Attachment 1: Summaries of Consultant Reports
Audit: Assessment of the Quality of Current and Future Infrastructure (PricewaterhouseCoopers)
1. Broadly, New Zealand's infrastructure is in reasonable shape. No new issues have been identified that might pose a serious barrier to growth and sustainable development objectives.
2. However, some significant local and sector-specific issues have been identified:
Energy
- Investment required in electricity generation and transmission
- Risk management and demand management under-developed
- Uncertainty over generation fuels - is gas exploration sufficient? Is coal likely to be viable? Will Aqua proceed?
Transport
- Condition of roads generally good, but there are exceptions - major congestion in Auckland (governance issues are a concern), less significant congestion elsewhere
- Road charging structure provides few price signals, and environmental externalities not priced
- Need for improved integration of integrated planning and transport management in some areas
- Under-investment in rail - deferred maintenance, tunnel sizes etc.
- Some concerns regarding transport links around ports and airports.
Water
- Quality of drinking water generally satisfactory (a few exceptions)
- Significant issues around the handling of competing demands
- Few price signals
- Concerns regarding wastewater in some tourism areas.
Telecommunications
- Technological advances reduce constraints and promotes competition
- New Zealand has avoided the excesses of recent overseas booms
- Some availability and quality issues in rural areas
- Household uptake of broadband is low.
3. PwC also mention some over-riding themes
- Regulatory uncertainty (e.g. electricity, telecommunications) and planning difficulties (RMA) as an impediment to investment
- Insufficient development of pricing mechanisms impedes demand management (e.g. roads and water / sewage)
- Continued investment likely to be required in all sectors.
Sustainability: Determining the Nature of the Links between Infrastructure and Sustainable Development (Maarama Consulting)
4. The four sustainable development dimensions are equally important. Thus infrastructure policy development should be looking for win-wins, advising Government on trade-offs, and attempting to decouple infrastructure provision from economic growth.
5. Infrastructure policy should also ensure that externalities are taken into account in decisions on:
- Consumption - to ensure that demand management reaches full potential
- Investment - to ensure that supply options are adopted only where needed
- This requires a combination of pricing solutions and attitudinal change (including information provision and quadruple bottom line (QBL) reporting)
6. Key issues are:
- Energy - decarbonisation and decentralisation (including increased use of renewables and distributed generation), demand management
- Transport - congestion, especially in Auckland (including increased use of "active modes" and demand management)
- Water - allocation issues, decentralisation and demand management
- Telecommunications - capturing economic and social benefits, risks around the digital divide.
7. Infrastructure priorities for action are: Auckland transport, electricity decarbonisation and integrated water solutions.
Policy: Development of Best Practice Policy Framework Taking into Account Sustainability Objectives (NZIER)
8. Characteristics of infrastructure
- high fixed costs and low marginal costs
- high sunk costs and risk of stranding
- diverse users
- long investment lead times.
9. Sustainable development objectives as policy goals: maximising GDP subject to "supplementary checks" on environmental, social and cultural outcomes.
10. Potential market failures include:
- market dominance
- public and merit goods
- information and co-ordination failures
- externalities.
11. Risks associated with the costs of regulation, e.g. unintended consequences and administration and compliance costs, also need careful attention.
12. Solutions may include:
- market creation (including defining property rights, ensuring information provision and other steps to promote competition)
- market adjustment (including price adjustment, standard setting and structural interventions)
- public provision and joint ventures.
13. Identification of policy issues, including trend analysis, defining opportunities and threats, instrument selection and determining the agency best placed to achieve change.
Growth: Review of the Literature on the Relationships between Infrastructure and Growth (Pinnacle Research)
14. Infrastructure contributes to economic growth by raising the productivity of other factors of production through:
- reducing costs of production, thereby raising profitability, production, income and employment
- increasing the attraction of a locality for new investment
- promoting efficient allocation of resources through easier access for labour and materials to particular localities, and allowing alternative activities, employment opportunities and investment to emerge
- providing the necessary economies for urban agglomeration and unleashing the productive capacity of labour and capital endowments.
15. Conditions likely to maximise the contribution of infrastructure to economic growth are:
- a macro-economic climate conducive to efficient resource allocation, avoiding inflationary funding arrangements and "crowding-out" of other more efficient investment
- application of user charges that reflect supply and demand conditions and externalities
- emphasis on use of non-infrastructure solutions such as demand management
- the capability of other input factors (such as labour) to raise factor productivity - infrastructure cannot create economic potential, only develop it where appropriate conditions exist.
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