Government welcomes steering group finding on Waterview Connection PPP

The Government has released the report of the Waterview Connection Procurement Steering Group, welcoming the finding that procuring the Waterview Connection of Auckland's Western Ring Route as a public private partnership (PPP) could deliver greater value than conventional procurement.

Finance Minister Dr Michael Cullen and Transport Minister Annette King, who set up the steering group in February, said today the Government has asked officials to undertake further work as quickly as possible to enable a final decision to be made consistent with international best practice.

"We want this almost $2 billion project completed by 2015, and we expect to be able to make final decisions on the project in October or very early November," Dr Cullen and Ms King said.

Ms King discussed the steering group's findings at Roading New Zealand's annual conference in Wellington today.

"I am delighted the steering group, made up of public and private sector members, has worked so promptly under the independent chairmanship of Sir Brian Elwood to produce a comprehensive and thorough report. The Government opened up the possibility of PPPs through enabling legislation in 2003, but I have always said it will take a large project to attract private sector interest.

"It seems that Waterview, New Zealand's largest ever roading project, could well be the first PPP, but the generic blueprint provided by the steering group report could, of course, lead to other examples in the future, such as a new Auckland harbour crossing or Transmission Gully in Wellington."

Ms King said the report also identifies a number of critical factors that will need to be met to ensure a successful outcome, so further work is required before committing to a PPP for Waterview.

"We have asked officials at Treasury, the Ministry of Transport and the NZ Transport Agency to undertake the further work and report back in October or early November at the latest."
That work includes finalising a business case for the project, determining the best form of public sector organisation to lead a PPP process, estimating the cost of running such a process, and considering options for project funding.

"Once this work is done Cabinet will be able to make some firm decisions on how to progress Waterview.

"We wish to thank the Steering Group members for their report and congratulate them on what has been a very successful process. The report is a good example of what can be achieved with cooperation between the public and private sectors."

For more information about the Steering Group's investigation and a downloadable version of their report, visit:
http://www.treasury.govt.nz/publications/informationreleases/waterview or http://www.transport.govt.nz.

For more information about the Waterview Connection project visit:
http://www.transit.govt.nz/projects/waterviewconnection/

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Questions and answers

What is the Waterview Connection?

The Waterview Connection is a proposed State Highway extension in Auckland that runs from Mt Roskill to the Northwestern Motorway. The Waterview Connection effectively completes the Western Ring Route by connecting State Highway 20 to State Highway 16. Once finished, the Western Ring Route will be a single 48 kilometre motorway that bypasses the CBD and links Manukau, Auckland, Waitakere, and North Shore cities.

What is a public private partnership (PPP)? What does it entail?

PPPs are long-term contracts between the public sector and the private sector covering planning, construction, operation and/or financing of public infrastructure and services. At the end of the contract, the facility is usually returned to the government or a local authority. The Land Transport Management Act 2003 enables a concession agreement whereby land is leased to the private sector for a period of up to 35 years.

Why is Waterview being considered as a PPP?

The Waterview Connection will be the largest roading project ever built in New Zealand. It is important that a range of viable procurement options are considered in order to deliver value for money.

How much will the Waterview Connection cost to construct?

The New Zealand Transport Agency's (NZTA) current cost estimate for constructing the project, in 2015 dollars (when the project is schedules to be completed), is $1.89 billion.

What were the findings/recommendations of the Steering Group report?

The report has found that procuring the Waterview Connection as a PPP could deliver greater value for money than conventional procurement. The report also identified a number of factors critical to the success of a PPP including:
• Unequivocal public sector commitment to the project in terms of funding, process and timeline
• Clear project objectives
• Adequate resources and clearly defined roles
• Ensuring competitive tension
• Network optimisation

The Steering Group recommended that further work be undertaken to develop a final business case before a decision can be made to commit Government funds to progress Waterview as a PPP.

What decision has the Government made about progressing the Waterview Connection as a result of the report?

The Government has asked the Treasury, the Ministry of Transport and the New Zealand Transport Agency (NZTA) to undertake further work and report back by October/November 2008.

What is the further work that will be undertaken?

Work will be undertaken by the Ministry of Transport and the Treasury on developing a business case for the Waterview Connection. This will include work to:
• Clarify project objectives and project scope for the Waterview Connection
• Update economic analysis and take account of new traffic forecasts
• Reconsider project costings and give further consideration to the potential for wider economic impacts to be brought about by the opening of the Waterview Connection
• Assess how to fund the project

If the Government decides to progress with a PPP following this work, officials will produce documentation to seek interest from possible tenderers.

Who will decide what payment mechanism(s) will be used for Waterview, and when?

The Government will decide in October/November.

Does a PPP for Waterview mean motorists will be charged tolls to use it?

Not necessarily. The Steering Group considered whether it was appropriate to toll the Waterview Connection, but the report does not make a recommendation on tolling. The Steering Group did note that initial advice from NZTA suggested that a relatively small proportion of the total cost of constructing the Waterview Connection could be covered by revenue raised by tolling. The report noted that combining tolling with a PPP would provide more value than coupling tolling with conventional procurement, because the private sector is highly incentivised to ensure that tolling is well managed and customer focused.

The Government has requested that officials examine the full range of options available to fund the Waterview Connection. This will include more detailed examination of the revenue that could possibly be raised by tolling.

Would a PPP mean that the Waterview Connection will be privately owned?

No, the Waterview Connection will not be privately owned. One option under the Land Transport Management Act 2003 is to lease land to a private sector party, but the ownership remains with the public sector.

What are some of the potential advantages of a PPP option being used for the construction of Waterview?

Potential advantages of a PPP include:
• better whole-of-life project evaluation and optimisation to minimise the overall costs of a project
• allocating risk to the party best able to manage it, which can significantly improve the proportion of projects which are delivered on time
• innovative approaches which enhance the quality of service delivered and/or reduce the cost to the public sector.

Why not just build Waterview in the same way the rest of the Western Ring Route is, i.e. following the conventional procurement method?

The Waterview Connection will be the largest roading project ever built in New Zealand. It is important that a range of viable procurement options are considered. The PPP option has been evaluated and assessed against a conventional procurement benchmark to determine which procurement method for the Waterview Connection would deliver New Zealanders the best value for money. A PPP has been found to deliver best value for money in this instance.

What is NZTA's role in this?

NZTA has played a key role in both progressing planning for the Waterview Connection and advising the Steering Group during the investigation. It has been consulting on its preferred design option and alignment for the Waterview Connection and has identified tunnels as its preferred option. It has also been consulting with stakeholders and the public since February about what might be built and its impact on the community. The Steering Group determined that the NZTA was best placed to gain the designation and resource consents necessary for the Waterview Connection, even if it is to be procured as a PPP. This view was supported by respondents to the Steering Group's consultation process.

What is a Public Sector Comparator?

The public sector comparator represents the estimated total cost to the public sector of procuring a project through conventional procurement processes.
The public sector comparator is generally higher than the estimated cost of construction because it includes an estimate of the cost of risks that the Government would have to bear if a project were procured conventionally. These risks, of course, may not eventuate. The public sector comparator is the primary quantitative tool that the public sector will use to assess whether a PPP bid does in fact represent greater value for money than public sector procurement.

Is there legislation that enables PPPs?

Yes. The Land Transport Management Act 2003 (LTMA) enables a concession agreement whereby land is leased to the private sector for a period of up to 35 years, but remains in public ownership.
Will the government make it easier for parties to enter into a concession agreement through the LTMA?

The terms of reference for the Steering Group's investigation called for the Steering Group to consider the possibility of advancing the Waterview Connection under the existing provisions of the Land Transport Management Act 2003.
The Steering Group noted that they did not find reason to believe that the existing legislation required any amendments for the Waterview Connection to be progressed as a PPP, should this be the chosen method of procurement.

When is Waterview likely to be built?

The intended completion date is 2015.

Does this mean other projects could be considered for delivery by PPP?

This investigation was focused specifically on the Waterview Connection, but it will provide lessons for both the public and private sectors for future projects which could be advanced as PPPs. However, other projects would have to be considered on a case-by-case basis.

Who was on the Steering Group?

A joint public sector-private sector Steering Group conducted the investigation and reported directly to the Ministers of Finance and Transport. The Steering Group had Sir Brian Elwood as an independent chairperson and also included representatives from the Auckland Chamber of Commerce (Michael Barnett), Business New Zealand (Phil O'Reilly) and the New Zealand Council for Infrastructure Development (Stephen Selwood). The Treasury and the Ministry of Transport was also represented on the Steering Group.

Why were both the public sector and private sectors represented?

A PPP has to meet the needs of both the public sector and the private sector, so it made sense for both sectors to work together from an early stage to use their collective knowledge in investigating whether or not a PPP is a feasible option for the Waterview Connection. The mix of skills and knowledge brought by all members of the Steering Group was important. The Treasury has expertise in evaluating the efficient and effective use of public funds, and the Ministry of Transport expertise in transport investment and development. The private sector members represented organisations with a strong interest in PPPs. The Chair, Sir Brian Elwood, has strong knowledge of the transport sector and public finance.

Who was consulted as part of the Steering Group's investigation?

Government departments, Auckland local authorities and potential tenderers were consulted. The group also ran a public consultation process, where the public were invited to make written submissions. Submitters were also invited to meet with members of the Steering Group to discuss their written submissions.

ENDS

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