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IPW: infrastructure pricing in New Zealand, and new World Bank insight

31 May 2024

In this Infrastructure Policy Watch, New Zealand examines infrastructure funding, and a look at private infrastructure investment in lower-income countries.

IPW: infrastructure pricing in New Zealand, and new World Bank insight
The New Zealand government is looking into how to price and fund infrastructure networks. Image credit: Shutterstock

New Zealand explores different ways to fund network infrastructure services

Changing how New Zealand charges for infrastructure could mean better use and investment, new research by the country’s infrastructure commission (Te Waihanga) has found.

The research looks into how well pricing methods work across the four main network infrastructure sectors: land transport, water, telecommunications, and energy.

The aim is to help promote efficient and sustainable infrastructure investment.

Key findings

The study outlines three best practice goals on how these networks should be priced:

  1. Pricing should guide investment to ensure that governments can provide and maintain the infrastructure they need.
  2. Pricing should send signals to users about when, where, and how they should use infrastructure networks to make the most of their overall benefits.
  3. Pricing should be used to share benefits of providing networks widely through society. This should be addressed through adjustments to pricing once the first two goals are achieved.

The key finding of this assessment is that infrastructure pricing is better aligned with best practice goals in electricity and telecommunications, and less so in land transport and water.

The means electricity and telecommunications operators find it easier to raise the money needed to maintain and improve assets and identify the highest-value areas for investment. Those networks also tend to operate more efficiently.

The research identifies opportunities to improve pricing performance in all sectors:

  • Electricity: incentivising energy efficiency and decarbonisation
  • Telecommunications: managing technology change
  • Land transport: charging to reduce urban road congestion
  • Water: implementing water metering to support conservation and leak detection

The research also considers the equity implications of changes to infrastructure prices, such as the distribution of costs between high-income and low-income households.

The ICE’s view:

The latest research is part of a wider programme by the New Zealand Infrastructure Commission looking at how the country’s infrastructure is funded and priced.

It raises difficult questions that face all governments around the world of who pays for infrastructure and what trade-offs people are prepared to accept.

Governments are increasingly concerned about ensuring the cost of using infrastructure is fair.

This is especially true as governments seek to make progress towards net zero – which depends on public support and engagement.

The ICE and All-Party Parliamentary Group on Infrastructure looked into this issue earlier this year.

This work concluded that the public needs an infrastructure system that will empower them to make the right choices.

The Enabling Better Infrastructure (EBI) programme also sets out guidelines for policymakers to consider the short- and long-term affordability of infrastructure, including taxation and user charges.

Private sector invests billions into infrastructure in low-to-middle-income nations

New World Bank data has found that private infrastructure investment in low- and middle-income countries totalled $86 billion in 2023.

Investments fell 5% compared with 2022 but were on par with the previous five-year average.

In 2023, more countries received private investments in infrastructure across a range of projects. This is known as private participation in infrastructure (PPI).

Countries such as Guinea Bissau, Libya, Papua New Guinea, São Tomé and Príncipe, and Suriname achieved their first PPI deals in more than a decade.

Private infrastructure investments increased in the Middle East and North Africa (MENA) and East Asia and Pacific (EAP) in 2023.

Mena PPI investment levels doubled, and the EAP region returned to pre-pandemic levels of investment after a three-year lag as the region recovered from the effects of COVID-19.

Sector trends

In 2023, the energy sector made up almost three-quarters of the total global PPI investments.

Most energy projects were focused on electricity – 97% of electricity generation projects were renewable in 2023, compared to 93% in the previous five-year period.

PPI investments in the transport sector reached their lowest level in the last two decades. The sharp drop is mainly driven by a slowdown in road investments in China and India.

Investment commitments in the water supply and sanitation sector decreased to 19 projects in eight countries, falling to a third of the investment levels seen in 2022.

The ICE’s view:

Private infrastructure investment is essential to support development in low-to-middle income countries.

Long-term strategic planning is key for governments to attract this investment and use it effectively.

The EBI programme sets out eight guiding principles for governments to boost purpose, certainty, and pace in strategic infrastructure.

For example, principle 7 discusses the importance of establishing relationships for long-term change.

It has a series of case studies demonstrating how the principles work in practice – including increasing private sector involvement in infrastructure development.

For example, Tunisia’s enabling environment for collaboration between public and private sectors helped improve the country’s long-term infrastructure delivery.

The private sector has boosted the Cambodian government’s financial capacity to plan the infrastructure they need to deliver on their long-term vision.

Peru has also experienced success building long-term relationships with private infrastructure partnerships.

In case you missed it

  • Aleiya Cummins, EBI programme executive at the ICE