Public-private partnerships and the New Zealand guidelines

A Public-Private-Partnership (PPP) is a project undertaken by a private sector entity to build and maintain an asset for the public sector in return for a long-term stream of payments. Several have recently been undertaken in New Zealand. To ensure consistent evaluation, The Treasury prepared Guidelines, which required government entities to evaluate PPP proposals using the PPP bidder's cost of capital. Since private sector entities undertaking these projects are far less efficient in raising capital than the government, with a disadvantage in present value terms of over 30% of construction cost, the result of following the Guidelines is that this significant inefficiency in raising capital is completely masked rather than revealed. Across the $4b construction cost for PPPs to date, this disadvantage of over 30% would be over $1.2b. Unless there were PPP efficiencies elsewhere that could fully outweigh this disadvantage, the PPPs adopted so far will have been disadvantageous to taxpayers, costing them possibly over $1.2b.