The new Framework is intended as a key tool to support management of the Crown’s balance sheet and sets out the intention of the Government to focus on exploring ways to fund projects through private capital and user and beneficiary pays funding models rather than defaulting to the use of grants. In circumstances where it has been necessary for Crown funding to be deployed, there needs to be active management of opportunities to partner with the private sector on existing public assets in order to recycle Crown investment back into the system and make it available for new projects.
We welcome the clarity provided by the Framework in this fast-changing landscape, and support this and the other recent initiatives to help shape the future of New Zealand’s infrastructure, including the establishment this week of the new National Infrastructure Funding and Financing agency and new guidelines for market-led proposals also released on Monday.
The key objectives of the Framework are:
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- To broaden the funding base for investments and utilise private capital efficiently.
- To apply commercial disciplines to the Crown’s approach to public capital provision.
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In order to implement these objectives, the following principles must be applied: |
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Crown funding and financing should only be sought when all other reasonable alternatives have been exhausted. This will require investigation of private sector investment and market testing as to the availability of external financing on “efficient” terms, which will be assessed on the basis of an analysis between the pricing and terms offered and the risks transferred. |
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Where required, Crown capital should be deployed in an “optimal form”. To the extent that Crown funding or financing is required, the amount provided should be the minimum required to fill the relevant gap and the form that support is provided by should be determined by reference to the economic and risks profile of the relevant project. This can include charging capital costs for the provision of the Crown support. The expectation is that any financing support provided would match the underlying project’s proposed funding structure. |
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Crown capital should be recycled as soon as practical. In assessing where to deploy Crown support, priority will be given to projects where there is an opportunity for market refinance allowing for the Crown capital to be redeployed into new projects. Grant funding would be reserved for those projects where there is no alternative funding solutions and no revenue streams achievable in the short or long term. |
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Active management of Crown investments is required. To allow for active risk management of the Crown’s funding and financing, the objective will be to keep the instruments through which such funding and financing is provided as simple as possible and avoid more complex or bespoke financing arrangements than the project requires. |
Exhaustion of other sources
Optimal Deployment
Asset recycling
Active risk managementDecision process:
The Framework sets out a three-stage decision process that will apply in considering any Crown investment in a project which is underpinned by the principles outlined above:
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- Stage 1: Determine the project’s standalone funding and financing potential.
- Stage 2: Develop the optimal solution to resolve the funding and/or financing gap.
- Stage 3: Consider the long-term implications and manage financial risks throughout the investment lifecycle.
The Framework sets out the clear intention of the Government to consider private sector partnerships and is likely to be welcomed by participants considering investment into the New Zealand market.
For more information about the Framework or if you would like to discuss further any points mentioned in this article, please get in touch with one of our expert contacts listed.
The Government’s official press release can be found here - New Funding and Financing Framework released | Beehive.govt.nz.
A link to the Funding and Financing Framework can be found here - Funding and financing framework - November 2024
A link to the Guidelines for market-led proposals can be found here - Guidelines for market-led proposals vF.pdf
A link to the new National Infrastructure Funding and Financing agency can be found here: National Infrastructure Funding and Financing | New Zealand