Back in March when the government cancelled the Regional Fuel Tax that was going to pay for Auckland’s rail electrification, Steven Joyce affirmed the government’s commitment to paying for electrification in other ways. Initially it seemed like the whole country was going to pick up the bill via a 6c a litre tax, although subsequently we’ve realised that this tax will be going to Steven Joyce’s pet roads of National significance, rather than being spent on rail. This left a big question as to how electrification would be funded.
In May, half of this question was answered, with $663 million set aside in the budget for “the renewal, upgrade and electrification of the Auckland metropolitan rail network”, to be spent between 2009 and 2013. So this covered the “below-track” works that were previously to be funded by the government’s share of the Regional Fuel Tax.
However, that still left in question how the trains themselves were to be funded. Under the Regional Fuel Tax scheme, the ARC was to borrow around $500 million to purchase the electric trains – and would repay that debt over the course of about 30 years through their half-share of the Regional Fuel Tax. With the tax scrapped, and the ARC certainly not having $500 million up their sleeve, the government announced that they would pay for the trains, while at the same time taking on responsibility for the rail network, which at the moment is shared between them and the regional council.
Just before the budget, Steven Joyce went on a trip to Sydney to look at possible ways of funding the electric trains, and started talking about private-public-partnerships (PPPs) as one way the government could still acquire the trains, but avoid lumping another $500 million onto their books. On May 27th, he stated that PPPs were a “possibility”. He also said the following:
“I have asked Ministry of Transport officials to look into how this might work in the New Zealand context and expect their initial report in a few weeks.
“I do not want this investigation to delay the electrification project.
Mr Joyce says, after double tracking, electrification is the important next stage in the development of Auckland’s rail network.
“There are a number of options for funding the purchase of electric trains, including:
- The Crown increases investment in KiwiRail, enabling it to purchase the trains.
- KiwiRail borrows the money and the Crown provides an additional direct passenger subsidy until patronage increases.
- Some form of PPP, most likely on an ‘availability’ basis.
“The government is committed to electrification. We must ensure it goes ahead in a way that both meets the needs of Aucklanders and ensures the most efficient use of government funds.
That was the end of May, it is now August and we still haven’t heard any further news on this matter. I’m not a fan of the PPP option, because it seems to have repeatedly failed overseas and ended up costing the tax-payer a crap load of money, but at the moment I just want to hear something. I can’t see how this delay can’t affect the electrification project.
So Steven Joyce, where is the funding for our electric trains?
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They are looking for any way they don’t have to pay for them out of a government grant or re-introduce the regional fuel tax and admit they lied about an increase to the national fuel tax being for anything other than new SH’s…
Maybe you can write an e-mail to him?
I think Joyce is trying to find a way to justify it being a PPP so that he doesn’t have to go to Bill English and ask for $500 million. The problem with PPPs, as I outlined above, is that in the longer term they generally cost a LOT more than simply building and operating the thing yourself.
Well you’re taking a system and adding a profit for a private company, presumably the productivity and efficiency gains more than make up for that margin but it’s not really applicable for rail here because the new trains (after track upgrades and electrfication) should be running well…
PPPs have generally been spectacular failures when applied to rail projects overseas. Metronet in London ended up costing the Greater London Council billions of pounds when it went under.
Why doesn’t the train operator borrow the money (or raise it via issuing shares), then pay it back out of the ticket price?
Dmp, the problem is that no transport system (except for in Japan and Hong Kong) is fully self-funded. Having an effective rail system has masses of wider benefits which makes it worth it.
Its funny, we don’t have any PPP roads in NZ that I know of. They always seem to find the money from things like the Land Transport Fund for things like Waterview. Wonder where the $3 bill for the Puhoi-Welsford SH1 duplication will come from? Not from a PPP I bet.
The trouble with Joyce’s announcement that the Ministry of Transport would be looking at PPP for the acquisition of Auckland’s electric trains is that it’s highly unlikely that the ministry, let alone the Treasury, has officials who are familiar with the myriad intricacies of PPP. So they’re going to have to recruit outside consultants and, given that there’s no real experience of the process in New Zealand, they’re going to have to come from overseas as well (ie costs will be huge). But overseas consultancies thrive on these sort of ‘challenges’ (ie profit-making opportunities) and I need only mention the humungous profits Rothschilds made when they ‘advised’ the British government on the formation of the, thankfully, now defunct Railtrack. I suspect what’s going to happen is we’ll end up leasing them from Macquarie, paying over the odds for the privilege and not being able to specify what we really need.
Excellent points Christopher. Generally the PPP agreements are horribly complex documents and when things go wrong the only winners end up being the lawyers. And the big losers end up being the tax payers.
jarbury: the problem is that no transport system (except for in Japan and Hong Kong) is fully self-funded
The argument that “everyone else does it” usually isn’t a good reason to do something. What you’re advocating inevitably means that some poor people will be subsidising some rich people. Think a factory worker in South Auckland who walks or cycles to work subsidising a lawyer commuting in to the CBD, or a person heading in to town on a Friday night to go drinking with their friends. I really don’t see the social benefits of doing this, and subsidisation of poor people’s transport by the rich can be better addressed by the benefit and taxation systems.
I’d be interested to hear what the “wider benefits” of electrification are. Improvements to reliability or availability of the rail system are accrued by people traveling on it, and they should be happy to pay for those benefits. There will be a reduction of diesel fumes in Auckland, but that is balanced by an increase in the need for thermal power generation elsewhere in the country. It doesn’t seem fair that people living in the Waikato should have their air quality decreased because of Auckland commuters AND that they should pay to subsidise those commuters. Or, if you don’t end up running thermal power stations more to generate the required electricity, you’d need to build windmills to generate the power which again benefits Aucklanders but disadvantages people somewhere else in the country.
dmp you’re only looking a few aspects of it:
There are 1.4 million people in a waiting in say hevean, you have no idea what family or abilities they’ll have in life, design a transport system…
There is absolutlety no reason NZ shouldn’t have 100% renewable power right now (expect from peak winter usage) blame the politicans of the last 20 – 25 years for their mismanagement when considering air quality decrease in the Waikato not Auckland commuters…
The wider benefits are lower emissions, lower maintainance costs, lower running costs, easier to build tracks, faster and more reliable services, some pressure of roads, employment in building the substations and hanging the wires and then more drivers afterwards the list really goes on and on…
Your last post seems to advocate the elimination of PT and subsidies for the reward of a tax break and/or higher weekly benefit which is rather silly IMO…
Jezza: There is absolutlety no reason NZ shouldn’t have 100% renewable power right now
And yet the Labour Government unmothballed a dirty old thermal power plant in New Plymouth last year. With workers wearing masks so that they wouldn’t inhale asbestos. But regardless, is it fair to build windmills all over wilderness and rural areas so that Auckland can have electric trains? Why shouldn’t Aucklanders meet the external costs of their transport choices?
As for your wider benefits… Lower maintenance and running costs should result in a lower subsidy and ticket prices, rather than requiring a higher subsidy. If the business case looks good on a lowering cost basis, then the rail operator won’t have any problem borrowing the capital. As for employment… low quality spending to create employment will just lead to debt and resulting reduced employment in the long term. It just isn’t sustainable.
My last post advocated benefit increases for poor people who required access to public transport, rather than subsidy of all public transport users regardless of income. That is just sensible economics and public policy. Nothing silly about it, unless you think a reverse Robin Hood-style tax-the-poor to subsidise-the-rich situation is a good thing.
dmp, the problem with requiring the operator to purchase the trains is what you do if none are willing to stump up the funds. Should you shut the rail system down? New trains are going to be required in any case, and over the lifespan of the trains it is much cheaper to get new electric trains than new diesel trains.
So, in a way the choice is between either shutting the rail network down, and electrifying it. And if you shut the network down you’d need to spend billions of dollars widening motorways or building bus lanes to take up the slack.
Hence, the need to electrify. Furthermore, if you’re worrying about subsidies, what about the 50% of local roads that are paid for by rates? How is that not a huge subsidy of the roading system? And why aren’t you moaning about that?
dmp, I think we’d both agree the Labour party did a few poor things especially over their last 3 years…
We’ve had public transport in Auckland since 1922, seems pretty sustainable to me…
Well that would require a seperate system of prices for people based on income or a slightly larger benefit packet with X amount for PT which would never actually get used for that purpose, both ideas are silly IMHO…
Good heavens, Krusty the Clown, aka Steven Joyce is simply finding it hard to find mates to shovel the profits from a PPP to. His mates would get rich, he holidays at their expense and we pick up the tab. There’s really no other reason for why he is delaying funding for electrification.
MONEY RULES OUR WORLD. JOYCE WANTS MORE FOR HIM VIA HIS MATES. HE DOESN’T CARE ABOUT ANYONE ELSE. Easy.
dmp; I don’t agree with your suggestion around about poorer Auckland areas subsidising weathly Auckland’s transport options. A better network in Auckland is likely to benefit everybody touched by the network. For example, the rail line from Manukau City into Britomart is an example of affording transport options to less wealthy areas of Auckland. Sure not everybody will use it, but I doubt those seats will be empty. Probably what is more unfair for poorer residents of Auckland is that their ability to participate in the current private-car centric infrastructure is predicated on a low-income family’s ability to purchase and operate a fleet of private vehicles.
Aren’t the poor generally more likely to catch public transport than the rich anyway? And rail services the south and west of the city – generally not the richest parts of Auckland either…
Rail in Auckland will attract mostly people who work in the CBD. They’ll tend to have incomes that are higher than people who work in light industry or retail in the suburbs. If you’re an 18 year old working in fast food in Takapuna or Mt Albert, then you’re not going to use the train much at all. And almost certainly not to get to work on a regular basis. But you’ll still subsidise accountants, lawyers, and IT people taking the train in to their high paying CBD jobs.
Compare with the UK. Stockbrokers get subsidised train travel to commute from their Essex homes in to the City, while students tend to get around the country on the cheap-but-unsubsidised coaches and crofters in the Scottish Highlands pay exorbitant petrol taxes to drive their cars 30km to the nearest town.
I think that is wrong.
None of the reasons given here to justify subsidisation are even slightly convincing. You’re saying that electrification is a no brainer that will reduce costs and improve patronage because of increased efficiency. If so, there isn’t any reason for the people who benefit not to pay for it through their tickets.
Looks like the librarians are invading your blog Jarbury…
dmp, I want you to answer one question. Very important. Why should everyone subsidise the roading network – even if they are paying to use PT. If you want to sustain your argument you would need to advocate the tolling of all roads into and out of the city centers, congestion charges etc. Or is it somehow alright for one but not the other?
And for some reason you have to assume everyone entering the CBD are working in highly paid jobs? How does that work, did you realise there are 2 universities in the CBD with students living off their 150 dollar a week loan (Which they have to pay back at some stage), and who works at the till in the supermarkets and the warehouse, on minimum wage jobs? I’m sorry but it’s your arguement that is unconvincing.
dmp just seems like a less well informed version of Libertyscott. At least Libertyscott talks about eliminating all the subsidies to roads as well as rail.
I certainly don’t have a problem with roads and rail being subsidised to some extent. It is certainly worthwhile avoiding situations where transport costs are so expensive people are very unwilling to travel. There’s a value in making it affordable to travel, as people can get to work and get around the city. The point I generally make is that we should even up the playing field between private and public transport.
You also forgot parking Joshua… I think it would an interesting exercise to figure out the amount of parking available, both public (on roads) and private (in apartment buildings and parking garages) and work out the acreage and value… Also the lost of prodcutive income, i.e. if a property developer had maximum parking requirements rather than minimum, a) the cost would be lower to buy and b) they could then use the money saved for further developments increasing supply…
If you conversatively guess there are 1,000,000 cars in Auckland using parking at any one time at $30,000 a pop thats $30 billion worth of capital invested in subsidising car travel… 60% of council budgets every year are spent of roads or road related activities… But oh no, 50% of your ARC rates going to PT is the REAL subsidy…