Dear New Zealand Infrastructure Commission/Te Waihanga,

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?

Yours faithfully,

Adam Irish