1 00:00:09,093 --> 00:00:12,693 Speaker 1: You're listening to a podcast from News Talks Be follow 2 00:00:12,773 --> 00:00:16,173 Speaker 1: this and our wide range of podcasts now on iHeartRadio. 3 00:00:16,653 --> 00:00:19,253 Speaker 2: What to help us break down what is a private 4 00:00:19,372 --> 00:00:22,332 Speaker 2: public partnership how it all works? We're joined by New 5 00:00:22,413 --> 00:00:25,532 Speaker 2: Zealand Heral Business Editor at Large, Liam Dan. Liam, thanks 6 00:00:25,613 --> 00:00:26,572 Speaker 2: very much for jumping in. 7 00:00:26,692 --> 00:00:31,213 Speaker 3: No worries, Liam, How do private public partnerships differ from 8 00:00:31,213 --> 00:00:35,333 Speaker 3: just contracting a company to build your piece of infrastructure. 9 00:00:35,653 --> 00:00:39,373 Speaker 4: Well, there's an issue about really, and there's a bit 10 00:00:39,412 --> 00:00:42,373 Speaker 4: of contention about whether this is a privatization. So in 11 00:00:42,412 --> 00:00:46,173 Speaker 4: some cases the private company may own it or own 12 00:00:46,253 --> 00:00:48,452 Speaker 4: half of it, or the government will have a partnership 13 00:00:48,653 --> 00:00:53,653 Speaker 4: around ownership, or they'll have contracted that it will return 14 00:00:53,693 --> 00:00:58,093 Speaker 4: to public ownership in fifty years or something like that. Essentially, 15 00:00:58,173 --> 00:01:00,893 Speaker 4: the risk is being borne by the private company and 16 00:01:01,613 --> 00:01:03,933 Speaker 4: the money is coming up front from the big money 17 00:01:03,973 --> 00:01:06,853 Speaker 4: is coming up from the private upfront from the private company. 18 00:01:07,213 --> 00:01:10,013 Speaker 3: So how does the investor make money? 19 00:01:10,453 --> 00:01:14,653 Speaker 4: Well, then investor makes money by charging a fee back 20 00:01:14,693 --> 00:01:18,333 Speaker 4: to the government to use the asset. Right, So I 21 00:01:18,333 --> 00:01:20,853 Speaker 4: guess it's pretty simple. Most people get it for roads 22 00:01:20,973 --> 00:01:24,732 Speaker 4: and like the idea of another harbor bridge Auckland Harbor Bridge. 23 00:01:25,133 --> 00:01:28,133 Speaker 4: You can say, well, we're going to get a private 24 00:01:28,173 --> 00:01:29,893 Speaker 4: company in to build this. There's going to be a 25 00:01:29,893 --> 00:01:31,932 Speaker 4: fifty year contract on it. It's going to have tolls and 26 00:01:31,973 --> 00:01:38,333 Speaker 4: service fees, will the asset will either be still technically 27 00:01:38,733 --> 00:01:41,092 Speaker 4: a public asset or it'll revert to a public asset 28 00:01:41,133 --> 00:01:44,573 Speaker 4: in fifty years something like that, you know, fairly straightforward. 29 00:01:44,613 --> 00:01:48,573 Speaker 4: It gets a bit more contentious around hospitals, schools, that 30 00:01:48,613 --> 00:01:52,693 Speaker 4: sort of thing, but essentially, you know, you could still say, 31 00:01:52,813 --> 00:01:56,253 Speaker 4: you know, a government is paying as they go for 32 00:01:56,333 --> 00:02:00,373 Speaker 4: the healthcare and for the contract to the hospital, so 33 00:02:01,453 --> 00:02:04,213 Speaker 4: they are you know, it's sort of like, you know, 34 00:02:05,253 --> 00:02:07,693 Speaker 4: difference between buying a car up front. It's kind of 35 00:02:07,733 --> 00:02:10,733 Speaker 4: cheaper to car up front, right if you've got cash, 36 00:02:10,773 --> 00:02:13,173 Speaker 4: But if you need to you don't have cash, and 37 00:02:13,173 --> 00:02:17,053 Speaker 4: this government doesn't have cash, then then you can go 38 00:02:17,173 --> 00:02:19,972 Speaker 4: see a dealer and pay a little bit every week for. 39 00:02:19,933 --> 00:02:23,613 Speaker 3: The next So it's essentially a higher purchase. 40 00:02:23,773 --> 00:02:28,133 Speaker 4: Yeah, it is, sort of. There are some other other 41 00:02:28,213 --> 00:02:32,813 Speaker 4: factors in there, I mean, you know, weirdly, you know, 42 00:02:33,013 --> 00:02:37,973 Speaker 4: critics will say governments can borrow more cheaply than private 43 00:02:38,093 --> 00:02:41,013 Speaker 4: the private sector, so it actually maybe puts more cost 44 00:02:41,133 --> 00:02:45,653 Speaker 4: into the project when you get the private sector to 45 00:02:45,813 --> 00:02:49,453 Speaker 4: fund it. But then there's a lot of skepticism, the 46 00:02:49,613 --> 00:02:52,972 Speaker 4: skepticism in this government and on the right generally, and 47 00:02:53,613 --> 00:02:56,413 Speaker 4: you know, you can find plenty of examples in history 48 00:02:56,693 --> 00:03:01,532 Speaker 4: of governments not doing a great job and of building assets, 49 00:03:01,532 --> 00:03:05,493 Speaker 4: and of massive cost overruns and things not getting finished 50 00:03:05,653 --> 00:03:06,053 Speaker 4: on time. 51 00:03:06,093 --> 00:03:09,532 Speaker 3: And so essentially, because it's the company bottom line, they 52 00:03:09,532 --> 00:03:11,413 Speaker 3: have to make money, they'll do it efficiently. 53 00:03:11,573 --> 00:03:13,933 Speaker 4: Yeah, and it costs them if they at the cost 54 00:03:13,972 --> 00:03:19,293 Speaker 4: if it overruns or you know, it isn't finished on time, 55 00:03:20,053 --> 00:03:22,333 Speaker 4: that's borne by the private company, so you're out, you're 56 00:03:22,733 --> 00:03:25,013 Speaker 4: outsourcing some risk away from the government. 57 00:03:25,693 --> 00:03:28,412 Speaker 2: We've been pretty keen on these PPPs as a country 58 00:03:28,453 --> 00:03:31,013 Speaker 2: for some time, or our governments have Are we unique 59 00:03:31,053 --> 00:03:33,733 Speaker 2: in that or is this quite a common theme in 60 00:03:33,773 --> 00:03:36,693 Speaker 2: other Western countries as well to try and form these 61 00:03:36,733 --> 00:03:38,053 Speaker 2: private public partnerships. 62 00:03:38,333 --> 00:03:42,493 Speaker 4: Yeah, they're probably used more extensively around the world. In 63 00:03:42,533 --> 00:03:46,733 Speaker 4: the UK, for example, they've used them for big infrastructure 64 00:03:47,333 --> 00:03:51,893 Speaker 4: projects like you know, revitalizing their underground. Canada I think 65 00:03:51,933 --> 00:03:56,133 Speaker 4: actually does have a lot of PPPs around hospitals. I know, 66 00:03:56,693 --> 00:03:59,813 Speaker 4: you know, I think you know at the moment we've 67 00:03:59,813 --> 00:04:02,133 Speaker 4: got to bipartisan agreement. You can see labors on board 68 00:04:02,293 --> 00:04:05,213 Speaker 4: with big roads, bridges, all that sort of stuff. Yeah, 69 00:04:05,213 --> 00:04:08,453 Speaker 4: but they draw the line at the hospitals and schools. 70 00:04:08,093 --> 00:04:10,573 Speaker 3: Right, So, because you could have a situation because some 71 00:04:10,613 --> 00:04:13,213 Speaker 3: people might not like a prison being run prisons the 72 00:04:13,213 --> 00:04:13,453 Speaker 3: other one. 73 00:04:13,493 --> 00:04:13,573 Speaker 1: Ye. 74 00:04:14,173 --> 00:04:17,053 Speaker 3: But if it's just around the infrastructure, the building of 75 00:04:17,093 --> 00:04:20,413 Speaker 3: the actual building but not the running of it, is 76 00:04:20,493 --> 00:04:23,933 Speaker 3: that still of interest to companies to invest in. 77 00:04:24,733 --> 00:04:26,933 Speaker 4: Well, they've got to get a return, right, so they 78 00:04:26,973 --> 00:04:29,973 Speaker 4: have to get there's got to be a contract where 79 00:04:29,973 --> 00:04:32,333 Speaker 4: there's money coming back to that company over a period 80 00:04:32,373 --> 00:04:34,533 Speaker 4: of time to make the right return. So I guess 81 00:04:34,573 --> 00:04:37,893 Speaker 4: it doesn't necessarily have to involve running the prison, but 82 00:04:37,933 --> 00:04:40,333 Speaker 4: there is going to be fees to pay on the prison, 83 00:04:40,613 --> 00:04:42,813 Speaker 4: and so it's a cost. It's still a cost of taxpayers. 84 00:04:42,813 --> 00:04:45,933 Speaker 4: It's just spreading the cost over time, spreading the risk, 85 00:04:47,173 --> 00:04:51,053 Speaker 4: or you know, outsourcing the risk. Critics might say, look 86 00:04:51,133 --> 00:04:54,053 Speaker 4: over time, like that car at the car dealers, you'll 87 00:04:54,053 --> 00:04:57,973 Speaker 4: have paid a lot more for the asset. But again 88 00:04:58,013 --> 00:04:59,893 Speaker 4: that'll come back to that debate about whether you think 89 00:05:00,573 --> 00:05:03,813 Speaker 4: governments are just absolutely terrible at building this stuff and 90 00:05:03,853 --> 00:05:07,773 Speaker 4: that they're just you know, because if we're borrowing masses more, 91 00:05:07,813 --> 00:05:10,653 Speaker 4: well maybe at a lower interest rate, but if we 92 00:05:10,693 --> 00:05:14,093 Speaker 4: don't get the things built properly, that that's all going 93 00:05:14,133 --> 00:05:17,213 Speaker 4: on the crown accounts and stuffing our books. 94 00:05:17,413 --> 00:05:20,613 Speaker 3: So just to make it clear, how would you envision 95 00:05:20,773 --> 00:05:24,813 Speaker 3: say a second harbor crossing working. Then well, how much 96 00:05:24,853 --> 00:05:28,493 Speaker 3: would would the foreign investors put all the money in 97 00:05:28,973 --> 00:05:30,573 Speaker 3: and then we pay it all back? Or we go 98 00:05:31,533 --> 00:05:34,173 Speaker 3: some from the government, some from the investor, and then 99 00:05:34,213 --> 00:05:35,453 Speaker 3: how do they make their money back? 100 00:05:36,013 --> 00:05:38,053 Speaker 4: All those models could be the case. You could have 101 00:05:38,053 --> 00:05:41,373 Speaker 4: a partnership where the government stumps up half in the 102 00:05:41,413 --> 00:05:43,533 Speaker 4: private you know, you create an entity and it might 103 00:05:43,573 --> 00:05:46,813 Speaker 4: be fifty percent owned by the government and fifty percent 104 00:05:47,173 --> 00:05:51,253 Speaker 4: owned by the private sector and they work together. Or 105 00:05:51,293 --> 00:05:54,013 Speaker 4: you go, no, no, we're going the full private model 106 00:05:54,093 --> 00:05:58,133 Speaker 4: and pretty much say go to town, build as a harbor bridge, 107 00:05:58,133 --> 00:06:00,613 Speaker 4: and we'll pay you tolls and a service fee for 108 00:06:00,653 --> 00:06:04,253 Speaker 4: the next thirty to fifty years. Hopefully they would build 109 00:06:04,293 --> 00:06:08,533 Speaker 4: it efficiently and look, that would be easier. But because 110 00:06:08,533 --> 00:06:10,893 Speaker 4: it would be I think the government, you know, with 111 00:06:11,013 --> 00:06:14,693 Speaker 4: the toll is a user pays aspect, you know, a hospital. 112 00:06:14,813 --> 00:06:18,493 Speaker 4: There's always going to be a fear or some political 113 00:06:18,493 --> 00:06:21,253 Speaker 4: pushback around the user pays aspect of it. People want 114 00:06:21,773 --> 00:06:25,893 Speaker 4: a public health service. But then you know, governments could 115 00:06:25,973 --> 00:06:29,533 Speaker 4: choose to fund the most gold standard free public health 116 00:06:29,573 --> 00:06:31,973 Speaker 4: service and still use a PPP. They could just be 117 00:06:32,253 --> 00:06:34,373 Speaker 4: agreeing to pay the money to that. 118 00:06:35,373 --> 00:06:38,173 Speaker 3: And if they have their regulations in place that you 119 00:06:38,213 --> 00:06:40,733 Speaker 3: know what we expect and what has to be delivered, 120 00:06:40,733 --> 00:06:44,013 Speaker 3: and we're all happy with that, then you could argue 121 00:06:44,013 --> 00:06:46,093 Speaker 3: that's not too much of a problem. So is there 122 00:06:46,093 --> 00:06:48,133 Speaker 3: any interest so far, anyone putting up their hands and 123 00:06:48,173 --> 00:06:50,213 Speaker 3: say they want to do it from the summit? 124 00:06:50,453 --> 00:06:53,173 Speaker 4: I think we heard from an Italian company that was 125 00:06:53,213 --> 00:06:58,933 Speaker 4: talking about that extension to the Northern Expressway, so that's 126 00:06:59,573 --> 00:07:03,333 Speaker 4: probably a good one. That's that's the one that's on 127 00:07:03,373 --> 00:07:05,213 Speaker 4: the table. So this is the summit. The issue is 128 00:07:05,213 --> 00:07:08,173 Speaker 4: that we haven't actually got that many PPPs ready to go. 129 00:07:08,493 --> 00:07:12,733 Speaker 4: So it's a starting point, but you know, I think 130 00:07:12,773 --> 00:07:18,133 Speaker 4: what the government really needs is one that's just underway 131 00:07:18,173 --> 00:07:20,613 Speaker 4: and working so that people can see the model and 132 00:07:20,693 --> 00:07:23,293 Speaker 4: that other companies can see that that could work. But yeah, 133 00:07:23,293 --> 00:07:26,413 Speaker 4: it's going to be a bit more debate around around 134 00:07:26,413 --> 00:07:29,933 Speaker 4: whether we go to hospitals and schools and prisons. 135 00:07:29,933 --> 00:07:34,333 Speaker 3: I think so if a company invested a billion dollars, 136 00:07:35,373 --> 00:07:37,613 Speaker 3: how much return would they want to see over the 137 00:07:38,013 --> 00:07:39,493 Speaker 3: thirty fifty years. 138 00:07:39,653 --> 00:07:42,213 Speaker 4: It's a good question. It's got to be more than 139 00:07:42,213 --> 00:07:45,413 Speaker 4: putting in the bank, right, otherwise you don't bother so 140 00:07:45,573 --> 00:07:48,253 Speaker 4: that would be I'm sort of guessing a little bit, 141 00:07:48,293 --> 00:07:52,093 Speaker 4: but you'd want a return of you know, five ten percent. 142 00:07:52,133 --> 00:07:54,413 Speaker 4: It's got to be better than bonds, which is the 143 00:07:54,413 --> 00:07:59,773 Speaker 4: equivalent of putting money in the bank. It should be 144 00:08:00,373 --> 00:08:03,693 Speaker 4: a relatively low risk, stable investment. So it appeals to 145 00:08:03,853 --> 00:08:07,893 Speaker 4: big investment funds around the world. So weirdly, you know 146 00:08:08,093 --> 00:08:11,253 Speaker 4: in Zealand our own superfund, our acc fund, that's the 147 00:08:11,293 --> 00:08:14,533 Speaker 4: sort of thing they can get involved in because it 148 00:08:14,573 --> 00:08:16,693 Speaker 4: provides a stable return. So if you can get a 149 00:08:16,733 --> 00:08:19,013 Speaker 4: return of seven or eight percent or something like that, 150 00:08:19,173 --> 00:08:21,093 Speaker 4: that would be a solid return if it was over 151 00:08:21,133 --> 00:08:22,093 Speaker 4: thirty years. 152 00:08:21,893 --> 00:08:24,093 Speaker 2: And obviously tolling, just to bring it back to the tolling, 153 00:08:24,173 --> 00:08:26,173 Speaker 2: that is an added sweetener. If someone's going to invest 154 00:08:26,173 --> 00:08:28,093 Speaker 2: a lot of money and infrastructure and that is part 155 00:08:28,133 --> 00:08:31,253 Speaker 2: of the equation, then that hopefully might make it easy 156 00:08:31,293 --> 00:08:32,133 Speaker 2: to get across the line. 157 00:08:32,333 --> 00:08:34,053 Speaker 4: Governments can still make a choice. They can still say 158 00:08:34,053 --> 00:08:35,533 Speaker 4: we're going to make this free, but we're going to 159 00:08:36,093 --> 00:08:38,853 Speaker 4: have to pay that difference to the private company to 160 00:08:39,213 --> 00:08:40,773 Speaker 4: ensure that the contract works for them. 161 00:08:40,892 --> 00:08:44,213 Speaker 3: Either way, we pay, Yeah, exactly, eventually, eventually. 162 00:08:44,252 --> 00:08:47,013 Speaker 2: That's right, Liam, very very interesting, Thanks very much for 163 00:08:47,372 --> 00:08:49,612 Speaker 2: coming and having a chat with us. We'll catch again soon. 164 00:08:49,973 --> 00:08:53,533 Speaker 2: That is New Zealand hera Business editor at large. Liam Dan. 165 00:08:53,653 --> 00:08:55,533 Speaker 2: You're listening to News Talks at B. Good afternoon. 166 00:08:56,053 --> 00:08:58,732 Speaker 1: For more from News Talks at B listen live on 167 00:08:58,773 --> 00:09:01,732 Speaker 1: air or online, and keep our shows with you wherever 168 00:09:01,813 --> 00:09:04,373 Speaker 1: you go with our podcasts on iHeartRadio.