Background
Infrastructure Stocktake Establishment and Work Programme
17. In February 2003, Cabinet agreed to establish a group of Ministers to consider and develop the Government's policy and response in relation to infrastructure issues [CAB Min (03) 5/14]. A progress report was presented to the Cabinet Business Committee in July 2003. Infrastructure Ministers agreed to a definition of economic infrastructure that includes energy, transport, water and telecommunications [CBC Min (03) 6/1].
18. The Minister for Economic Development announced the Infrastructure Stocktake work programme on 8 July 2003.
19. The Infrastructure Stocktake has been progressed by the Interdepartmental Working Group on Infrastructure (IWG). The IWG consists of officials from the Ministry of Economic Development, Department of Internal Affairs, The Treasury, Ministry of Transport, Ministry for the Environment, Department of the Prime Minister and Cabinet, Ministry of Agriculture and Forestry, Ministry of Tourism and Local Government New Zealand.
20. The Stocktake work programme included five work streams:
- Infrastructure audit to assess the quality of current and future infrastructure and identify possible pressure points (PricewaterhouseCoopers);
- Clarifying the relationships between infrastructure and sustainable development (Maarama Consulting);
- Clarifying the linkages between infrastructure and economic growth (Pinnacle Research);
- Developing a "best practice" infrastructure policy framework against which existing policy settings can be assessed (NZIER); and
- Identifying current policy settings for infrastructure (IWG).
21. Summaries of the first four work stream reports are provided in Attachment 1.
22. Infrastructure was identified as a significant business concern at the Growth and Innovation Advisory Board's1 (GIAB's) Business-Government Leaders Forum in October 2002. The Board then commissioned a report (Infometrics, 2003) to assess how business growth was being affected by infrastructure. Given the nature of the issues highlighted, and officials' work programmes, GIAB turned its focus to future preparedness, and hosted an Infrastructure Future Insight Forum in November 2003. The results of this work have been taken into account in preparing this paper.
Assets Included in the Infrastructure Stocktake
23. Infrastructure has the following characteristics:
- Capacity can only be adjusted in large, "lumpy" increments;
- High initial fixed costs and low marginal costs of supply;
- High sunk costs and risk of asset stranding as conditions (such as tastes and technology) change;
- Multiple users of the services, spanning production and final consumption;
- Externalities not reflected in service charges (and which may have attracted regulation);
- Scale and regulatory hurdles create long lead times for installing new capacity.
24. These characteristics clarified what assets to include in the Stocktake, namely:
- In energy, all categories of gas assets, and all categories for electricity except retailing. Oil distribution assets are excluded;
- In transport, airport runways and terminals, dock facilities, roads, rail tracks and inter-modal interchange facilities. Excludes vehicle and vessel fleets;
- All categories of assets for reticulated water supply and wastewater treatment: water capture, treatment (including wastewater treatment), bulk distribution, local reticulation and irrigation;
- In telecommunications, wireless and cellular transmission towers, transmission lines, local loops and international connections.
25. A substantial amount of capital is invested in infrastructure in New Zealand. As at June 2003, the Crown owned:2
- Transpower's electricity transmission network, valued at $2,178 million;
- Electricity generating state-owned enterprises with assets of $6,738 million;3 and
- The state highway network, valued at $12,556 million.
26. Drinking water and sewerage assets owned by local government were valued at $3,000 million plus.
27. There are also substantial assets held by the private sector - Telecom is New Zealand's largest firm with an asset base of around $7,800 million.
28. The magnitude of capital invested in infrastructure sectors places great importance on the efficient and effective management of these assets, including re-investment and maintenance practices.
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