One of the things I have being trying to find out recently is more details about the financing arrangements for our new electric trains. We already knew that the government had decided that they would fund them by loaning the money to Auckland Council but we didn’t know much else about it. Thanks to the results of an official information act (OIA) request to the NZTA we can now shed some more light on how the trains and the depot are being paid for (this is my own OIA request and not one passed on by anyone else). The OIA request provided three board papers on the topic, from June (854 KB), August (1.6 MB) and November (116 KB).
The financing arrangement has quite a few parties involved so I will try to explain it as best I can. First up there are actually a few different things that are being brought, we are getting 57 brand new electric trains (EMUs) and a brand new depot to maintain them. For the trains there will also be a maintenance contract in place to keep them looked after for the first 12 years of service. This table breaks down the costs although the maintenance is not included as presumably that was agreed to after the paper this came from (June) was presented to the NZTA board.
All up the papers indicate that the total costs of the project will be about $630 million. This would make the maintenance costs about $4 million per year which seems pretty good as by comparison our current clapped out fleet of trains cost about $15 million per year to maintain.
So how is this all being paid for, well that’s where things get quite interesting. The government is providing a loan of $500m towards the project that Auckland would have to pay back. It also announced that it would give a direct grant of $90m towards the project and that any costs above that amount ($40m) would have to come from Auckland somehow. Of course the devil as they say, is in the details and there are quite a few of those.
The $500 loan levied from Treasuries Debt Management Office (DMO) to the Auckland council. It will actually comprise of two loans, one for the EMUs of $400m at a term of 35 years and the other one for the depot of $100m at a term 50 years. That part does make sense, 35 years is probably about the lifespan of the trains while the depot is something that will likely last a lot longer. The interesting part comes in the form of what the council is being charged. The DMO will charge the council at the government bond rate, which the amount the government can get the money for, plus 1.25% (more on this shortly).
The council will then pass this loan along with the additional $40m required on to Auckland Transport who will pay the loan off. That loan will be paid off through a mixture of funding from the council, funding from the NZTA and fares from passengers. The funding from the NZTA for rail has historically been set at 60% however over the next decade this will reduce to 50% dropping by 1% per year. This diagram hopefully helps to explain some the setup.
Now as mentioned previously the DMO is charging the loan out at the government bond rate plus 1.25%. That might not sound like much but over the life of these loans it will end up being a considerable chunk of money, in fact some quick calculations show that over the life of these two loans we will be paying about $130 million in interest over and above what money costs the government. Of that $130m about half of it will be coming directly from rate payers with the other half coming from the NZTA. I can understand that there may be some extra costs involved in arranging things but should the government really be trying act in what is more like a commercial manner by collecting a margin on the loan? As the title of the post indicates, it sounds like they are clipping the ticket.
Another interesting thing that these papers reveal is in regards to the $90 million contribution that the government said it was giving to Auckland. The table below may have parts blacked out but it indicates that a large portion of the $90m is actually coming from existing and expected under spends in both the DART and Electrification projects. This is important for two reasons, the first is that it is money that was actually already planned to have been spent on rail in Auckland but the second and perhaps most important part is that both of those two projects appear to have come in significantly under budget. Coming in under budget for large roading projects has been a common occurrence in recent years so seeing it also happen with rail projects is positive. This is also important as another, even larger rail project is currently being talked about in the form of the CRL and even coming in 5% under budget could shave $100m or more off the total cost.
There are lots of other interesting bits revealed in these papers. One of the best outcomes from the tender is the fact that we are now getting 57 EMUs, we were initially only going to get 38 of them and then around 13 electric locomotives to pull the existing SA carriages around. The reason that plan was eventually dropped was that when the whole of life costs were considered it was clear that the cheaper option was to get the new trains and the papers indicate that it was cheaper by about $46 million.
Another aspect touched on in the papers is the total costs that will be associated with running the system including which as far as I’m aware includes everything from the track access charges to running services as well as the loan payments. A number of different options were modelled as the image below shows. The paper indicates that at the time it was written the amount of money coming from the National Land Transport Fund was $39m, this is significant as while there is expected to be a funding buldge in the coming years, in a decades time the expected level of funding will come back and only be $42m while over the same period the amount of money collected from fares will increase from $28m to $55m
Overall there is quite a bit of detail in these papers but it would be really good to have an explanation as to why Auckland rate payers will be paying millions and millions of dollars in extra interest to the government.