Kia ora Adam

Thank you for your OIA request received 11 March (copied below). This email confirms receipt and advises that we will respond to you as soon as possible and by 8 April at the latest.

Ngā mihi

Ministerial Services
New Zealand Infrastructure Commission, Te Waihanga
Visit us online at https://tewaihanga.govt.nz/

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Kia ora Adam

Please find attached our response to your OIA request.

Ngā mihi

Ministerial Services
New Zealand Infrastructure Commission, Te Waihanga Visit us online at https://tewaihanga.govt.nz/

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[IN-CONFIDENCE]

Dear Adam

 

 

Thank you for your request which was transferred under the Official
Information Act 1982 to the Treasury by the Infrastructure Commission on
19 March 2025. Your request the following and a response will be provided
in accordance with the Act:

 

 

Under the Official Information Act, I request information on the repayment
expectations for private equity contributions in infrastructure projects.

 

Specifically, I'm interested in understanding how this approach aligns
with value for money. The Crown can typically borrow at the government
bond rate, which offers a lower risk return rate of 4.64% for 10-year
bonds. In contrast, private equity investment usually requires a return
exceeding 8%. This suggests that if the taxpayer funds a return higher
than the government borrowing rate, and if the budget isn't balanced,
we're essentially borrowing more at 4.64% to pay higher returns on the
equity investment. Moreover, even if the taxpayer directly funds it, the
interest cost for the project would be significantly less than the
required return of the private equity investment.

 

It seems counterintuitive to encourage private investment into
infrastructure when the government could initially fund these projects
through debt at a cheaper rate, and fully own the asset at the end of the
period. The cost of maintaining a fully owned asset is typically much
lower than the lease costs that private investors require to generate a
return on their capital. Moreover, by leasing, the Crown forfeits any
potential capital appreciation, which is then incorporated into the market
return that the private equity holder requires. As a result, buying them
out at a later date would likely cost significantly more.

 

Given the current government's value for money priority, and the upcoming
Global Investment Summit focused on private investment in Government
projects, I'm interested in understanding how this strategy aligns with
value for money for taxpayers, especially considering that the required
return from foreign capital is higher than the NZ government's borrowing
rate.

 

Could you please provide any briefings and analyses from the
Infrastructure Commission and/or Treasury on this matter?

 

Thanks,

 

 

 

 

Ministerial Advisory Services | Te Tai Ôhanga – The Treasury

Visit us online at [1]https://treasury.govt.nz/ and follow us on
[2]Twitter, [3]LinkedIn and [4]Instagram

 

Link: [5]File-List
Link: [6]Edit-Time-Data
Link: [7]themeData
Link: [8]colorSchemeMapping

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[IN-CONFIDENCE]

Dear Adam

 

Thank you for your request which was transferred under the Official
Information Act 1982 to the Treasury by the Office of Hon Erica Stanford
on 25 March 2025. You requested the following and a response will be
provided in accordance with the Act:

 

Under the Official Information Act, I request information on the repayment
expectations for private equity contributions in educational projects.

Specifically, I'm interested in understanding how this approach is
considered value for money. The Crown can typically borrow at the
government bond rate, offering a lower risk return rate of 4.64% for
10-year bonds. In contrast, private equity investment usually requires a
return exceeding 8%. This suggests that if the taxpayer funds a return
higher than the government borrowing rate, and if the budget isn't
balanced, we're essentially borrowing more at 4.64% to pay for the higher
returns on the equity investment. Moreover, even if the taxpayer directly
funds it, the interest cost for the project would be significantly less
than the required return of the private equity investment if just at the
government bond rate.

School infrastructure is typically not a user-pays system, and thus,
taxpayers fund this directly in one way or another. It seems
counterintuitive to promote private investment into schools when the
government could initially fund these projects through debt at a cheaper
rate, and fully own the asset at the end of the period. The cost of
maintaining a fully owned asset is typically much lower than the lease
costs that private investors require to generate a return on their
capital. Moreover, by leasing, the Crown forfeits any potential capital
appreciation, which is then incorporated into the market return that the
private equity holder requires. Additionally, as a result, buying them out
at a later date would cost significantly more. How does this approach
align with the pursuit of value for money?

Could you please provide any briefings and analyses from the Ministry of
Education and/or Treasury on this matter?

 

Thanks,

 

 

 

 

Ministerial Advisory Services | Te Tai Ôhanga – The Treasury

Visit us online at [1]https://treasury.govt.nz/ and follow us on
[2]Twitter, [3]LinkedIn and [4]Instagram

 

Link: [5]File-List
Link: [6]Edit-Time-Data
Link: [7]themeData
Link: [8]colorSchemeMapping

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