NOVEMBER 2020 Infrastructure Trends & insights Contents

New Zealand infrastructure – ready for 1 lift-off?

Wild ride ahead for electricity sector 2

Sector hot spots: 4 Three waters Social infrastructure Transport Housing

RMA Review – what next and how long? 12

Coasting on a COVID cash bonanza 15

Climate change – the elephant in the room 18 gets bigger

Infrastructure team 20 New Zealand infrastructure – ready for lift-off?

Pressure on all forms of infrastructure remains high with little evident physical progress since our publication of August 2018 What next for infrastructure? But we may now be about to obtain lift-off.

This is mainly due to the huge As many of these reforms are And, although COVID-19 has opened infrastructure spend the Government relatively recent, they have yet to the Government’s cash faucet, the has embarked on as part of its translate into much physical activity border restrictions are exacerbating response to the economic impact – but they will. And there are more New Zealand’s persistent skills of COVID-19. However, there has changes on the way, most obviously, shortages and the COVID-induced also been significant policy action and most significantly, the repeal recession has put many businesses to address the pinch-points we and replacement of the Resource into retrenchment mode. identified in our 2018 analysis – in Management Act. particular a channel to attract So, while there are many reasons to private sector funding and financing, This should facilitate timely believe that New Zealand’s decades- but also across the broader infrastructure development. Whether long pattern of under-investment regulatory framework. it is able to constrain the effects of in infrastructure may be about to NIMBY-ism while protecting property end, delivery to the levels required Examples include, but are not limited to: rights and democratic rights of to spark a meaningful improvement participation in resource allocation in productivity, social wellbeing • the creation of Te Waihanga: and decision-making will be a much or emissions reduction is still far Infrastructure Commission sterner test. from guaranteed. to develop a dependable project pipeline Climate change will also create a spur for investment, both through Paula Brosnahan • the establishment of Kāinga Ora, its weather effects and increasingly, Partner with the power of compulsory through the incentives created by the acquisition to promote Zero Carbon Act and the Emissions Mark Reese residential development Trading Scheme. Partner

• the National Policy Statement But the size of the job is huge, on Urban Development requiring especially in the electricity sector all councils to provide sufficient where Transpower estimates we will land and infrastructure to meet need a 55% increase in generation Although COVID-19 has expected population demand capacity to achieve New Zealand’s “opened the Government’s Paris Agreement commitment to net • the three waters package carbon neutrality by 2050. In our view, cash faucet, the border • the amendments to the Building it will take a paradigm shift to pull Act to reduce the barriers to pre- this off. restrictions are exacerbating fab construction, and New Zealand’s persistent

• the fast track process for shovel skills shortages ready projects. ”

Infrastructure Trends & Insights | 1 Wild ride ahead for electricity sector

Within weeks of Rio Tinto’s announcement that it would close the Tiwai Point smelter by August next year, Transpower put out a paper updating its central planning scenario for New Zealand’s energy future.

The modelling assumes that to meet Meanwhile, Contact Energy has put In the meantime, acting on New Zealand’s commitment to be a new geothermal power station at recommendations from the net carbon zero by 2050, electricity Tauhara on hold and Meridian Energy Productivity Commission and the demand will be pushed up by 55% – has deferred the Harapaki wind Interim Climate Change Committee which will require the construction of farm in the Hawke’s Bay pending a (ICCC), the Government is exploring 25 new grid-scale renewable power final decision about the smelter’s ways to provide more direction to stations and battery storage schemes close date. consenting authorities, including within the next 15 years. through amendments to the National Towards a more positive Policy Statement (NPS) for renewable That is a frighteningly short timespan investment environment electricity generation. given the levels of investment that The Labour Government has would be involved, the long lead times And it is trying to broker a cheap power committed to replacing the Resource associated with large infrastructure deal to entice Rio Tinto to maintain Management Act (RMA) along the projects, and the uncertainties current employment at the Southland lines recommended by the Randerson around trying to predict movements in site over the next three to five years report (see our discussion on page 11), wholesale electricity prices. and to work with the Government on which include moving to an outcomes finding future uses for the plant. It was in recognition of these based approach rather than focusing factors that Transpower shot out its on effects. But... publication. It created a context to The Labour-Green Co-operation guide investment decisions and to Agreement also commits both parties Working against these mobilise a collective action response. to achieving the purpose and goals positives are major This included an assurance to potential of the Zero Carbon Act through uncertainties that investors that Transpower will do its decarbonising public transport and the bit to expand capacity in the national public sector, increasing the uptake of may deter the private grid. The Clutha to Upper Waitaki zero-emission vehicles and supporting Lines project is already underway the use of renewable energy for sector from making the and it will consult on further upgrades industrial heat. In short, strengthening necessary investments and expansions. the commitment to stimulate material increases in demand for electricity. at the required volume and velocity.

2 | Chapman Tripp Even if Rio Tinto is persuaded to delay Labour has linked the 100% goal to Historically it is the state that builds its departure, it will be a reprieve rather the use of pumped hydro, in particular generation – even in large economies than a rescue, and there are currently through a huge facility at Lake Onslow like the UK where the Government has question marks over a number of other in Central Otago, although Energy and contracted China General Nuclear major power users, among them the Resources Minister Megan Woods Power Group to develop a new New Zealand Oil Refinery at Marsden says other smaller options in the North nuclear plant, and has absorbed the Point, the Tasman Mill at Kawerau, Island will also be investigated. economic risk by locking in a long-term New Zealand Steel’s Glenbrook Mill, pricing curve. the methanol production facilities But the Lake Onslow proposal would at Taranaki, and the James Hardie take four to five years to complete In New Zealand, the Government owns cement factory at Penrose. and a further two to fill the reservoir, Transpower and holds a majority stake would be eye-wateringly expensive to in three of the four major gen-tailers: The Government has compounded build (at least $4b and probably closer Genesis Energy, Mercury Energy and this uncertainty by advancing its 100% to $6b), and would have wafer thin Meridian Energy. But the 49% private renewable electricity target from 2035 profit margins. The Government has shareholding in these companies will to 2030. It did this against the advice only committed $100m for a detailed restrain the Government’s ability to of both the Productivity Commission business case. strong-arm them into making major and the ICCC. investment decisions. And, even if the project proceeds, it will • The Productivity Commission take many years for the design detail to Will that mean acting as under-writer advised in August 2018 that be finalised so that the market knows to the private sector or entering “no options exist to completely exactly what is proposed. How would it Public Private Partnerships? Or will eliminate greenhouse gas emissions operate? As well as providing dry year the Government incentivise private from electricity generation without supply, would it also intervene to smooth investment through a sky high greatly increasing wholesale price peaks in a more usual year? If so, Emissions Trading Scheme – and how electricity prices”. when? And how would that not crowd would that affect low income earners out other generation investment? or the broader economy. • And the ICCC advised in 2019 that, while technically feasible, the Would you advise your board to These are the issues which the last few percentage points would approve a major construction project Government and the energy sector will be very expensive to achieve for new generation while all these balls need to work through in the current – pushing up residential power were still up in the air? term. Transpower has laid out a path. prices by 14% and industrial prices Everyone else now needs to chart by 39% – which would slow the How to achieve the a course. decarbonisation of the rest of necessary paradigm shift the economy. These questions underscore the fact Andy Nicholls that we have a market model in New Partner Zealand which is geared to incremental change. So, to power a massive increase in electrification, a paradigm shift will be needed.

Infrastructure Trends & Insights | 3 SECTOR HOT SPOTS: Three waters

The 2016 Havelock North drinking water contamination has catalysed significant reform to the country’s three waters infrastructure.

This will be administered by Taumata This is deft politics which achieves Arowai – a Crown agent created territorial amalgamation without by statute this year to regulate the buying into parochial turf disputes. provision of drinking water, and to As Infrastructure Commission Chief oversee wastewater and stormwater Executive Ross Copland says: services across the country. “The decision to focus this investment To address persistent structural on Councils who commit to work problems of council fragmentation with the Government on three waters and under-capacity, the Government reform is a pragmatic, incentive- is dangling a $630m carrot for based approach to unlocking the distribution as grants to councils procurement and operational which agree to amalgamate their three efficiencies which can be gained waters infrastructure with others in through consolidation”. the region. The allocations range from Canterbury on $100m to Gisborne on Local government forecasts have $11.04m. investment reaching $17.2b over the next 10 years, which is an increase Participating councils will receive in numerical terms of 60% over the 50% of their allocation directly. The previous decade. remaining 50% will be assigned to the regional grouping, members of And yet, Infometrics considers which must sign a Memorandum of this may not be enough to Understanding that commits them meet the costs of previous to develop and enter into service depreciation, population growth, delivery entities: urban densification and higher water standards. • of a scale that will enable benefits from aggregation to be achieved over the medium-to-long term

• with balance sheet separation to support improved access to capital, and

• with competency-based boards.

4 | Chapman Tripp Investment in New Zealand water assets set to rise

$m, historical and forecast capital investment in water assets Combined water assets Waste and stormwater Water supply

2,000

1,500

1,000

500

0

10 12 14 16 18 20 22 24 26 28

Source: Infometrics

The decision to focus this investment on Councils who commit to work with the “Government on three waters reform is a pragmatic, incentive-based approach to unlocking the procurement and operational efficiencies which can be gained through consolidation. ”

Infrastructure Trends & Insights | 5 SECTOR HOT SPOTS: Social infrastructure

In our 2018 publication we said that New Zealand’s social infrastructure – public housing, schools, hospitals, prisons etc – was in poor shape because it had played Cinderella to debt reduction for decades.

In this metaphor, the debt The first four-year allocation, made The public health sector in particular mountain created by the Muldoon in 2019, was for $10.4b. At Budget is struggling against tight budgets Government’s borrowing binge 2020, $4.4b was still in the kitty. The and tired infrastructure with large through the mid-1970s to the Government increased this by $1.7b, project pipelines and inconsistent mid-1980s becomes the wicked taking it to $14.8b, and committed to a procurement. Structural reform stepmother with the GFC in 2007 further $8b capital expenditure in the is coming through the Heather and the Canterbury earthquakes in current financial year. Simpson-led health and disability 2010 and 2011 playing the two ugly system review. But the pressure on sisters. Now we have COVID-19 which, The priority areas for capital the Government’s balance sheet will in this narrow context, is in the role investment over the last three budgets constrain both the scope and the of Fairy Godmother because it has have been health around $3.5b; and pace of change. released large amounts of cash for education around $2b. infrastructure spending. The area of greatest achievement So loads of dosh sloshing is probably in social housing where, The Government’s ‘wellbeing according to the Government’s approach’ has also loosened the around but so far, not Housing Dashboard, between June purse strings. And the shift to a rolling much to show for it on 2018 and 30 September 2020, 7,378 four-year budget capital allowance state and community houses had (from single year allowances) should the ground. This is not been either built or were under provide more investment certainty surprising given the long construction. Labour is committed to – although this effect should not be increasing this to 18,000 by 2024. over-stated as budget decisions are lead times associated with always vulnerable to changes in the construction projects, And yet this will not be enough to fiscal position or in the balance of accommodate the current waiting political power. but it is a source of list which is at record heights with some frustration. around 20,000 applicants.

6 | Chapman Tripp Capital investment – education At Budget 2020 $2b $14.8b Capital investment – health $8b $3.5b capital expenditure in the Between June 2018 and 31 August 2020 current financial year.

houses7,313 built or under construction.

Infrastructure Trends & Insights | 7 SECTOR HOT SPOTS: Transport

Transport in all its forms has been a big beneficiary of COVID-19 and the 2020 general elections. COVID-19 because of the need to stimulate job- heavy investment, the election campaign because Labour and National see new roads as vote-winners (the Greens, not so much).

The Government Policy Statement These large numbers carry their own The Light Rail tender (GPS) for 2021, released on 17 kind of comfort, especially in a sector process was officially pulled in June September, provides for $48b of which has the benefit of coordinated, this year because of opposition from transport spending over the next mode neutral planning by Waka Kotahi New Zealand First, but should get the decade, $10b of which will be spent NZ Transport Agency. green light now that Labour’s got a on driving down the road toll. The clear majority and is in control of its $48b is on top of the $6.8b already And yet the two hero projects – own destiny. allocated to the New Zealand Transmission Gully in Upgrade Programme, across road, and Auckland Light Rail – have been And the current review by the rail, public transport, walkways and beset with difficulty. But easier Infrastructure Commission into the cycle ways. times may be ahead. Transmission Gully Public Private Partnership (PPP) may create an opportunity to reset the contract terms to the benefit of both parties.

8 | Chapman Tripp SECTOR HOT SPOTS: Housing

KiwiBuild was set up for failure by the impossibly ambitious 100,000 new homes within 10 years target. As at 30 September 2020, the Housing Dashboard had just 645 completed and another 912 under construction.

But much has been done at the • the NPS on Urban Development, Most of these only came into effect policy level to unblock some of the requiring all councils to provide in the second half of this year so have blockages in the system, in particular: sufficient land and infrastructure yet to register an impact. But they can to meet expected demand over only improve housing availability and • the creation of urban development the short, medium and long affordability at the margins because – authority Kāinga Ora, with term, and imposing specific like all markets – the housing market the power to compulsorily density requirements on the five is governed by the laws of supply and acquire land and to fast highest growth areas – Auckland, demand, and the facts are brutal. track developments Hamilton, Tauranga, Wellington and , and • changes to the Building Act to reduce the barriers to pre-fab • the Infrastructure Funding construction and Financing Act giving local authorities access to off-balance sheet finance.

Median house prices across New Zealand increased by 19.8% from $605,000 in October 2019 to a new record median high of $725,000 in October 2020

Infrastructure Trends & Insights | 9 SECTOR HOT SPOTS: Housing (continued)

Fact One Fact Two New Zealand over this period, population grew by housing stock 17% increased 2010 to 2020 12.5%

Fact Three Median house price That creates a shortfall of 19.8% 74,000 year to October. Now – half of it in Auckland. $725,000

10 | Chapman Tripp Population vs housing stock

Annual change in resident population and private dwellings (estimates)

Population change Dwellings change

2.0

1.5

1.0 PERCENT

0.5

0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Source: Stats NZ

Infrastructure Trends & Insights | 11 The RMA – what next and how long?

It all seems very promising. We have a general acceptance that the Resource Management Act (RMA) has done its dash, an expert panel report that has broad support across the political spectrum, a Government with a clear majority and, in David Parker, a Minister with a proven record in managing complex reform processes.

Parker is confident in his mandate • the number of local government At the time this publication was and has confirmed his commitment resource management plans released, however, we were still waiting to implement the Randerson Panel should be drastically reduced to for detail on the reform timeline. package within this three year term. one per region (which would bring it down to 14 from more than 100 Good process will be essential The Panel has recommended that the currently), and Replacing the RMA with a framework RMA be replaced by three separate that will be workable and durable will Acts: a Natural and Built Environment • there should be more national require huge amounts of consultation, Act (NBEA), a Strategic Planning direction to better protect patience and skill – especially as it is Act (SPA), and a Managed Retreat environmental bottom lines for extremely unlikely that the consensus and Climate Change Adaptation Act biodiversity and ecosystems, and around the RMA’s repeal will carry and that: to enable urban development. over into a consensus around the RMA’s replacement.

12 | Chapman Tripp I must warn that statutory “spring cleaning is not going to lead to peace, harmony and goodwill towards planners. Some of the conflicts that are giving rise to current dissatisfaction are eternal and will persist no matter what statutory framework is enacted.

Minister Parker echoed this sentiment ”last week, saying the RMA shouldn’t be blamed for the “ills of society”.

The fact that often neither party is entirely satisfied with an RMA outcome may mean that an appropriate accommodation has been found.

This is not to suggest that the balance between development and protection cannot be struck more efficiently and with greater public confidence, but to walk into this exercise expecting to secure your full wish list of resource management outcomes is to set It will not be a simple matter of Tensions will remain yourself up for disappointment. implementing the Randerson The job of the RMA, and of whatever review as many of the review’s replaces it, is to weigh competing RMA as scapegoat recommendations give considerable interests – economic development The RMA has been endlessly tinkered room for interpretation and creative against environmental protection, with over its 30 year history, gaining licence so would need to be regulation in the public interest more pages and losing a little more developed and refined before they against private property rights, new coherence with each amendment. could be translated into law. They are housing against an environmentally Over that same period, the also not universally agreed. significant wetland, network population has increased by almost It is worth remembering that the infrastructure against outstanding two thirds, house prices have gone RMA was largely developed under natural landscapes. stratospheric, agricultural land uses the Fourth Labour Government and have intensified, and we are starting to It controls almost all decision-making was passed by the Fourth National bump up against severe resource and relating to the way we manage the use Government. Yet despite this bi- infrastructure constraints. of land, air and water – from major partisan inception, it has been through new motorways to whether you can Whether the RMA, properly 18 rounds of amendments since its add a second storey to your home. administered and enforced, could passage in 1991 – a frequency rate of These tensions cannot be legislated have managed or prevented these more than one every two years. away – a point the Parliamentary outcomes we will never know because Commissioner for the Environment, it was never really given a serious shot Simon Upton, made recently, saying: at success.

Infrastructure Trends & Insights | 13 The intention was that it would be Our view For these reasons, there may be value reinforced by NPSs and National in circulating exposure drafts of the The Ministry for the Environment will Environmental Standards (NES) but NBEA and the SPA before proceeding be tasked with dividing the reform into these were slow to develop. The first to the Bill stage. This would allow a manageable parts. Our strong view is NPS came into effect 17 years after further opportunity for public input, that the proposed NBEA and the SPA the RMA came into force, and the first and it is important that there are as should be developed and progressed NES, 13 years after. many opportunities for public and in tandem. The Managed Retreat and stakeholder engagement as possible. Central government could also have Climate Change Adaptation Act could done a lot more, carrot and stick, be dealt with separately to reflect Take-outs to improve the administration and its more specific subject matter, and The regime that replaces the RMA enforcement of the RMA at the the inherent property law and fiscal will reach across business and the local level. complications it presents. economy, influencing what is possible However, this is all academic now. We expect that aspects of the in the infrastructure space and the The fact is that, fairly or not, the RMA recently passed COVID-19 Recovery compliance costs associated with is now widely perceived as a failure. (Fast-track Consenting) Act will be new developments. Here’s Minister Parker on why reform transferred across to the NBEA – in The earlier you engage the better as is needed: particular the more stringent Treaty of Waitangi tests and the ‘consistency it is easier to influence the direction with national policy statements’ test. and content of reform before policy design decisions are taken We also expect that the place of and before momentum builds in a The RMA has doubled environmental ‘bottom lines’ will be a particular direction. “in size from its original key issue, with contrasting positions already being advocated by the Chair It is essential that the Government length. It has become of the Panel Review, Justice Randerson, and the infrastructure sector engage constructively to avoid too costly, takes too and the Parliamentary Commissioner for the Environment, Simon Upton. RMA reform having a stifling effect long, and has not on infrastructure projects, which Resource management is a complex form the bedrock of New Zealand’s adequately protected business. Even if all the experts COVID-19 recovery. the environment. There agreed on the end objectives, they could still have quite sharp So now is the time to start thinking are significant pressures differences of opinion on how best about what the problems are that we on both the natural and to deliver those objectives. need to fix, and how that might be achieved. You might also consider built environments that Already we have subtly different models joining forces with others who share need to be addressed from the Randerson Panel and the your interests or perspective to Environmental Defence Society, and provide a strong coherent voice. urgently. Urban areas a significantly different model from are struggling to keep Simon Upton, who considers that the improvements sought by the Panel could Paula Brosnahan Partner pace with population be “easily dealt with within a recast RMA”. growth and the need for affordable housing. Water quality is deteriorating, biodiversity is diminishing and there is an urgent need to reduce carbon emissions and to adapt to climate change. ” 14 | Chapman Tripp Coasting on a COVID cash bonanza

The funding and financing issue we identified in our 2018 infrastructure report was how to access private capital in an environment where central government was focused on paying down debt and councils were constrained in how much borrowing they could carry on their balance sheets.

In particular, we argued the need for We offer a quick overview of the The PPP was used for numerous “a robust and replicable transaction market dynamics currently in play and projects throughout 2012-2017 but structure to match the vast resources the various funding options available. has been less available since due to of pension and sovereign wealth Labour’s objection to using PPPs for funds to the demand for infrastructure Equity social infrastructure projects and projects”. A large step in this direction Sovereign funds, including the to the issues which have affected has now been delivered through the New Zealand Superannuation Fund Transmission Gully. Infrastructure Funding and Financing and ACC, and insurance companies A revised PPP model and a Act 2020, although it only passed in and managed funds, are on the look- pathfinder IFF transaction should be August and no transactions have yet out for infrastructure assets which prioritised to provide investors with been completed under it. can deliver relatively certain income confidence about the opportunities streams that match the relevant There is still an enormous amount of for investment. investor’s investment profile. The money under institutional management NZ Super Fund’s unsolicited bid with around the globe which is on the hunt Risk allocation will need to reflect the CDPQ Infra to deliver the Auckland for long-haul investments offering risk appetite of different investors: Light Rail project is a high profile case secure returns in politically stable in point. • sovereign funds may be prepared countries, like New Zealand. to take a long term NZ Inc view To facilitate private sector What’s changed is that those funding and invest in both the construction investment in infrastructure, there sources are now in competition with and operational phases of a needs to be a well understood and the huge amounts of cash released project, but replicable framework. by the Government directly, and to a lesser degree, by the Reserve Bank of New Zealand (RBNZ) indirectly, to support the economy through the COVID crisis. Infrastructure Trends & Insights | 15 • private capital is typically There is also a risk that international Debt more cautious about taking on capital (and debt and contractor As financial markets start to construction risk and may prefer resources) will be in simultaneous factor in the prospect of negative to wait until the asset is in the demand across multiple jurisdictions interest rates, bank debt is cheap operational phase, depending on as all governments look to kick start (in nominal terms) and looking for the nature of the asset involved their economies – the obvious case a home – which should support and the way in which those risks in point being our friends across infrastructure investment. are managed. the ditch. But this stimulatory effect is being COVID and private infrastructure New Zealand may be less attractive blunted by the higher capital investment due to our remoteness and lack of requirements that the RBNZ is also scale, and the Government may While infrastructure assets have bringing in. Aware of the policy need to do something special to historically offered a ‘safe’ investment, clash, the RBNZ has deferred counter-balance this. The de- in the post-COVID world other implementation of the new capital politicisation of the future project asset classes, like health care, may adequacy rules until 1 July 2022. pipeline represented by Te Waihanga: offer a safer and more profitable Infrastructure Commission is investment opportunity. Government funding important to attract this capital. Labour’s fiscal plan, released during In particular, we expect that equity Other inducements could include: the election campaign, anticipates investors will not readily be prepared borrowing $42b over the next four to accept revenue models based • a revised set of risk allocations years for infrastructure spending. This on demand without significant that make it easier to price, is on top of the $12b New Zealand compensation through cost of capital, transact and trade equity Upgrade Programme, announced on and will instead look for those based participations in New Zealand, and 29 January, which signified a new on availability with stronger protection (pre-COVID) willingness by Finance in the event of Force Majeure. • agreed transaction modes and Minister Grant Robertson to relax his alliance/partnering models to debt reduction target in order to take encourage and support long term advantage of historically low global presence and investment. interest rates.

16 | Chapman Tripp Grants As the asset will generate revenue via the levy, borrowing can be undertaken Most of the $3b assigned to the on the strength of the levy. Infrastructure Reference Group’s “shovel ready” projects, and some of While the IFFA is silent on this the disbursements from the Provincial point, our understanding is that Growth Fund, have been advanced the Government will likely provide as grants which are repayable in a government support package to limited circumstances. facilitate access to the debt capital markets (and to perhaps cover The objective is speed, which was other ‘tail risks’), in line with similar a key driver for the “shovel ready” transactions overseas. projects. Legal documentation is simpler and financial due diligence is Private Public Partnerships (PPPs) more limited, meaning funds can be advanced faster. The Level 4 lockdown created all sorts of problems for the construction sector Loans – not just closing sites but disrupting procurement lines and relationships with In some cases, the Government has sub-contractors. For the Transmission chosen to advance funds by way of Gully PPP, which was already behind debt – often on terms that are more deadline, it just compounded some attractive than bank lending, and already existing issues. sometimes because the banks were unwilling to lend. The review by the Infrastructure Commission should offer some This practice has evolved out of the valuable lessons and a chance Provincial Growth Fund and has very (if needed) to put the project on much been a feature of the COVID to a firmer footing by resetting intervention. Our view is that it will the governance and structuring be replaced by more conventional arrangements and the risk allocation. funding options once some form In addition, Kāinga Ora has borrowed of normalcy returns and the focus $5b to fund the construction of PPPs tend to be high profile because switches to chiselling back the 8,000 public houses over the next of their public sector element, and can COVID-created debt mountain. four to five years, and $48b has been be controversial with those segments of the population who are opposed allocated to the Waka Kotahi NZ Regardless, a lot of the loans that have to any form of privatisation. However, Transport Agency through the GPS on been advanced by departments and they provide a format to attract private land transport 2021. crown entities are on terms of five to capital and commercial disciplines to 10 years and the Government will need A caution – Government funding is public enterprise, and to share risk. to monitor, and potentially restructure cheaper and can be easier to access some of, this lending. than commercial bank lending but A recent evolution of the PPP market in New Zealand is the PPP for the there are reasons why bank lending Infrastructure Funding and Auckland South Corrections Facility, should be encouraged. Banks have a Financing Act (IFFA) number of practices in place which which was developed by an SPV (with put controls around a project in The IFFA is targeted to the local three equity investors) through the order to ensure that it is delivered on government sector, where the construction and operational stages time and on budget, and with a clear ability to borrow is limited by debt under contract to the Department allocation of risk. constraints, and is expected to of Corrections. be taken up by councils in high growth areas. InfraRed sold a 40% equity stake in Direct government the SPV to AMP Capital in January this funding can support an It creates a multi-year levy on the year and John Laing sold a 30% equity beneficiaries of infrastructure assets stake in the SPV to AMP Capital in infrastructure project in which is paid to a Special Purpose the months following – pioneering the full or alongside other Vehicle (SPV) so that the development development of an active secondary costs are appropriately allocated to PPP market in New Zealand. financing mechanisms. the people who will most benefit from the investment. Mark Reese Partner

Infrastructure Trends & Insights | 17 Climate change – the elephant in the room gets bigger

From the perspective of 2030, assuming effective vaccine distribution, COVID-19 will be fading from the collective consciousness, but climate change will be a clearer and ever more present danger.

The physical disruption effects on • the passage of the Zero Carbon • provision in the RMA for infrastructure will be large, with $14b Amendment Act (ZCAA) which greenhouse gas emissions to be in local government assets alone introduces binding long term considered in resource consenting at risk from sea level rise. But there emissions reduction targets and for planning decisions to link will also be opportunities, both in reinforced by “stepping-stone” back to ZCAA policy documents. the development of replacement emissions budgets and ongoing infrastructure and in harnessing new mitigation and adaptation plans Although much of the impact from technologies to improve existing these changes is yet to be felt in the asset resilience. • reforms to the Emissions Trading infrastructure sector, the initial ripples Scheme (ETS) which change how are evident. Climate change is (and New Zealand has significantly emission units are priced and should be) on the board agenda of most strengthened its institutional and supplied and provide a backstop infrastructure owners and operators, structural climate change response in date for the inclusion of agriculture insurers are already building in climate the last 12 months through: in a carbon pricing system, and risk to the price of policies, and emission unit prices have skyrocketed (up 40% on this time last year).

To assist with this task, the 1 2 3 4 following timeline picks 6 6 7 out the key known and 9 9 10 anticipated events over the 11 11 12 Government’s next term: 2021 2022

1 17 Mar 2021 4 30 Jun 2021 Key ETS Events ETS: First NZUs auction Climate Change Commission to advise the Minister on progress Key RMA Events 2 31 May 2021 towards farm level obligations ETS: Final surrender round with Key ZCAA Events $35 fixed price option available 5 31 Dec 2022 Ministerial report due on Other relevant climate change events 3 23 Jun 2021 a system to put a price on First NZU auction - subsequent emissions from agricultural auctions scheduled for June, activities as an alternative to September and December 2021 joining the ETS

18 | Chapman Tripp And that is not the end of it. The • the development of a As this river of reform flows Government’s climate change reform National Direction under the into existing large work streams agenda will continue throughout this RMA that enables regional to implement 2019/20 climate term, including: and district plans to more change reforms, the challenge proactively and directly manage for the infrastructure sector will • a major focus on achieving near emission-intensive activities be identifying: term emission reductions through the setting of emissions budgets • anticipated legislation enabling • where the real risks/opportunities supported by a national emissions the forced retreat of buildings lie, and reduction plan (Minister Shaw told and assets from climate change • how engagement and watching a conference last week that he is affected areas (i.e. affected by brief efforts can be targeted “absolutely committed to following anticipated sea level rise and to achieve business drivers the advice of the Commission” flooding and fire risk), with the within COVID-19 balance and that he expects the country’s potential for compensation. sheet restrictions. first carbon budgets will be “pretty This has been recommended as shocking to a lot of people”) part of the overhaul of the RMA, The timeline below traces key events although it is likely to be a longer for the next three years (to the end • mandatory climate-related term prospect given the inherent of 2023). financial disclosures for all NZX- complexities and competing listed companies and most large values, and fund managers and financial and Alana Lampitt insurance entities • the impending regulation of Senior Associate embodied emissions in building • direct government intervention materials – the initial Ministry through infrastructure investments of Business, Innovation and to speed the transition to a Employment (MBIE) consultation low carbon economy – e.g., paper relates only to new buildings Auckland Light Rail, hydrogen fuel but there are obvious parallels for infrastructure, and (depending infrastructure projects. on the business case analysis) the Lake Onslow pumped hydro project

5

8

12 13

2023 2024

6 Early - mid 2021 9 February - 14 March 2021 11 Early - mid 2021 Proposed RMA National Direction • Climate Change Commission’s Consultation expected on draft on greenhouse gas (GHG) emissions first package of advice to legislation on climate-related anticipated to be consulted on the Government open for financial disclosures for listed *Opportunity to engage consultation. Will cover: and financial entities • emission budgets 2022 - 2035 7 31 Dec 2021 12 FY 2022/2023 Earliest date that GHG emissions • emission reduction plans the Obligations on climate-related become relevant to RMA planning agricultural emissions target financial disclosures expected and consenting decisions • NZ’s Paris Agreement target to commence.

8 30 Nov 2022 10 31 Dec 2021 13 By end of 2023 Latest date that GHG emissions Goverment must have an First Paris Agreement global will be relevant considerations emission reduction plan and stocktake in RMA planning and emissions budgets for 2022 - consenting decisions 2035 in place Infrastructure Trends & Insights | 19 Infrastructure co-leads

Paula Brosnahan Partner Auckland

T: +64 9 357 9253 M: +64 27 216 3952 E: [email protected]

Mark Reese Partner Wellington

T: +64 4 498 4933 M: +64 27 231 1925 E: [email protected]

20 | Chapman Tripp Infrastructure team

Hamish Bolland Matthew Carroll Partner Partner Auckland Auckland

T: +64 9 357 9055 M: +64 27 225 2246 T: +64 9 357 9054 M: +64 27 473 2244 E: [email protected] E: [email protected]

Luke Hinchey Leigh Kissick Partner Partner Auckland Wellington

T: +64 9 357 2709 M: +64 27 599 5830 T: +64 4 498 6358 M: +64 21 415 638 E: [email protected] E: [email protected]

Ross Pennington Ben Williams Partner Partner Auckland Christchurch

T: +64 9 357 9030 M: +64 27 442 2161 T: +64 3 353 0343 M: +64 27 469 7132 E: [email protected] E: [email protected]

Greg Wise Matthew Yarnell Partner Partner Wellington Wellington

T: +64 4 498 2404 M: +64 27 285 1943 T: +64 4 498 6325 M: +64 27 441 6365 E: [email protected] E: [email protected]

Infrastructure Trends & Insights | 21 Chapman Tripp is a dynamic and innovative commercial law firm at the Every effort has been made to ensure accuracy in this publication. leading edge of legal practice. With offices in Auckland, Wellington However, the items are necessarily generalised and readers are urged to and Christchurch, the firm supports clients to succeed across seek specific advice on particular matters and not rely solely on this text. industry, commerce and government. Chapman Tripp is known as © 2020 Chapman Tripp the ‘go to’ for complex, business-critical strategic mandates across the full spectrum of corporate and commercial law. Chapman Tripp’s expertise covers mergers and acquisitions, capital markets, banking and finance, restructuring and insolvency, Māori business, litigation and dispute resolution, employment, health and safety, government and public law, privacy and data protection, intellectual property, media and telecommunications, real estate and construction, energy, environmental and natural resources, and tax.

AUCKLAND WELLINGTON CHRISTCHURCH Level 34, PwC Tower Level 17 Level 5 15 Customs Street West 10 Customhouse Quay 60 Cashel Street PO Box 2206, Auckland 1140 PO Box 993, Wellington 6140 PO Box 2510, Christchurch 8140 New Zealand New Zealand New Zealand

T: +64 9 357 9000 T: +64 4 499 5999 T: +64 3 353 4130 chapmantripp.com