Conclusions/Findings - Commercial case for selection of the PPP model

Our overall opinion is that the commercial case used to justify the PPP model to deliver the TGP was based on internationally accepted approaches and was informed through a structured decision-making process, using valid qualitative and quantitative PPP assessment criteria.

Our only observations regarding the PPP commercial case relate to what we think could be clearer explanations for stakeholder groups on the following aspects of using the PPP model:

•  Deciding to deliver a project using the PPP model at the business case stage does not guarantee "cost certainty" Rather, the focus of the PPP decision at the business case stage is to confirm there is sufficient merit to approach the market with a PPP procurement;

•  The strategic policy/funding considerations about how to accelerate delivery of nationally significant infrastructure (such as TG) sometimes involves governments considering more borrowings, and that the PPP model represented a structured way of linking increased borrowing to better quality infrastructure and performance standards; and

•  Using the PPP delivery model does not mean the financing impact for the commercial case is based on 100 percent private financing.

Regarding our first observation, notwithstanding technical limitations with the utility of the PBM information, we think Waka Kotahi and the New Zealand Government was prudent to continue using the PBM information through the procurement phase as a reference point to compare/confirm the value-for-money proposition as the PSC costs were revised upwards. We note that New Zealand is one of the few international jurisdictions that uses the PBM information as part of the PPP decision making process - other international jurisdictions include New South Wales (in Australia) and two provinces in Canada (i.e. Ontario and British Columbia).

Our advice on the second observation is that governments are often faced with the decision to use increased borrowings to bring forward the delivery of nationally significant infrastructure that, in the longer term, is expected to have positive economic benefits. This commonplace challenge typically means the PPP model is introduced as an option to help meet near to medium term funding constraints, as the PPP model offers cashflow benefits in that upfront capital funding is not required (i.e. a "cash window"). This can create funding flexibility in say a 10-year infrastructure program if overall budget/fiscal estimates are met.

However, this does not mean PPP is being used primarily as just a funding/financing mechanism. To the contrary, PPPs are a form of structured borrowings that links infrastructure financing to defined services outcomes and performance standards. Such an approach can be, for PPP-suitable projects, a disciplined way to use government borrowings to fund infrastructure projects. In this regard, we believe the New Zealand Government made the right decision when considering the use of the PPP model to deliver the TGP.

In terms of our third observation (above), if the alternative delivery model to PPP used by the Government would have been financed from general borrowings, then technically the "cost" of private sector finance using PPP delivery is the difference between the private and public sector financing rates. Further, and more importantly, is that any form of borrowing requires an assessment of the likely long-term impact on the Crown's debt position. When considering PPP delivery, a key management metric should be to identify the long-term borrowing impact on the government's balance sheet - we were pleased to see New Zealand using this metric when informing the decision to use PPP.