A couple of days ago I received a bunch of documents from an OIA request to the NZTA on the $212 million in regional road spending announced recently. I haven’t been able to look at them yet seeing as I’m away however it looks like I’m not going to have to go through them immediately as Rob Salmond is already on the case following a similar (but not exactly the same) request to the Ministers office.

Salmond devotes a bit too much time to partisan point-scoring, as he’s an advisor to the Labour Party, but his analysis unearths some worrying facts about the economic analysis of the projects. His analysis is definitely worth reading.

As a reminder, the majority of the $212 million in new road spending was to come from the Future Investment Fund – i.e. the proceeds from recent asset sales. According to the press release, five of the fourteen “critically important regional projects” are going to be progressed immediately at a cost of $80m, they are:

  • Kawarau Falls Bridge, in Otago
  • Mingha Bluff to Rough Creek realignment, in Canterbury
  • Akerama Curves Realignment and Passing Lane, in Northland
  • State Highway 35 Slow Vehicle Bays, in Gisborne
  • Normanby Overbridge Realignment, in Taranaki.

In spite of their critical importance, Salmond finds that the projects almost all performed badly on NZTA’s cost-benefit analysis:

Five of the roading projects receive the worst kind of assessment from the officials at NZTA, an estimated benefit cost ratio of “0 to 2.” (see page 32) This means the officials cannot discount the possibility of these roads having no benefits at all, despite costing the taxpayer millions. More on this later. All the projects have a benefit cost ratio quoted as a range, partly to fudge against the public knowing the exact numbers.

Why would they want to do that? More on that later, too.

Officials estimate that up to $130 million of the highways money mooted in these projects and investigations would be wasted on roads with likely no net benefit. If some of those roads are not ultimately funded, that will represent less money wasted on roads, but more money wasted on unnecessary investigations to tell us what we already know – these projects are dogs.

NZTA considers a benefit cost ratio of 1 as an absolute minimum, as anything below that involves the country actually losing money by doing the project. Usually, of course, benefit cost ratios have to be much higher than that to attract funding, because there are so many possible good things a government can do with its limited money.

Salmond goes on to take a closer look at the analysis of one particular project, the widening of the Kawerau Falls bridge:

…the official cost / benefit ratio for the Kawerau Falls bridge was 1.1 (page 10). Officials said they have tried to recalculate this a number of times, and always come out around 1.1. So what range of benefit cost ratio appearedin the final package for Ministers to consider and promote. It looks like an obvious candidate for a “0 to 2” classification, right? 1.1 is pretty much rightin the middle of that range, yes?

No, no. Officials have instead been pressured into calling this a “1 to 3” benefit project in the summary documents (page 32). That is risible.

If a robust 1.1 becomes “1 to 3” in the sales pitch document, just imagine how dreadful the benefit cost ratios on the “0 to 2” projects really are.

There’s much more in the OIA documents that deserves careful examination and I’m keen to see what I’ve got from my requests, but it certainly looks as though many of the projects don’t add up. From the response I received it does highlight that some of the projects including the Normanby Rd Overbridge Realignment have had and Motu Bridge replacement have had no reports on them in the last 5 years.

It’s interesting to contrast this approach to roads spending with the Government’s decision to axe an extension of the highly successful Northern Busway that would have cost about the same amount.

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  1. Great investigation work Matt L. The problem is you have a government with an attitude that might be described in the following terms – “the opinion polls show that…. kiwis love us and they hate the alternatives especially Labour, so we can do whatever we feel like”. And until opinion polls show the gap getting closer this behaviour will continue.

    So great work in uncovering this nonsense as it again clearly shows that the current government don’t give a damn about sound economics when it comes to roads.

      1. > NZTA is saving $25 million right now

        NZTA is saving nothing right now. The PPP is just a fancy and unnecessarily expensive way of using debt to fund the project, which NZTA wouldn’t normally be allowed to do (the NLTF is supposed to be Pay-As-You-Go). If the PPP weren’t available, we’d have to delay other RoNS or transport projects or change the law to allow the project to be debt-funded.

      2. Given that NZTA has been caught seriously fudging the figures with its Basin Reserve Flyover case (7 minutes of claimed time savings when the truth was actually only 90 seconds!), what confidence can we the NZ public have regarding any of NZTA’s cost justifications?

        If the present govt was less ideologically driven to build roads at any cost, it would put the brakes on all of its roading plans and demand a re-assessment with the same level of scrutiny that the Basin Flyover received. No way would it be ploughing on with Transmission Gully and Puhoi-Wellsford with the high likelihood that NZTA have seriously overstated these cases too.

        Is it any surprise that many of the Accelerated Regional Roading proposals may be equally ‘sexed-up’.

  2. Trying to think if Labour did anything so clearly partisan. Nothing springs to mind, but that could also be down to lack of publicity. I’m sure National will try and claim that the CMJ and Project DART are precisely equivalent, spending money on transport projects that are entirely about Auckland, and in the case of Project DART not even delivering any benefits to road freight; de-congestive benefits don’t count for National, remember.

  3. Meanwhile, back in train-land, rail is about to walk away from fertiliser traffic in the Hawkes Bay causing extra road traffic.


    Apparently, Kiwi Rail hiked their charges to a point that was uneconomic for Ravensdown because – “KiwiRail is a state-owned enterprise and, as such, has a duty to act in a commercial fashion.”

    Further to the story, the wagons used needed upgrade work – “This led to them proposing a rail freight rate that was just uneconomic. If more businesses had used the rail freight option over the years, then of course those maintenance costs would have been spread more evenly.”

    Of course, fertiliser used to be an important traffic for the Napier – Gisborne railway line which would have provided additional work for the wagon fleet.

    The contrast of one rule being applied to roads (no business case needed) and another for rail (now exiting traffic not able to be carried “at commercial rates”) could not be more stark.

    1. KR is correct that it’s required to act in a commercial fashion. It’s not just a duty, it’s a legal obligation.
      That said, hiking prices so far that the few remaining clients desert is quite arguably a failure to meet such obligation.

    2. Ravensdown are being asked to fund their own wagons because, for all the money given to them for new rolling stock, there obviously wasn’t enough to buy the specialised fertiliser wagons. But Ravensdown have also failed to maintain their own rail yard and the locomotive they run within it, so Kiwirail is certainly not solely to blame for this situation. I don’t see how they could have spread the cost of the wagons because they are specialised for this task and therefore I presume they have few alternative uses. And also it’s been stated the amount of traffic amounts to maybe 5 wagons a day. I’m not sure about that? but that wouldn’t be more than 1 or 2 trains a week would it?

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