It was heartening to open up the newspaper this morning in Wellington and read this opinion piece on the poor economics of the “Roads of National Significance” (RoNS), prepared by Dr Michael Pickford, the former chief economist at the Commerce Commission and now an independent economic researcher.

Transport Minister Steven Joyce announced the Roads of National Significance programme in March 2009, before knowing what the return on the proposed investment might be.

Nine months later, a final report from consultant SAHA International raised serious doubts about the programme.

The Government never published the report, and later sent it back for reworking. However, a copy of the original was obtained by an expressway action group on the Kapiti Coast.

And then that Kapiti group kindly sent me a copy of the report, which can be read here.

Though the programme as a whole could have a positive return, above-average returns on some projects can mask negative returns on others. Projects with negative returns should not be built.

The SAHA Report shows that three of the expressways had negative returns when assessed conventionally – the value of the benefits generated, in terms of travel time, fuel savings and reduced accident costs, is less than the sum of the costs to build and maintain them.

Among these is the Wellington to Levin expressway. It has a benefit-cost ratio, or BCR, of only 0.6, meaning that the project would generate benefits amounting to only 60 per cent of the costs.

The table below shows the results of SAHA’s economic analysis of the various RoNS. You can see why the government has tried to do everything it can to bury this report – given that some of the projects have absolutely pathetic cost-benefit ratios:

I’m not quite sure of the exact reasons SAHA’s assessments differ from NZTA’s assessments – and it would be interesting to find out a bit more information on that fact. But anyway, the article continues:

Mr Joyce has repeatedly claimed that building the roads would promote economic growth. This was tested in the SAHA Report, which attempted to incorporate the indirect or growth benefits of the roads.

These were measured in two ways, one being as “wider economic benefits”, or WEBs. When the “low” estimate for the WEBs was added, the BCR of the Wellington-Levin project remained below one, but it rose above one using the “high” figure.

The WEBs concept is relatively new internationally. The SAHA Report urged caution. It made repeated caveats about the poor quality of the data and the uncertain accuracy of the estimates. It cited the British Government’s Eddington Report, which found that “agglomeration benefits” of the type included in the “low” estimate could be up to 30 per cent of the conventional benefits in highly congested urban areas in London.

Yet the estimate for even the “low” WEB figure is much higher than 30 per cent. The Kapiti Coast is hardly a centre for economic growth in the country. The largest employer is thought to be either the local district council or the Pak’n Save supermarket.

The contentiousness of evaluating “wider economic benefits” is something that really needs to be resolved in my opinion. There are some projects that it would appear obvious will result in wider economic benefits – such as the Auckland CBD Rail Link – as it will encourage the concentration of economic activity in the CBD and therefore generate agglomeration benefits. For other projects, with the Puhoi-Wellsford road and the Wellington Northern Corridor Road, the veracity of these WEBs seems highly questionable. I’m yet to see how Puhoi-Wellsford does anything other than undermine agglomeration by encouraging the dispersal of economic activity.

The article sums up:

IN SHORT, the addition of so-called growth benefits fails to tip the scales in favour of building this road. The SAHA Report concluded that “accelerating the Roads of National Significance . . . may not be the optimal investment and funding outcome when considered in its broadest context against other roading projects and/or other government portfolio areas”.

After the unhappy experience with the Muldoon-Birch “Think Big” energy projects of the 1980s, New Zealand could be burdened with massive new debt to fund the Key-Joyce “Think Big” roading projects of equally dubious merit.

That’s a pretty damning assessment all round.

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  1. Some of the reasons for changes in the BCR’s can be seen in the adjustments column, the main reason for most of them is a change to how long the benefits are counted for. In the case of P2W you can see that the business case was done until 2059 (50 years) but the VPT was only calculated to 2036 (27 years although was probably 30 when it was originally done). What that shows is that for P2W the NZTA did the assessment for much longer than normal which of course will give more benefits, it would be interesting to see what the CBDRL would come out with if it was extended to that length (it was done till 2041).

  2. “The Kapiti Coast is hardly a centre for economic growth in the country. The largest employer is thought to be either the local district council or the Pak’n Save supermarket.”

    It is however an area of population growth. The trouble with the area is the demographics, which tend towards the elderly although that is gradually changing. Even though the rail service runs out to the coast, it is a little too far for most people to commute and it can be difficult getting from one end of Kapiti to the other along a congested SH1. Otaki is a well known congestion black spot where traffic can queue an hour at busy times at the roundabout north of town. The various town centers suffer from having a large amount of traffic passing through them… Think of the impact on Auckland’s CBD if all the motorway traffic didn’t bypass the CBD but instead headed down Queen St and out along Fanshawe St.

    If these problems can be solved then Kapiti becomes a desirable place for people to live. In an urban environment built on a basis of a railway system then people live near railway stations, but NZers generally like living near beaches and Kapiti has plenty of these. Figure a modest growth of 20,000 new homes and you’ve generated $8bn worth of real estate. In that case a billion bucks worth of expressway looks a bargain.

  3. Wow, some of these projects are even more of a waste of money than I’d thought. I can’t believe the National government could be going around making cuts and talking about saving money in these “austere times” while at the same time backing these uneconomic motorway projects.

    Wouldn’t it be great if they looked at the economics, the falling traffic volumes and booming public transport and adjusted the new Government Policy Statement to match. Not sure how likely that is though, with the outdated dinosaurs running the government, Ministry of Transport and NZTA.

    It seems like the only hope — and it is a long shot — is a change in government.

  4. See that English’s ‘nice to have’ speech is as fraudulent as it is fatuous: they’re just building shit they want. Stupid, willful, irresponsible, and damn near criminal.

  5. The same set of crooked NZTA pencil sharpeners are currently devising ways to lower the BCR on the CBDRL… you can be sure that they won’t be extending the time frame for benefits or taking more recent passenger numbers into account. It is clear that the current analysis is almost certainly an underestimation of demand, but NZTA highway corp. will find some way to see that upside down.

  6. Whilst it’s true the Kapiti Coast isn’t a major center of economic growth, it’s a fast growing area. The purpose of the expressway project is more to by-pass the two major town-centers in the Kapiti Coast area (Waikanae and Paraparaumu), as well as the major bottleneck at Otaki. If you check a terrain data map, you’ll notice that there’s very little space to by-pass Waikanae or Paraparaumu, which is why the expressway project effectively runs through the middle – on a corridor that’s been designated for that purpose for many years. Without the expressway, all traffic running through Kapiti HAS to intersect local traffic, or commuter traffic at grade. It’s a nightmare.

  7. so you were in Wellington yesterday and read that article too? Weird coincidence bc I was in Wellington TOO and I ALSO read that article and was heartened by it….I was planning to send you a copy actually since I figured you might have missed it, being that you’re an Aucklander and all.

  8. “I’m not quite sure of the exact reasons SAHA’s assessments differ from NZTA’s assessments”

    Joyce announced the RONS before the economic analysis was done. The SAHA analysis did not support the decision to go ahead with the RONS so a more compliant body (NZTA) was instructed to provide results that did support the decision. I am convinced that NZTA just follows Joyce’s instructions.

  9. This is one thing that has always bothered me, Mr Joyce quite rightly asks to see for some evidence of the growth and development benefits suggested for the CBD as a result of the rail tunnel, but has he asked the same for his RoNS?
    Or do motorways actually create economic output themselves? Surely they just facilitate it.

    So where is the Wellsford industrial expansion strategy? Where are the population growth projections for Whangarei? Is there some great deficit of transport for the logging industry that they have products piling up in store yards waiting for the road space to shift them? It seem the PuFord plan is lets build this road and it will all magically appear.

  10. “The RoNS projects deliver much more than faster, safer, lower cost freight links. Perhaps to an even greater degree these roading improvements will deliver agglomeration benefits to businesses. Agglomeration refers to the benefits businesses gain when they are located near each other or when the costs of interaction between them is reduced resulting in increased productivity. For example, through improved transport links businesses will gain access to a wider talent pool, specialist suppliers, knowledge and skills.”


  11. Yet agglomeration benefits claimed under the CBDRL were described by the Honorable Minister as “WEBs on steroids”….

  12. Stupid question from this side of the ditch…Why aren’t all new roads proposed to be tolled?

    BCR becomes less of an issue if costs are being captured by the toll and the benefit expressed by those paying for it.

    It is becoming quite normal now in AUstralia for new roads to be tolled.

  13. If you wanted to save money, surely the biggest bureaucratic backroom waste of space would have to be NZTA. Surely a voice recorded message or a trained parrot could utter Joyce’s lines for a much cheaper price.

  14. problem with these roads is that they offer little benefit for the huge sums of money put up.
    Ie if you put a $5 dollar on the holiday highway many people would not pay, so maybe only 10,000 cars max would use it. It would only raise $18 million per year, but due to the low number of cars using it, the BCR would also be slashed.
    With a Toll most people bound for Warkworth would not use the new road as it offers little time benefit. It is not like the Orewa bypass where the new road is noticeably less distance than the old. 7.5km versus 13km and still 1/3 of people use the old road.

    1. They ain’t saying because then it would throw their shonky BCR out further… As i understand it there’s no mention of a toll in the BCR doc. as a tolled road attracts even less traffic.

    2. Oh yes they are saying. It will be $5.00 from the existing toll gate at Grand Drive to Warkworth and $ 9.00 for HGVs, so you are right that many car drivers won’t use it. I guess it would make sense for trucks to use it due to better grades etc. which would save fuel.

      To add to Luke’s point. NZTA are claiming a journey time saving on the whole route Puhoi to Wellsford of 15 mins. The present journey according to the AA is 35kms and takes 31 mins at an average of 67kms/hr. If you save 15 mins, that means the journey will take 16 mins for a 38km stretch of motorway at an average of 142kms/hr. Not only illegal but hardly conducive to road safety.

      1. “that means the journey will take 16 mins for a 38km stretch of motorway at an average of 142kms/hr”

        Well played, sir!

  15. The Kapiti NIMBYs should be careful for what they wish for, the bad part of the Wellington Northern Corridor BCR wise is Transmission Gully. The Paraparaumu-Waikanae bypass by contrast is one of the best projects in the region because the congestion and severance factors of the status quo are enormous.

    By the way there are a lot of defamatory comments regarding the NZTA in this thread. Given NZTA was set up by the Labour government, and removed the funder-provider split between transport funding and state highway management (and I didn’t notice much of a pip from anyone on that side of the spectrum, as the Greens supported it), you might want to think more carefully about that.

    The old Transfund was scrupulously independent and rigorous about BCR assessment as it has no vested interest in what (then) Transit or local authorities were pushing – which of course didn’t suit governments that wanted projects (of any mode) built regardless.

    There needs to be a return to an independent funding body, and state highway management separated into a new Highways agency.

    1. “There needs to be a return to an independent funding body, and state highway management separated into a new Highways agency.”
      I think we all agree on that.

  16. the old NZTA were also scrupulously independent, that is until the Joyce started interfering. Surely you wouldn’t be so naive as to think that if Transfund still existed the RONS wouldn’t be happening? If a govt really wants to do something it will do it, no matte what bodies exist.

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