19 March 2025
Adam Irish
Via email: [FYI request #30388 email]
Dear Adam
Thank you for your Official Information Act (OIA) request, received on 11 March 2025. You
requested:
“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.
Level 7, 95 Customhouse Quay
DX SX33303 | Wellington
tewaihanga.govt.nz
Wellington 6011
NEW ZEALAND
Could you please provide any briefings and analyses from the Infrastructure Commission
and/or Treasury on this matter?”
As you may be aware, the New Zealand Infrastructure Commission/Te Waihanga (the
Commission) has recently proactively released our key advice and Cabinet material on the New
Zealand public private partnership (PPP) framework. This information can be found on our
website here:
https://media.umbraco.io/te-waihanga-30-year-strategy/gjnh5tqj/cabinet-paper-
and-advice-on-ppp-framework.pdf. You may be particularly interested in the aide memoire
titled
TW-2024-456 August IIMG agenda item – PPP model and policy update (pages 13-31) and
the sections covering the Affordability Threshold (paragraphs 41-45), the qualitative value for
money test (paragraphs 60-64) and the Public Sector Comparator (paragraphs 65-69).
We do not hold any other information that potential y fal s within the scope of your request.
Accordingly, I am refusing your request for briefings and analyses from the Commission under
section 18(d) of the OIA as this information is publicly available.
The information to which your request relates is also closely connected with the functions of
the Treasury. In these circumstances, we have, as required by section 14 of the OIA, transferred
your request to the Treasury. You can expect to hear from the Treasury soon.
Please note that this letter (with your personal details removed) may be published on the
Commission’s website.
This reply addresses the information you requested. You have the right to ask the
Ombudsman to investigate and review my decision.
Yours sincerely
Andy Hagan
General Manager, Investment
Level 7, 95 Customhouse Quay
DX SX33303 | Wellington
tewaihanga.govt.nz
Wellington 6011
NEW ZEALAND
