Questions are raised about the PGF and its promise of provincial rejuvenation

Regional  Economic  Development  Minister  Shane  Jones has  one of  the  great  jobs  in  modern  NZ   politics.   He’s  in   charge  of  spending the  $3bn  Provincial  Growth  Fund,  which  NZ  First  extracted from Labour  as   part of  its  coalition  negotiation.

Already  $2bn   has  been  committed,  and  the fund  is expected to allocate  the  remaining  $1bn  before  next  year’s general  election.

Job  done.

And  the  provinces, the theory goes,  will be  so grateful   they  will ensure   NZ  First  gets  back  to Parliament to  deliver a  repeat dose  post- 2020

Or will  they?

Shane Jones has  certainly  generated a  constant  flow of  headlines,  but  will the benefits to the provinces  yield  sustained  economic development,   and  produce a  renaissance  in the  provincial  cities?  Will  the   economic  benefits  be  solid  enough to  filter down to  the  average  resident  in the  supposedly  deprived  regions?

Investment  guru  Brian  Gaynor    reckons   it is  doubtful Jones  and  his  public  servants  have sufficient  time  and  expertise  to  assidously  evaluate, manage and monitor  the huge  number of  PGF  projects.

 Point  of   Order  is  not   familiar  with the team  Jones has  gathered   round  him, but a  cursory  glance  at    some of the projects  which have been given  grants   suggests  there is  not  a great  deal of  economic  analysis    undertaken   before they are  ticked  off.

As  Gaynor  points  out  in  his  NZ  Herald   column,  the  Auditor-general,  John  Ryan, has  noted  the  PGF  needs  careful  scrutiny  because

“ … the speed  with which the fund was established and continues to be  developed, the nature  of many of the funding  proposals  and the high  level of public interest, have  meant that the processes and types of  funding provided  might be different  from   traditional public sector  arrangements”.

Ryan  indicated  he  will  carry  out

“ … additional work on the accounting treatment for the various  contracts”  and  “ will also review the systems and controls in place to evaluate applications, disperse  funds, manage contracts and monitor  the  outcomes achieved”.

 Gaynor    argues   this is a  welcome announcement because  the  $3bn  expenditure  must be  assessed  in terms of  its effectiveness at delivering  regional  development   goals.

As  Point of  Order  sees  it,  there   does   not  seem  to  be  the rigorous   economic  analysis applied to  PGF  projects  as  to  other  government  projects.

Are any  Treasury   reports  sought  on  them?   And what   is  the  role  of   MBIE?

Senior officials  are  able to  sign  off  on commitments of  up  to  $1m   while  four  government  ministers   are  required to  sign off applications between  $1m  and  $10m.

Then  there are  sector investments,  which  are  “high value economic opportunities  with a greater  commercial component”.   These are projects   greater than $10m  and  require  full Cabinet approval.

A  third  category embraces infrastructure projects “enabling regions  to be  well-connected with other  regions and within regions”.

 Gaynor   contends  the  fund  continues  to make  commitments  at  breakneck  speed  but hasn’t  met the objective   of

“ …  proactively  releasing information about the PGF, and funding decisions”  and “ as  careful stewards  of public money, we recognise the importance  of  keeping you informed  and engaged  about the work we do”. 

He  says   it is extremely difficult to  assess the  larger projects, never  mind the   180  projects  allocated  $1m or less.

“How does the fund monitor the  $56m allocated  to these  180 projects?

Does it  or some  other government  agency have the capability to ensure  this money isn’t  squandered or spent on unproductive projects?

Gaynor   questions  the  $15m  allocated  to  Geo40 to build  a silica  extraction plant   near Taupo.  He  asks   how many of the PGF’s commitments   are in the form of loans and  equity investments and why is it providing  pre-listing funding  to a company that plans to list on the  ASX,  when the private sector normally provides this  facility?

Three of  Geo40”s directors  live in Australia.

The fund   has  also  revealed  Eco Gas Ltd Partnership  will receive a  $7m loan  from the fund to build a demonstration  biogas plant  near Reporoa.

In  an earlier  era,  the  economics  of  biogas  were  investigated   and found to  be  so  uncompetitive  that no  project was   ever  advanced.

So,  as Point of  Order  sees  it,  the  Audit  Office   should be  on the  job   smartly,   perhaps even assigning  a  special  team  of  auditors   to it.