The $45 billion Accident Compensation Corporation (ACC) fund has tipped into a novel special purpose investment vehicle backing a Wellington City Council sewerage improvement scheme.
Under the private-public-partnership agreement established last week, a group of four banks, Crown Infrastructure Partners (CIP) and the ACC will contribute a collective $400 million to the ‘Sludge Finance’ fund in return for a share of up to almost $1.3 billion of income levied on Wellington ratepayers over a 33-year span.
Sludge Finance, a wholly owned CIP subsidiary, will fund up to $400 million of the Wellington City Council sewerage infrastructure upgrade centred on a new treatment facility at the notorious Moa Point plant.
In return, the Council will impose a special weighted levy on all ratepayers, rising from a planned total haul of $7.8 million in the inaugural 2024/25 financial year to more than $64.5 million in the final 2055 period – although the levy period officially concludes on June 30, 2057.
According to the legal order establishing the special purpose vehicle under the 2020 Infrastructure Funding and Financing Act, the total sludge lifetime levy amount is capped at about $1.27 billion.
“Sewage sludge is a natural and unavoidable by-product of the wastewater treatment process. Wellington’s new sludge minimisation facility is intended to reduce the volume of solid waste sludge going into the Southern Landfill and help Wellington City Council achieve its waste minimisation and emissions reduction goals,” a Ministry of Housing and Urban Development (HUD) release says.
“This is the second time the model enabled by the Infrastructure Funding and Financing Act 2020 has been used. The first was by Tauranga City Council for it’s [sic] Western Bay of Plenty Transport Systems Plan.”
HUD administers the legislation.
The Wellington Council levy will vary according to whether properties directly benefit from the new treatment plant. For example, in the 2027/28 period commercial properties connected to the sludge facility will face an annual levy of $483 per million of valuation compared to $126 per for unconnected owners; residential property owners, meanwhile, will pay a respective $326 and $85 per million of house valuation in the same year.
The off balance-sheet arrangement will allow the Wellington Council to “retain debt headroom for other projects without the need to increase rates and/or reduce capital expenditure”, the HUD release says.
Aside from the ACC and CIP, Sludge Finance investors include ANZ, Commonwealth Bank of Australia, Industrial and Commercial Bank of China Limited and China Construction Bank Corporation.
The Wellington sewerage infrastructure deal comes in the same week as the NZ government announced a planned BlackRock-led attempt to raise $2 billion from investors to fund green energy projects.
However, details of the mooted BlackRock climate infrastructure fund remain scarce with neither the ACC nor the NZ Superannuation Fund confirmed as investors.