Printed from https://fyi.org.nz/request/30386-request-for-information-on-private-equity-contributions-in-transport-projects-and-value-for-money-considerations on March 13, 2025 04:48

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Request for Information on Private Equity Contributions in Transport Projects and Value for Money Considerations

Adam Irish made this Official Information request to Simeon Brown

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From: Adam Irish

Dear Simeon Brown,

Under the Official Information Act, I request information on the repayment expectations for private equity contributions in transport 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 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 appears counterintuitive when the government could initially fund these projects through debt, thereby owning the asset at the end of the period. The cost of maintaining a fully owned asset is typically much lower than the lease costs private investors require to generate a return on their capital. Furthermore, leasing means the Crown foregoes any potential capital appreciation, which is then factored into the market return that the private equity holder requires. How is this approach consistent with achieving value for money?

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

Kind regards,

Adam

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From: Simeon Brown (MIN)
Simeon Brown

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