Infrastructure: Looking at the opportunities for asset recycling (NZ Herald)

Asset recycling enables the Government to boost its available funds by either selling or offering a long-term lease of underutilised, inefficient, or surplus public infrastructure to investors in the private sector.

In exchange for the sale or lease of those assets, the Government can receive a large up-front, lump-sum payment.

Capital received from divestment can be used to revitalise existing assets, or fund new and critical infrastructure needs that might otherwise have been unfunded or funded using more traditional methods such as raising taxes or increasing public debt.

New South Wales
Since 2012, asset recycling has been one of the core principles of Australia’s New South Wales Government property policy.

The NSW Department of Premier and Cabinet says that “real property assets are only held by Government when required, and in the form necessary, to support core government service provision.”

Australia’s asset recycling has extended to the sale or long-term lease of public assets including ports, “poles and wires” electricity assets and its land titles registry, and has reached a combined value of A$53 billion.

Former NSW premier Mike Baird campaigned at the 2015 election on a platform of infrastructure investment, of which the recycling of assets was the method to achieve this.

Baird’s re-election demonstrated that asset recycling and new infrastructure funding mechanisms can be economically effective as well as politically popular – but they take leadership and vision.

A recent report on asset recycling by Property NSW showed overwhelming support for the NSW Government’s policy of recycling property assets to fund infrastructure and better services.

Of those surveyed, 71 per cent said they favoured leasing or selling under-utilised assets over more traditional measures, such as raising taxes or increasing levels of public debt.

Interest from the US
During his visit to Australia earlier this year, United States Vice-President Mike Pence told business leaders that the Trump administration hoped to emulate the Australian model of infrastructure asset recycling as part of the President’s US$1 trillion infrastructure plan.

New York’s LaGuardia Airport was cited by Pence as one example of an asset that had the potential to be redeveloped with the injection of private funds.

LaGuardia is so badly in need of upgrades, expansion and improvements that President Trump has referred to it as “like from a third world country”, contrasting it (and other US airports) to the “incredible airports” in Dubai, Qatar and China.

Upgrading Circular Quay
It is estimated that the number of jobs in the iconic Circular Quay precinct in Sydney will increase by around 4500 in the next 30 years.

The ferry wharves and adjoining promenade were built in the 1940s and are nearing the end of their life. They are also not compliant with the Disability Standards for Accessible Public Transport.

For these reasons, they are considered long overdue for a facelift.

In order to fund the upgrade, Property NSW is divesting commercial assets that are considered not core to service delivery or of long term strategic importance.

This includes the sale of rights to the ground lease rental income at Darling Quarter for 30 years, for an upfront payment of A$192 million ($215m).

The revitalisation of Circular Quay will support new construction jobs, and the upgrades will deliver improved transport services and an enhanced retail offering for workers and visitors, boosting economic growth and tourism to the precinct.

Viewpoint: Michael Barnett, Auckland Chamber of Commerce chief executive
It would easy to be populist and label it privatisation and kill another opportunity for Auckland. The reality is, existing funding models are failing us and we either need to find an innovative response to this or pay the price of a lack of investment in our infrastructure over the last 40 years with low productivity and community frustration.

Old style asset recycling was essentially selling one lot of assets to fund other priorities – this often meant selling an income generating asset to fund another asset that didn’t.

Today it’s about maintaining ownership control and not owning – an example of this could be with Ports of Auckland where the land and the business could be separated or perhaps an environment where an investor of “like values” might take partial ownership of an asset investing say on behalf of a superfund of New Zealanders with only the intention of investment and not for selling on.

Of course, any funds released should then be invested in our infrastructure needs (transport) – the important thing here would be to have a narrative that articulated the benefit to Auckland that may not be in cash but in productivity, employment opportunities and growth.

Viewpoint: Kim Campbell, Employers and Manufacturers chief executive
If we are to have sufficient funds for the development of Auckland’s growing infrastructure needs we will need to find more innovative funding devices.

The community appears allergic to rates, and tolling the roads is consistently blocked by central government. So what’s left?

Recycling of assets is a tried and proven device overseas where city assets are identified as being underused, redundant or inappropriate, and sold. The funds are immediately put to use for items which will increase the city’s overall productivity.

There are many such assets in Auckland. They may have some amenity value, but the benefits may accrue to a small part of the community. This includes shares in airports, golf courses, quarries, forests, transport corridors, water systems and theatres – to name a few.

Their sale is quite legitimate as long as the money is put to more productive use immediately. Often the sold assets become more productive under new owners as we have discovered with the sale of our electrical generation assets. NSW has a long and successful history of this, including Barrangaroo and White Bay.

Viewpoint: Paul Blair, Head of Institutional Banking, BNZ
BNZ is open to talking about ways to solve the big issues facing New Zealand. Countries and governments around the world are facing infrastructure challenges – New Zealand is not alone.

It is important to look at and consider potential ways to solve issues and have those challenging conversations, but any single “tool in the tool box” (like asset recycling) can’t be a silver bullet – multiple approaches and great collaboration is more likely to get a good result.

Governments face ever-rising demands for new and better enabling infrastructure. Asset recycling is one of the tools that have been used successfully in NSW and other overseas jurisdictions. New Zealand has an opportunity to learn from these case studies.

There are many other tools as well (including modern regulation of infrastructure sectors, centralised and specialist procurement, integrated planning, governance and finance, the use of incentives to encourage private sector and local government investment, etc) and a combination of approaches is likely to be needed as these are complex problems.

New Zealand is an extremely open economy. New and modern business models and exponentially expanding technology mean we are highly integrated into global business flows and trends which are changing at an unprecedented rate.

Business and society change is driven by new technology such as artificial intelligence, social media, robotics, data science, 3D printing as well as big macro shifts in demographics, infrastructure pressures and geo-political changes.

All of this change, coupled with government’s relatively limited risk appetite and the complexity of legislating for and regulating this change, means that governments need to look at alternative models to deliver the infrastructure required to meet New Zealand’s social and economic needs.

Infrastructure: Could smart-tracking solve Auckland’s congestion problems? (NZ Herald)

Singapore aims to have the world’s most advanced road pricing system by 2020.

The Global Navigation Satellite System (GNSS) will make Singapore the first city in the world to include a dynamic distance, time, location, and vehicle type road pricing scheme.

The S$556 million (NZ$566m) project was won by NCS and Mitsubishi Heavy Industries Engine System Asia – a price that is less than half the S$1.2 billion submitted by the other qualified bidder, ST Electronics.

The island-wide system will use satellite navigation technology to detect and measure distance travelled, as well as provide real-time traffic for every road user. Drivers will be warned before entering a charged road, giving them the option to divert elsewhere if they prefer.

Parking information obtained from every driver and automatic streetside carparking will mean circling around for a carpark and digging around for cash to buy a parking ticket will be a relic of the past.

In areas where satellite coverage could be weak (including tunnels and beneath viaducts), it is anticipated that signal beacons will be put in place.

Though some say the new system will mean personal cars become less about freedom and more like a “private taxi”, Singapore has long been ahead of the world in road user charging.

In 1998 – when Auckland was suffering from a five-week power outage in the CBD caused by multiple power cables failing – Singapore was rolling out what was then the most sophisticated urban congestion charging system on the planet.

This gantry-based electronic road-pricing system targets roads that are heavily congested, and mostly operate at peak times, applying prices to achieve a minimum “level of service”.

Though some privacy concerns have been raised around the level of surveillance that comes with tracking all road users, there are similar issues with other forms of modern transport.

A push for alternative transport
Despite Singapore moving towards a sophisticated and expensive road pricing system, car ownership is low by global standards. This is largely due to the hefty price of a certificate of entitlement – S$36,000 (NZ$36,790) for cars up to 1600cc – which allows the certificate holder to register, own and use a vehicle in Singapore for a period of 10 years.

When you consider 12 per cent of the small country’s land area is consumed by roads, it is unsurprising that Singapore’s Minister for Infrastructure and Transport, Khaw Boon Wan, has set a target for 75 per cent of trips to take place by public transport by 2030, and 85 per cent by 2050.

Singapore is also significantly boosting its bus fleet, rail network, cycling paths, and the distance of its covered walkways.

Driverless cars are tipped to be a further game-changer. Singapore’s well-maintained roads and contained geography make it an ideal location for autonomous vehicles, expected to offer greater fuel efficiency, reduced road congestion and carbon emissions, and a significant reduction in accidents.

Last year US autonomous vehicle R&D firm nuTonomy ran a limited public trial for the world’s first driverless taxis in Singapore.

Despite one of nuTonomy’s self-driving cars hitting a truck, the trial was considered a success.

The company noted the accident was due to “an extremely rare combination of software anomalies,” and intends to launch a commercial service in Singapore in the next year.

It is therefore not unthinkable that at some point, mass use of driverless cars and public transport could remove the need for congestion charging altogether.

Infrastructure: ICBC hungry for projects (NZ Herald)

ICBC NZ has invested across a range of industry sectors, including financing support to the banking syndication for Wellington’s Transmission Gully motorway, several key pieces of infrastructure in the Christchurch rebuild, and a funding facility for a telecommunications firm.

Although ICBC NZ has been shortlisted several times for recent private-public partnership (PPP) tenders, the bank is yet to secure a successful deal.

“We are the newcomer to this market,” says Karen Hou, chief executive of ICBC NZ. “We haven’t yet led a PPP, but the team has become increasingly experienced and we are becoming stronger in-market.”

“It takes a lot of time and effort to prepare a bid. Our commitment to this shows our dedication to being involved in successful infrastructure projects here.”

ICBC NZ has had positive feedback on its bids. Although the future of PPPs has become less clear with the change in Government, the bank is enthusiastic about future projects and ready to show its capability.

“It is important to have new players in the market,” she says. “Having more expertise, funding sources and competition is crucial for long-term, sustainable growth.”

ICBC head office has signalled the significance it places in investing in New Zealand.

The bank’s new global chairman, Yi Huiman, visited New Zealand as part of his first international trip last year, meeting with the Government to discuss New Zealand’s infrastructure investment needs.

“The new board is two years old, and three of the most senior members – chairman of the board, CEO, and chairman of the supervisory board – have already come to New Zealand,” says Hou. “That is unprecedented, and demonstrates that they are very supportive of ICBC’s activity here.”

One Belt One Road
China’s One Belt One Road (OBOR) initiative aims to be the world’s biggest infrastructure project, and encourages Chinese companies to implement infrastructure programmes that help to integrate Asia, Europe, and Africa.

Chinese President Xi Jinping said of OBOR: “The initiative aims to promote orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets by enhancing connectivity of Asian, European and African continents and their adjacent seas.”

Previously, he said: “the programmes of development will be open and inclusive, not exclusive. They will be a real chorus comprising all countries along the routes, not a solo for China itself.”

Hou says ICBC reflects President Xi’s importance placed on investment in global infrastructure – the bank is present in 18 countries along the Belt and Road, loaning US$78.6 billion (NZ$113b) against 288 projects.

New Zealand is at one end of the economic corridor, stretching from the South Pacific through Southeast Asia and into Europe.

Though there is demand for infrastructure projects in New Zealand, Hou says she wishes there were more opportunities available.

“Although there are currently not many PPP projects available for investment, we hope there will be more launched soon,” she says.

“There is a huge demand for further infrastructure in New Zealand, but New Zealand is short of the capital, skilled labour and quick decision-making.”

Hou sees this as a great opportunity for both countries. New Zealand can provide projects and investment opportunities, while China brings experience and expertise across a range of infrastructure classes – bridges, railways, motorways, schools, power and water – along with capital.

Hou says ICBC has around six million corporate customers in China. The bank has a very robust credit approval system, knows their background, and understands their involvement in global projects.

“Many corporate investors are showing increased interest in investment opportunities in the New Zealand market from China, Asia, and the rest of the world,” says Hou.

“When they come to this market, we help to bridge the understanding, knowledge and information gap between the two countries.

“When our customers first come here they always consult us on the current market situation. Because of our intimate understanding of both sides, we have an unparalleled advantage.”

Hou says the bank’s experience with infrastructure projects across many countries ensures it can identify and select the best Chinese partners.

“The bank wants to deliver successful projects, so it is important to us that we select those companies that have significant global experience on major projects, as well as a good attitude towards environmental protection.”

Leading in clean energy and green investment
ICBC has become a leader in supporting clean energy and environmental infrastructure, with the bank providing funding globally in projects including hydroelectric, wind, geothermal, and solar.

“People might not have a good impression of China’s environmental concern,” says Karen Hou, chief executive of ICBC NZ. “But that is in the past. Nowadays China is totally different, highly developed, and people’s ideas have totally changed. We want environmental protection, and a better life.”

The bank has now recently announced its One Belt One Road Green Climate Bond that will be listed in a new market known as the Luxembourg Green Exchange (LGX).

The use of proceeds for this bond will be dedicated to ICBC’s global financing and refinancing of eligible green assets in renewable energy, low carbon and low emission transportation, energy efficiency, and sustainable water resources management in areas key to the OBOR initiative.

ICBC is the first Chinese bank with a “Green Bond Framework” aligned to both international and Chinese green standards.

It is also the first Chinese bank to receive a “Dark Green” second opinion by the Oslo-based Centre for International Climate and Environmental Research.

Infrastructure: A chat with Auckland Mayor Phil Goff (NZ Herald)

Mayor of Auckland Phil Goff says the incoming Labour-NZ First coalition Government offers a number of advantages for Auckland.

“First, it gives us access to a regional fuel tax which enables us to meet the cost of the new investment that we need to make in transport.

“Secondly, it has a strong commitment to light rail across the Auckland isthmus, to the airport, and ultimately beyond that. As I go around the city, probably the number one priority that most people express to me in terms of major new infrastructure is that we can’t be the gateway city to New Zealand for visitors and have gridlock getting from the airport to hotels in the CBD – that’s critical.

“Thirdly, meeting the housing crisis in Auckland. Clearly, the commitment to 10,000 affordable houses a year would make a huge difference to the crisis that Auckland is undergoing.

“One of the things I have studied in London – and Transport for London have strongly advocated this – when you’re building intensive housing, you need to build it around transport arterial routes and transport hubs.

“When you create something like a light rail system, you can intensify the housing development along that system. There will be value uplift from the construction of that infrastructure, but most importantly houses are built so people can get from where they live to where they work quickly and efficiently.

“You can’t solve the transport problem and the housing problem in isolation. You must do it through projects that meet the needs of both.

“I had a very good working relationship with Bill English. I want to pay tribute to him for being a Prime Minister who was easy to work with, professional, and evidence driven. We worked together to tackle the problems that Auckland was facing. He can be proud of his contribution to New Zealand.”

On Road Pricing
Goff says the Singapore system will be the most advanced congestion charging system there is. But it has been very complex and expensive to implement.

“My view has always been – particularly when you’re using high tech applications – you should buy off the shelf and not necessarily lead them, because there will be a lot of challenges that need to be met and problems to be ironed out before you can get them to work effectively.

“We’ve got some distance to go to persuade the public that congestion charging is the right way to approach the problem of both funding and reducing congestion. I have no doubt that demand management will have big advantages in terms of how you can influence commuter behaviour.

“I’ve been in discussions with Transport for London, who say that the congestion charging in London has worked beyond all expectations. It raises about £150m per year – but more importantly than that – it has stabilised the level of vehicles coming into the city and reduced congestion. Having demand management as a form of road pricing is what we should be ultimately aiming for.

“We’ve got quite a lot of work to put into that, not only in terms of socialising the idea with the public, but also in terms of what system might work most effectively and how it could be introduced in an economic way. We’ll be a follower on that and not a leader. We will get a report later this year from the study commissioned by the outgoing government with the council, but I think we need to take steps in the interim for revenue to fund the transport infrastructure that a city growing like Auckland needs.

“My preference is to have an interim road pricing system based on a fuel tax. If the government is prepared to enable that, we will take responsibility to put it in place. We’re faced with a $5.9b deficit in meeting the cost of the Auckland Transport Alignment Project. The outgoing government said it would meet the most significant share of that, but Auckland would also have to pay a share. We need a source of revenue to do that.

“A road pricing system is far better than a general rating system. It needs to be hypothecated – that is the money needs to be set aside solely for the purpose of improving our transport infrastructure, and the decision on the expenditure of the money raised needs to be made jointly between council and central government.

“For the immediate future, having a fuel tax makes a lot of sense. While we are working through the process of what might be the most effective form of demand management or congestion charging, the regional fuel tax would enable us to get on and implement some of the infrastructure that we need for Auckland to avoid worsening congestion and gridlock closing the city down.”