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What to help us break down what is a private public partnership how it all works? We're joined by New Zealand Heral Business Editor at Large, Liam Dan. Liam, thanks very much for jumping in.

What to help us break down what is a private public partnership how it all works? We're joined by New Zealand Heral Business Editor at Large, Liam Dan. Liam, thanks very much for jumping in.

No worries, Liam, How do private public partnerships differ from just contracting a company to build your piece of infrastructure.

No worries, Liam, How do private public partnerships differ from just contracting a company to build your piece of infrastructure.

Well, there's an issue about really, and there's a bit of contention about whether this is a privatization. So in some cases the private company may own it or own half of it, or the government will have a partnership around ownership, or they'll have contracted that it will return to public ownership in fifty years or something like that. Essentially, the risk is being borne by the private company and the money is coming up front from the big money is coming up from the private upfront from the private company.

Well, there's an issue about really, and there's a bit of contention about whether this is a privatization. So in some cases the private company may own it or own half of it, or the government will have a partnership around ownership, or they'll have contracted that it will return to public ownership in fifty years or something like that. Essentially, the risk is being borne by the private company and the money is coming up front from the big money is coming up from the private upfront from the private company.

So how does the investor make money?

So how does the investor make money?

Well, then investor makes money by charging a fee back to the government to use the asset. Right, So I guess it's pretty simple. Most people get it for roads and like the idea of another harbor bridge Auckland Harbor Bridge. You can say, well, we're going to get a private company in to build this. There's going to be a fifty year contract on it. It's going to have tolls and service fees, will the asset will either be still technically a public asset or it'll revert to a public asset in fifty years something like that, you know, fairly straightforward. It gets a bit more contentious around hospitals, schools, that sort of thing, but essentially, you know, you could still say, you know, a government is paying as they go for the healthcare and for the contract to the hospital, so they are you know, it's sort of like, you know, difference between buying a car up front. It's kind of cheaper to car up front, right if you've got cash, But if you need to you don't have cash, and this government doesn't have cash, then then you can go see a dealer and pay a little bit every week for.

Well, then investor makes money by charging a fee back to the government to use the asset. Right, So I guess it's pretty simple. Most people get it for roads and like the idea of another harbor bridge Auckland Harbor Bridge. You can say, well, we're going to get a private company in to build this. There's going to be a fifty year contract on it. It's going to have tolls and service fees, will the asset will either be still technically a public asset or it'll revert to a public asset in fifty years something like that, you know, fairly straightforward. It gets a bit more contentious around hospitals, schools, that sort of thing, but essentially, you know, you could still say, you know, a government is paying as they go for the healthcare and for the contract to the hospital, so they are you know, it's sort of like, you know, difference between buying a car up front. It's kind of cheaper to car up front, right if you've got cash, But if you need to you don't have cash, and this government doesn't have cash, then then you can go see a dealer and pay a little bit every week for.

The next So it's essentially a higher purchase.

The next So it's essentially a higher purchase.

Yeah, it is, sort of. There are some other other factors in there, I mean, you know, weirdly, you know, critics will say governments can borrow more cheaply than private the private sector, so it actually maybe puts more cost into the project when you get the private sector to fund it. But then there's a lot of skepticism, the skepticism in this government and on the right generally, and you know, you can find plenty of examples in history of governments not doing a great job and of building assets, and of massive cost overruns and things not getting finished on time.

Yeah, it is, sort of. There are some other other factors in there, I mean, you know, weirdly, you know, critics will say governments can borrow more cheaply than private the private sector, so it actually maybe puts more cost into the project when you get the private sector to fund it. But then there's a lot of skepticism, the skepticism in this government and on the right generally, and you know, you can find plenty of examples in history of governments not doing a great job and of building assets, and of massive cost overruns and things not getting finished on time.

And so essentially, because it's the company bottom line, they have to make money, they'll do it efficiently.

And so essentially, because it's the company bottom line, they have to make money, they'll do it efficiently.

Yeah, and it costs them if they at the cost if it overruns or you know, it isn't finished on time, that's borne by the private company, so you're out, you're outsourcing some risk away from the government.

Yeah, and it costs them if they at the cost if it overruns or you know, it isn't finished on time, that's borne by the private company, so you're out, you're outsourcing some risk away from the government.

We've been pretty keen on these PPPs as a country for some time, or our governments have Are we unique in that or is this quite a common theme in other Western countries as well to try and form these private public partnerships.

We've been pretty keen on these PPPs as a country for some time, or our governments have Are we unique in that or is this quite a common theme in other Western countries as well to try and form these private public partnerships.

Yeah, they're probably used more extensively around the world. In the UK, for example, they've used them for big infrastructure projects like you know, revitalizing their underground. Canada I think actually does have a lot of PPPs around hospitals. I know, you know, I think you know at the moment we've got to bipartisan agreement. You can see labors on board with big roads, bridges, all that sort of stuff. Yeah, but they draw the line at the hospitals and schools.

Yeah, they're probably used more extensively around the world. In the UK, for example, they've used them for big infrastructure projects like you know, revitalizing their underground. Canada I think actually does have a lot of PPPs around hospitals. I know, you know, I think you know at the moment we've got to bipartisan agreement. You can see labors on board with big roads, bridges, all that sort of stuff. Yeah, but they draw the line at the hospitals and schools.

Right, So, because you could have a situation because some people might not like a prison being run prisons the other one.

Right, So, because you could have a situation because some people might not like a prison being run prisons the other one.

Ye.

Ye.

But if it's just around the infrastructure, the building of the actual building but not the running of it, is that still of interest to companies to invest in.

But if it's just around the infrastructure, the building of the actual building but not the running of it, is that still of interest to companies to invest in.

Well, they've got to get a return, right, so they have to get there's got to be a contract where there's money coming back to that company over a period of time to make the right return. So I guess it doesn't necessarily have to involve running the prison, but there is going to be fees to pay on the prison, and so it's a cost. It's still a cost of taxpayers. It's just spreading the cost over time, spreading the risk, or you know, outsourcing the risk. Critics might say, look over time, like that car at the car dealers, you'll have paid a lot more for the asset. But again that'll come back to that debate about whether you think governments are just absolutely terrible at building this stuff and that they're just you know, because if we're borrowing masses more, well maybe at a lower interest rate, but if we don't get the things built properly, that that's all going on the crown accounts and stuffing our books.

Well, they've got to get a return, right, so they have to get there's got to be a contract where there's money coming back to that company over a period of time to make the right return. So I guess it doesn't necessarily have to involve running the prison, but there is going to be fees to pay on the prison, and so it's a cost. It's still a cost of taxpayers. It's just spreading the cost over time, spreading the risk, or you know, outsourcing the risk. Critics might say, look over time, like that car at the car dealers, you'll have paid a lot more for the asset. But again that'll come back to that debate about whether you think governments are just absolutely terrible at building this stuff and that they're just you know, because if we're borrowing masses more, well maybe at a lower interest rate, but if we don't get the things built properly, that that's all going on the crown accounts and stuffing our books.

So just to make it clear, how would you envision say a second harbor crossing working. Then well, how much would would the foreign investors put all the money in and then we pay it all back? Or we go some from the government, some from the investor, and then how do they make their money back?

So just to make it clear, how would you envision say a second harbor crossing working. Then well, how much would would the foreign investors put all the money in and then we pay it all back? Or we go some from the government, some from the investor, and then how do they make their money back?

All those models could be the case. You could have a partnership where the government stumps up half in the private you know, you create an entity and it might be fifty percent owned by the government and fifty percent owned by the private sector and they work together. Or you go, no, no, we're going the full private model and pretty much say go to town, build as a harbor bridge, and we'll pay you tolls and a service fee for the next thirty to fifty years. Hopefully they would build it efficiently and look, that would be easier. But because it would be I think the government, you know, with the toll is a user pays aspect, you know, a hospital. There's always going to be a fear or some political pushback around the user pays aspect of it. People want a public health service. But then you know, governments could choose to fund the most gold standard free public health service and still use a PPP. They could just be agreeing to pay the money to that.

All those models could be the case. You could have a partnership where the government stumps up half in the private you know, you create an entity and it might be fifty percent owned by the government and fifty percent owned by the private sector and they work together. Or you go, no, no, we're going the full private model and pretty much say go to town, build as a harbor bridge, and we'll pay you tolls and a service fee for the next thirty to fifty years. Hopefully they would build it efficiently and look, that would be easier. But because it would be I think the government, you know, with the toll is a user pays aspect, you know, a hospital. There's always going to be a fear or some political pushback around the user pays aspect of it. People want a public health service. But then you know, governments could choose to fund the most gold standard free public health service and still use a PPP. They could just be agreeing to pay the money to that.

And if they have their regulations in place that you know what we expect and what has to be delivered, and we're all happy with that, then you could argue that's not too much of a problem. So is there any interest so far, anyone putting up their hands and say they want to do it from the summit?

And if they have their regulations in place that you know what we expect and what has to be delivered, and we're all happy with that, then you could argue that's not too much of a problem. So is there any interest so far, anyone putting up their hands and say they want to do it from the summit?

I think we heard from an Italian company that was talking about that extension to the Northern Expressway, so that's probably a good one. That's that's the one that's on the table. So this is the summit. The issue is that we haven't actually got that many PPPs ready to go. So it's a starting point, but you know, I think what the government really needs is one that's just underway and working so that people can see the model and that other companies can see that that could work. But yeah, it's going to be a bit more debate around around whether we go to hospitals and schools and prisons.

I think we heard from an Italian company that was talking about that extension to the Northern Expressway, so that's probably a good one. That's that's the one that's on the table. So this is the summit. The issue is that we haven't actually got that many PPPs ready to go. So it's a starting point, but you know, I think what the government really needs is one that's just underway and working so that people can see the model and that other companies can see that that could work. But yeah, it's going to be a bit more debate around around whether we go to hospitals and schools and prisons.

I think so if a company invested a billion dollars, how much return would they want to see over the thirty fifty years.

I think so if a company invested a billion dollars, how much return would they want to see over the thirty fifty years.

It's a good question. It's got to be more than putting in the bank, right, otherwise you don't bother so that would be I'm sort of guessing a little bit, but you'd want a return of you know, five ten percent. It's got to be better than bonds, which is the equivalent of putting money in the bank. It should be a relatively low risk, stable investment. So it appeals to big investment funds around the world. So weirdly, you know in Zealand our own superfund, our acc fund, that's the sort of thing they can get involved in because it provides a stable return. So if you can get a return of seven or eight percent or something like that, that would be a solid return if it was over thirty years.

It's a good question. It's got to be more than putting in the bank, right, otherwise you don't bother so that would be I'm sort of guessing a little bit, but you'd want a return of you know, five ten percent. It's got to be better than bonds, which is the equivalent of putting money in the bank. It should be a relatively low risk, stable investment. So it appeals to big investment funds around the world. So weirdly, you know in Zealand our own superfund, our acc fund, that's the sort of thing they can get involved in because it provides a stable return. So if you can get a return of seven or eight percent or something like that, that would be a solid return if it was over thirty years.

And obviously tolling, just to bring it back to the tolling, that is an added sweetener. If someone's going to invest a lot of money and infrastructure and that is part of the equation, then that hopefully might make it easy to get across the line.

And obviously tolling, just to bring it back to the tolling, that is an added sweetener. If someone's going to invest a lot of money and infrastructure and that is part of the equation, then that hopefully might make it easy to get across the line.

Governments can still make a choice. They can still say we're going to make this free, but we're going to have to pay that difference to the private company to ensure that the contract works for them.

Governments can still make a choice. They can still say we're going to make this free, but we're going to have to pay that difference to the private company to ensure that the contract works for them.

Either way, we pay, Yeah, exactly, eventually, eventually.

Either way, we pay, Yeah, exactly, eventually, eventually.

That's right, Liam, very very interesting, Thanks very much for coming and having a chat with us. We'll catch again soon. That is New Zealand hera Business editor at large. Liam Dan. You're listening to News Talks at B. Good afternoon.

That's right, Liam, very very interesting, Thanks very much for coming and having a chat with us. We'll catch again soon. That is New Zealand hera Business editor at large. Liam Dan. You're listening to News Talks at B. Good afternoon.

For more from News Talks at B listen live on air or online, and keep our shows with you wherever you go with our podcasts on iHeartRadio.

For more from News Talks at B listen live on air or online, and keep our shows with you wherever you go with our podcasts on iHeartRadio.