Speaker 4: don't get the things built properly, that that's all going
• 5:14
  Speaker 4: on the crown accounts and stuffing our books.
• 5:17
  Speaker 3: So just to make it clear, how would you envision
• 5:20
  Speaker 3: say a second harbor crossing working. Then well, how much
• 5:24
  Speaker 3: would would the foreign investors put all the money in
• 5:28
  Speaker 3: and then we pay it all back? Or we go
• 5:31
  Speaker 3: some from the government, some from the investor, and then
• 5:34
  Speaker 3: how do they make their money back?
• 5:36
  Speaker 4: All those models could be the case. You could have
• 5:38
  Speaker 4: a partnership where the government stumps up half in the
• 5:41
  Speaker 4: private you know, you create an entity and it might
• 5:43
  Speaker 4: be fifty percent owned by the government and fifty percent
• 5:47
  Speaker 4: owned by the private sector and they work together. Or
• 5:51
  Speaker 4: you go, no, no, we're going the full private model
• 5:54
  Speaker 4: and pretty much say go to town, build as a harbor bridge,
• 5:58
  Speaker 4: and we'll pay you tolls and a service fee for
• 6:00
  Speaker 4: the next thirty to fifty years. Hopefully they would build
• 6:04
  Speaker 4: it efficiently and look, that would be easier. But because
• 6:08
  Speaker 4: it would be I think the government, you know, with
• 6:11
  Speaker 4: the toll is a user pays aspect, you know, a hospital.
• 6:14
  Speaker 4: There's always going to be a fear or some political
• 6:18
  Speaker 4: pushback around the user pays aspect of it. People want
• 6:21
  Speaker 4: a public health service. But then you know, governments could
• 6:25
  Speaker 4: choose to fund the most gold standard free public health
• 6:29
  Speaker 4: service and still use a PPP. They could just be
• 6:32
  Speaker 4: agreeing to pay the money to that.
• 6:35
  Speaker 3: And if they have their regulations in place that you
• 6:38
  Speaker 3: know what we expect and what has to be delivered,
• 6:40
  Speaker 3: and we're all happy with that, then you could argue
• 6:44
  Speaker 3: that's not too much of a problem. So is there
• 6:46
  Speaker 3: any interest so far, anyone putting up their hands and
• 6:48
  Speaker 3: say they want to do it from the summit?
• 6:50
  Speaker 4: I think we heard from an Italian company that was
• 6:53
  Speaker 4: talking about that extension to the Northern Expressway, so that's
• 6:59
  Speaker 4: probably a good one. That's that's the one that's on
• 7:03
  Speaker 4: the table. So this is the summit. The issue is
• 7:05
  Speaker 4: that we haven't actually got that many PPPs ready to go.
• 7:08
  Speaker 4: So it's a starting point, but you know, I think
• 7:12
  Speaker 4: what the government really needs is one that's just underway
• 7:18
  Speaker 4: and working so that people can see the model and
• 7:20
  Speaker 4: that other companies can see that that could work. But yeah,
• 7:23
  Speaker 4: it's going to be a bit more debate around around
• 7:26
  Speaker 4: whether we go to hospitals and schools and prisons.
• 7:29
  Speaker 3: I think so if a company invested a billion dollars,
• 7:35
  Speaker 3: how much return would they want to see over the
• 7:38
  Speaker 3: thirty fifty years.
• 7:39
  Speaker 4: It's a good question. It's got to be more than
• 7:42
  Speaker 4: putting in the bank, right, otherwise you don't bother so
• 7:45
  Speaker 4: that would be I'm sort of guessing a little bit,
• 7:48
  Speaker 4: but you'd want a return of you know, five ten percent.
• 7:52
  Speaker 4: It's got to be better than bonds, which is the
• 7:54
  Speaker 4: equivalent of putting money in the bank. It should be
• 8:00
  Speaker 4: a relatively low risk, stable investment. So it appeals to
• 8:03
  Speaker 4: big investment funds around the world. So weirdly, you know
• 8:08
  Speaker 4: in Zealand our own superfund, our acc fund, that's the
• 8:11
  Speaker 4: sort of thing they can get involved in because it
• 8:14
  Speaker 4: provides a stable return. So if you can get a
• 8:16
  Speaker 4: return of seven or eight percent or something like that,
• 8:19
  Speaker 4: that would be a solid return if it was over
• 8:21
  Speaker 4: thirty years.
• 8:21
  Speaker 2: And obviously tolling, just to bring it back to the tolling,
• 8:24
  Speaker 2: that is an added sweetener. If someone's going to invest
• 8:26
  Speaker 2: a lot of money and infrastructure and that is part
• 8:28
  Speaker 2: of the equation, then that hopefully might make it easy
• 8:31
  Speaker 2: to get across the line.
• 8:32
  Speaker 4: Governments can still make a choice. They can still say
• 8:34
  Speaker 4: we're going to make this free, but we're going to
• 8:36
  Speaker 4: have to pay that difference to the private company to
• 8:39
  Speaker 4: ensure that the contract works for them.
• 8:40
  Speaker 3: Either way, we pay, Yeah, exactly, eventually, eventually.
• 8:44
  Speaker 2: That's right, Liam, very very interesting, Thanks very much for
• 8:47
  Speaker 2: coming and having a chat with us. We'll catch again soon.
• 8:49
  Speaker 2: That is New Zealand hera Business editor at large. Liam Dan.
• 8:53
  Speaker 2: You're listening to News Talks at B. Good afternoon.
• 8:56
  Speaker 1: For more from News Talks at B listen live on
• 8:58
  Speaker 1: air or online, and keep our shows with you wherever
• 9:01
  Speaker 1: you go with our podcasts on iHeartRadio.