Draft National Infrastructure Plan

4.4. Provide cost-effective coordination tools | He whakarato i ngā utauta ruruku utu whaitake

4.4.1. Context

Many interdependencies and interactions exist within infrastructure networks. These can occur between different types of infrastructure and between infrastructure and other land uses. For example, managing a national electricity grid means balancing how much electricity generation is entering the grid and how much electricity is being used on a continual basis. Similarly, decisions on the location of hospitals and schools can affect how a transport network functions.

Infrastructure providers often need to act independently. For example, electricity generation is separated from electricity transmission grid operation because benefits can be gained from having multiple electricity generators competing to supply electricity to consumers at the lowest price. Similarly, although schools and hospitals can benefit from coordination with land transport, they are planned and managed by different organisations because they have different demands and user needs that need to be addressed separately.

Coordination mechanisms are needed for infrastructure to work effectively. Coordination within sectors can set and enforce standards, rules and regulations that maximise the benefits of infrastructure and reduce the cost to provide it. Coordination between sectors can ensure services are built and operated in a cost-effective way. For example, road corridors often carry water, energy and telecommunications networks, so road controlling authorities are required to coordinate work on these assets.^[57] And coordination between infrastructure provision and land-use planning is important for ensuring that infrastructure can be used by as many people as possible.

Coordination mechanisms should be cost effective. Sharing information and working together can impose costs on infrastructure providers. Stronger forms of coordination, like requirements to reach agreement before investing, can slow down investment by limiting infrastructure providers’ autonomy to invest. Processes should be designed to balance the opportunities and costs of coordination. Change is needed to give infrastructure providers the right tools to coordinate with each other and other land uses to achieve good outcomes from investing in and operating infrastructure.

4.4.2. Strategic directions

Institutional design is carefully considered

When reviewing the structure of infrastructure sectors, government should consider options for blending central standard-setting and local provision. Consolidation of infrastructure providers into larger entities is sometimes pursued to ensure consistent standards and minimise spatial inequalities, or to achieve economies of scale for important functions. However, this is only one of the structure options available to provide these benefits. Another common approach is to centralise decisions about technical or service quality standards and allocation of funding to achieve these standards, while delegating decisions about infrastructure provision and service delivery to a lower level. This can provide for greater local responsiveness and innovation.

Different institutional arrangements in different sectors and countries can provide lessons. For example, when we compare New Zealand to other OECD countries, with similar population profiles and a similar commitment to universal public health care, we find varying approaches to service design and delivery. Australia, Denmark and Norway provide services through a delegated delivery model. This means they set service standards and allocate funding centrally, but delegate service delivery and infrastructure management to subnational governments or regional health authorities. While other factors affect hospital performance, such as hospital staffing and primary and preventative health, the Nordic countries appear to extract more performance out of their hospital infrastructure in terms of measures like the number of in-patient discharges relative to the size of the hospital population coverage.

Outcomes from institutional design choices should be monitored. This includes impacts on the efficiency of infrastructure services and the degree to which services are provided in an equitable and timely way. Establishing good benefits realisation review frameworks is especially important when implementing large institutional changes.

Good network pricing coordinates investment and optimises asset use

Pricing and funding settings can be an effective coordination mechanism. This is because they create financial incentives for different organisations to coordinate.

Best practices for network infrastructure pricing support coordination. Network pricing should signal where it is cheaper or costlier to build additional network capacity and when demand exists for more investment. The electricity sector uses this approach to coordinate investment decisions between electricity transmission (supplied by Transpower), electricity distribution (supplied by 29 electricity distribution businesses), electricity generation (supplied by various major and minor companies), and electricity users (for instance, large industrial users and new household users).

Well-functioning pricing helps to optimise the use of existing and new assets. For example, the electricity sector’s approach includes use of long-distance electricity pricing to signal where low-cost opportunities exist to connect new generation or consumption to the grid, and a wholesale electricity market that signals when demand is strong for new generation investment. Over time, this ensures that electricity assets are well used, without excessive amounts of underused capacity.

Spatial planning coordinates land-use planning and infrastructure investment

Spatial planning helps to coordinate infrastructure development between sectors and with other land uses. Integrated land use and infrastructure planning can help ensure that new and existing infrastructure is well used and its negative effects are managed. Spatial planning involves local and central government, the private sector, and mana whenua sharing information about expected future needs and undertaking joint long-term scenario planning for the future location of land use and infrastructure, accounting for environmental constraints, hazard risks, and other competing priorities.

Spatial planning should not be a ‘command and control’ exercise. It is best used as a strategic planning approach to coordinate decisions in the face of a range of uncertainties about the future. It is necessarily high level and unlikely to include all infrastructure (for example, ‘out of cycle’ projects, infrastructure subject to commercial confidentiality, such as energy generation, smaller infrastructure and upgrades). It won’t always be specific about the exact geographical location of new infrastructure. It cannot ‘predict and provide’ a certain future and should guide, rather than direct individual infrastructure investment and development decisions that will be made autonomously.

Spatial planning should be based on good information provided and agreed between its participants. This includes good information on current land uses and environmental constraints, and robust scenarios of future demand for housing, business land and infrastructure. It also includes reliable information about infrastructure project planning, including awareness of risks around costs and deliverability of projects, and expected funding constraints. Effective spatial planning is enabled by other good disciplines such as good asset management and the application of best practice decision-making principles for new capital decisions.

Spatial planning should be given more weight in resource management and infrastructure investment. Various local authorities have invested in spatial planning processes in recent years in New Zealand, with input and support from central government. However, the rigour of these processes and their outputs varies, and they currently have little weight in the resource management system or public funding decisions. For spatial planning to be effective, relevant statutes, institutions, goals, incentives, funding and delivery capability need to be aligned. Central government is currently considering proposals to strengthen spatial planning by giving it legal weight in regulatory decisions (including streamlining designations), and requiring it to inform and be informed by the Government Policy Statement on land transport, regional land transport plans and local authority long-term plans. This is an opportunity to improve regulatory planning and better coordinate central and local government infrastructure planning, including providing strategic direction to other approaches to support regional development.  

The National Infrastructure Plan should inform and be informed by spatial planning. The National Infrastructure Plan provides national cross-sectoral information that can contribute to a consistent and rigorous spatial planning evidence base and help align central and local decision-makers. For example, our forward guidance on future infrastructure investment demand (Section 3) may be relevant for assessing what is likely to be fundable in the future. Project information from the National Infrastructure Pipeline (Section 6) and information from long-term asset management and investment plans (Section 5) is also likely to be relevant. In turn, spatial planning in the new resource management system should also provide new information about regional and local demands for infrastructure for future versions of the National Infrastructure Plan.

Land-use regulations maximise the benefits from new and existing infrastructure

Land-use regulations should maximise benefits from new and existing infrastructure. Zoning and other regulations are important because they help to determine how many homes and businesses can be built and operated near infrastructure, which in turn affects how well infrastructure is used. They can also affect how infrastructure assets are operated, for instance, by limiting hours of operation for airports or how many concerts can be held at a stadium.

When we build new infrastructure, we need to get the surrounding environment right for development. An example is ‘upzoning’ areas around new public transport infrastructure to allow more housing and commercial development that will then increase use of the infrastructure. However, uncoordinated private plan changes away from new infrastructure can dilute this effect.

Existing land-use regulations sometimes limit the value of new infrastructure. This can be an issue even for our largest investments, such as the City Rail Link. Land values near Auckland rail stations rose significantly after the announcement of the City Rail Link, reflecting the value of improved transport access, but zoning is too restrictive to enable many new homes to be built near inner-suburban stations like Kingsland and Mount Eden (Figure 25). This has limited the development response that will in turn limit asset use.

New transport infrastructure makes places more accessible, but zoning can limit development

4.4.3 Findings and recommendations

Infrastructure providers must be able to coordinate to deliver and operate infrastructure cost effectively. We make two recommendations to address this. The first recommends improvements to spatial planning practices, while the second speaks to the need for land-use regulations that enable use of infrastructure to be maximised.

These recommendations are important for ensuring that new and existing infrastructure is integrated with land uses, maximising the broader benefits of investment.