Further analysis of RoNS & holiday highway

The Roads of National Significance (RoNS) have somehow managed to force their way into being the forefront of transport investment in New Zealand over the next decade, with a huge amount of the $10.7 billion anticipated to be spent on state highways over that period going into these seven roads. It’s a pretty incredible concentration of transport spending, so you would hope that the economic justification for concentrating the spend would be pretty sound. As I have explained in the past, for at least one of these roads (the Puhoi-Wellsford holiday highway) the justification is decidedly dodgy.

To put the economic justification of the roads of national significance to some level of “test”, NZTA have commissioned some further research into looking at the projects as a whole, and seeing whether it makes sense to be spending such a huge amount of money on them. The result is this study by Australian company SAHA. The entire study is a pretty hefty 166 pages long, but there is some useful information in there if you have a good dig. Here’s what it sets out to do: It’s useful to note that the report doesn’t actually reassess the cost-benefit analyses undertaken by NZTA for the various RoNS, but just packages them all together to see whether the concept, as a whole, makes economic sense. This means that all the problems with the business case for the holiday highway that I have highlighted previously are carried through into this study – but I’ll get back to that point later.

One matter that I’m quite curious about is the issue of “wider economic benefits”, which I think could be a significant justification for transport projects if they’re measured accurately, but around which there seems to be quite a bit of debate at the moment. The study doesn’t exactly settle that debate either in terms of what it says about the “WEBs”. In my opinion it’s certainly useful to consider the wider economic benefits of projects, but I’ll actually take the results with a grain of salt for now, as for example with the Puhoi-Wellsford road – SKM in a 2008 report were saying that the wider benefits would be pretty insignificant, but by 2009 they were saying that the wider benefits of the road were huge. Until we actually get some consistency it would seem as though WEBs may just be a tool to get around a business case that doesn’t quite stack up the way one would hope it did.

Overall the SAHA report states that the RoNS project – in its entirety – represents an investment that will generate around $1.80 in returns for every dollars spent, so therefore could be justified (at least to the extent that it won’t lose money). Here are the conclusions: Now before road-fans start jumping around saying “aha, I told you the RoNS were worth doing!” There are two matters that need to be considered. The first is the question of whether all the cost-benefit analyses for the RoNS are as dodgy as the Puhoi-Wellsford one, which honestly I don’t know the answer to because I haven’t gone through them with a fine tooth comb. The second issue is the question of whether under-performing parts of the “RoNS project” are having their lack of cost-effectiveness hidden by other projects that do perform particularly well. Or in other words, is the poor cost-effectiveness of projects such as the holiday highway and transmission gully being hidden by the good cost-effectiveness of projects like the Victoria Park Tunnel and the Christchurch motorways.

It is on this second issue where the SAHA report provides some useful answers, in the form of a series of graphs that have been terribly reproduced in the report (deliberate?), but can still be vaguely read and understood.In the graph above (it’s a particular pity that the dollar figures on the left hand side were chopped off in the final version of the report) green shows the conventional transport benefits, blue shows the wider economic benefits that include employment benefits and purple shows the wider economic benefits excluding employment benefits. Perhaps the most interesting thing though is the comparison of the different projects with each other – and the particular lack of benefit that the Puhoi-Wellsford road has compared to the others.

This clear low level of benefit is quite surprising when you consider that the cost of the Puhoi-Wellsford project (around $1.6 billion) is four times the amount of the Victoria Park tunnel, but its amount of transport benefit appears to be around a quarter of the VPT’s. I may not be an economist, but that seems to show that the Vic Park Tunnel is around 16 times more cost-effective than the holiday highway. In fact, no other road of national significance has benefits as minuscule as the Puhoi-Wellsford road.

In fact, even in the super-ultra optimistic analysis of all the projects’ wider economic benefits, the holiday highway still shows up as the clear loser from all the different projects in terms of its sheer lack of benefits: What this clearly shows is that some of the RoNS have significant traditional benefits, particularly the Western Ring Route and the Victoria Park Tunnel. The amount of wider economic benefits for each project appears highly variable, depending upon the model used to formulate them, and therefore should be taken with a significantly large grain of salt – but that probably these two projects make economic sense (whether or not the State Highway 16 part of the Western Ring Route project’s cost-benefit analysis makes economic sense is a completely different story though). Other projects may well also make sense, but honestly I don’t know enough about them to say that either way.

But perhaps the clearest thing that the report tells us is that the Puhoi-Wellsford road will not bring significant benefits – either in terms of traditional transport benefits or in terms of wider economic benefits (even if we take the super optimistic estimate of its wider economic benefits). In fact, its total amount of benefit appears pretty tiny, even against the Victoria Park Tunnel project: which is around one quarter of the holiday’s highway’s price tag. There’s just absolutely no possible way that the holiday highway makes good economic sense – even a report that supports the RoNS as a whole seems to agree on this matter!

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