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BUDGET 2014: Time for greater PPP investment in education sector

The government should take heed of the successful opening of the first schools built under a public private partnership (PPP) model (PPP) when considering this year’s budget.

The Ministry of Education will shortly be seeking expressions of interest for the design, construction, financing, and maintenance of Aranui Community School and Rolleston Secondary School in greater Christchurch, Wakatipu Secondary School’s new site in Queenstown and a new but unconfirmed school in Auckland.

But there is still scope for the government to be much more active on this front. New Zealand faces an educational challenge as the system is coming up short for one out of five school-aged children. 

Good hardware supports the effective operating of good software. So if the software in education is its leadership and quality of the teaching, and the hardware is its physical infrastructure, then what type of hardware would best support the software?

Recently announced initiatives have focused on the software – leadership and the quality of teaching – to address the identified learning gaps.

What could further support this would be to have the issues associated with property ownership managed by the private sector under PPP models. Why should the best leaders and teachers have to deal with property issues?

In a PPP arrangement, a private partner is responsible for designing, building, financing and maintaining the school property for the term of the contract (usually 25 years from the opening of the school).

The private partner works with the ministry and the establishment Board of Trustees to ensure the education vision for the school is captured in the design of the building.

The ministry pays the private partner quarterly and this is reduced if the school facilities do not meet the standards specified in the contract. This effectively provides a 25-year guarantee on the buildings, unlike schools procured under traditional procurement models. 

The government retains ownership of the land and buildings throughout the life of the contract.

Labour maintains PPPs will end up costing taxpayers more. National, in response, will say the idea behind PPPs is to bring innovation and this is likely to reduce the total cost of ownership.

Education Minister Hekia Parata, has advised the use of PPPs for the recently announced four schools could deliver savings of 2-8% over traditional procurement. She has also said the use of PPPs for new school projects is a key part of the government’s plan to achieve high-quality infrastructure to get the best learning outcomes.

These trials are welcome arrangements. However, the government must ensure, through measures taken in the budget, these arrangements can be managed and ensure the promised savings are realised. There also needs to be sufficient transparency regarding the results.

The initial stages of the first two PPP schools at Hobsonville were delivered on time and a high quality modern learning environment was created. Let’s feed on this initial success and let results rather than politics dictate the approach to acquiring educational hardware.

Alastair Boult is national director, government advisory at Grant Thornton New Zealand

Comments and questions

There is no such thing as a free lunch:

Some PPPs generate sufficient revenue to pay for themselves
through user fees, while others require subsidies. This distinction is
important because it shapes the extent to which the government
can rely on market competition in lieu of its own cost-benefit
analysis, and it influences the type of bidding process that
the government may wish to adopt. Chile’s initial highway
PPPs generated sufficient revenue through toll fees to pay for
themselves – demand was high as Chile was growing rapidly.
However, a number Chilean PPPs have required subsidies
(see annex).

Even in the case of a PPP that is able to generate revenue through
user fees to pay for itself, the government could have taken out
a loan, contracted private companies to provide construction,
operations and maintenance services, and collected user fees to
repay the loan. Thus, no new resources are generated by the PPP.
A PPP that requires periodic government payments is no different
financially from the government raising a loan to build, operate
and maintain the project.

One exception is where the involvement of a multilateral
development bank reduces the risk of default, and unlocks
commercial lending that otherwise would not be available. .