Strategic Direction

This section describes:

• the Government’s infrastructure investment and regulatory priorities, and key strategic issues on the horizon, and
• the principles that will guide the Government’s future infrastructure actions and investment.

Priorities

As well as pursuing a clear and comprehensive government-wide approach to infrastructure investment and asset management, the Government has a number of immediate infrastructure investment and regulatory priorities. In addition, it has identified a number of strategic issues on the horizon.

Immediate investment and regulatory priorities

The Government has identified its five immediate infrastructure priorities as: broadband, electricity transmission, regulatory reform, roads of national significance, and the Rugby World Cup 2011.

Broadband

Modern economies are characterised by high degrees of connectivity. The ability to rapidly transfer large amounts of information enables a host of business and leisure activities. On-line purchase of music, movies, television, travel, financial services, groceries, and a huge range of other goods and services, is now common-place. ‘Smart-phones' are gaining an increasing share of the mobile phone market, meaning people have access to the internet wherever they are. New business models have emerged rapidly as internet access has become widely available. However, access is not yet ubiquitous and speeds in many areas are still very modest. As access speeds and connections increase, we expect the use of this medium for business purposes to also increase.

Recognising the future potential of broadband as a general-purpose technology, the Government has decided to invest in this infrastructure. It is committing up to $1.5 billion to provide ultra-fast broadband, accessible to 75% of New Zealanders, in the next 10 years. The focus for the initial six years will be on priority users - businesses, schools and health services plus ‘greenfield' developments. Government will co-invest with private sector partners in one (national) or more (regional) Local Fibre Companies. Private sector investment is expected to at least match Government contributions. A dedicated Crown owned company Crown Fibre Holdings Limited has been set up to evaluate proposals for potential private sector partners, and manage investments to achieve the overriding 75% coverage goal. The investment will provide open access to a passive ‘dark’ fibre-optic network. This infrastructure may then be used by commercial providers to supply high-speed network services.

Government is also investing in rural broadband. The Government has recently completed a consultation process on a proposal that would see $300 million of grants made available for upgrading rural broadband infrastructure such that:

• 93% of rural schools will be connected to fibre, enabling speeds of at least 100Mbps, with the remaining 7% to achieve speeds of at least 10Mbps, and
• over 80% of rural households will have access to broadband with speeds of at least 5Mbps, with the remainder to achieve speeds of at least 1Mbps.

These objectives are to be achieved over 10 years focussing in the first six years on upgrading rural ‘backhaul' and connecting rural schools to fibre. The Government expects to announce its final policies on rural broadband in early 2010.

Electricity transmission

Transpower, a state-owned enterprise, owns and manages the national electricity transmission system, the ‘national grid'. This enables the transmission of electricity from the site of generation to the local distribution networks, where retail companies then provide power to their customers.

The transmission system is crucial to the efficient functioning of New Zealand's electricity market. Current capacity constraints limit the efficient operation of the market and reduce resilience to accidents and equipment failure.

Since 2005, Transpower has obtained approvals for around $2.7 billion of investment. A further $2.3 billion of upgrades are planned. Major investments include:

• the North Island Grid Upgrade Project ($818 million)
• the HVDC Grid Backbone Projects ($672 million)
• the North Auckland and Northland Grid Upgrade ($420 million), and
• the South Island Grid Upgrade Project ($82 million).

Before the establishment of the Electricity Commission in 2004, Transpower did not have revenue certainty for new investment projects, and new transmission investment could only proceed on a contractual basis. Due to the multi-layer nature of the required agreements and associated free-rider issues, there was little investment in the transmission grid during this period, especially the main interconnected grid. With the establishment of the Electricity Commission and the associated regulatory regime governing the approval of transmission upgrades, a significant investment programme was able to be started.

The Government conducted a review of the electricity sector in 2009. As a result of this review, transmission investment approval will pass to the Commerce Commission with the passage of the Electricity Industry Bill in 2010. The changes in the Bill will provide for an integrated assessment of all Transpower costs (including maintenance, refurbishment and replacements) and revenues. It will also free up the newly established Electricity Authority to focus on the critical rule making role.