Highly concentrated materials market just one turn-off for Aussie infrastructure investors

Monday 8th October 2018

Lack of competition in New Zealand's building materials market, inconsistent procurement processes, and no clear pipeline of future work are all factors putting off potential Australian infrastructure investors, Cabinet papers show.

The issues emerged during Infrastructure Minister Shane Jones' trip across the Tasman in April where he went searching for ideas on how to improve management of New Zealand's major projects.

Jones wants an independent infrastructure body to provide advice on the state of the nation's assets but ultimately leave decisions in the hands of ministers. He tasked officials to ensure New Zealand makes the most of investment opportunities from Australia, including getting closer to the market across the ditch.

A Cabinet paper shows their ongoing commercial interest in providing New Zealand infrastructure was tempered by a number of negative perceptions, such as a lack of a clear and coherent pipeline of work beyond the transport sector.

Among those concerns were inconsistent procurement processes and inflated project costs arising from New Zealand's highly concentrated materials sector, the paper said.

Local government regulatory settings and the perception that having a New Zealand partner was an unofficial prerequisite also put investors off.

A 2012 Productivity Commission report into housing affordability found there was a lack of competition in the local building materials market, which was compounded by firms' inability to achieve economies of scale due to their size.

The government today called for feedback on how a new infrastructure body should be set up and where it should sit in the overall framework. The entity is likely to be up and running in the second half of next year.

Treasury found institutional arrangements for managing infrastructure projects have improved in recent years, but there are still weaknesses, the consultation paper says.

They include: a lack of integrated investment decisions, meaning reduced visibility for large projects; a focus on building assets rather than the outcomes they were intended to deliver; too few decisions based on evidence; and limited procurement capability.

Submissions are open until Oct. 26. In the meantime, an interim infrastructure unit will be set up from Nov. 1 to support agencies with the planning and delivery of major projects.

The existing National Infrastructure Unit that sits within Treasury was seen as effective at influencing policy but didn't have the resources or mandate to drive outcomes. Similarly, Treasury's public-private partnerships unit wasn't equipped to work on more than two or three projects at any one time. The Ministry of Business, Innovation and Employment's government procurement and property branch also had limited resources.

The consultation paper says Treasury will work with other government agencies to see how the new entity should interact with existing infrastructure processes, such as the National Land Transport Programme.

(BusinessDesk)

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