The lack of delivery on Light Rail in Auckland has been a source of a lot of frustration. The most recent news was back in August when the government announced it had taken the bizarre step of pitting the NZTA and the NZ Super Fund along with their Canadian partners off against each other.
The two preferred delivery partners for Auckland light rail have been chosen and a final decision on who will build this transformational infrastructure will be made early next year, Minister of Transport Phil Twyford announced.
NZ Infra, a joint venture between the New Zealand Super Fund and Canada’s CDPQ Infra group, and the NZ Transport Agency, will further develop their proposals for Government to consider early next year.
When NZ Infra’s unsolicited proposal was first announced I was pretty excited by the idea, especially if it helped to deliver the project quickly. But it has been clear since the start that this would not be free money and that NZ Infra expect a return on their investment. One of the big questions has been just how that will work. With this post I thought I would delve into just that.
This kind of investment is obviously completely new to the NZ Super Fund but it’s not for CDPQ and so on the basis that of best predictor of future behaviour is past behaviour I’ve focused on them.
CDPQ’s current flagship project is the Réseau Express Métropolitain (REM) in Montreal, Canada. It is a CA$6.3 billion, 67km, 26 station, fully automated light metro project – although much of the length comes from a complete replacement of some existing commuter lines so much of the right of way, including tunnels under Mt Royal, already exist and just need to be upgraded. The first stages are expected to open in 2021 and the full network by 2023.
The proposal involves using 2-car light rail trains with 4-car versions at peak times running as frequently as every 4 minutes throughout most of the day. In the first year of operations about 150,000 people a day are expected to use it, about twice what the Auckland rail network does.
The project itself has many critics, some of which can be read about here, but that’s not the focus of this post. Most importantly for us, CDPQ say the model they’re using on the REM in Montreal is one they want to ultimately export to other cities, including Auckland.
As mentioned the REM is costing CA$6.3 billion to build but not all of that is private investment. CDPQ will put in just $2.95 billion, less than half of the total, with the rest coming from central and provincial governments. Yet CDPQ get a 70% stake in the resulting infrastructure. The financing structure is shown below.
My guess is we can expect something similar in Auckland with at least the central government asked to provide an upfront contribution.
Getting a return
Even though it’s less than half of the total cost, $2.95 billion is still a lot of money to get an investment back on and a few articles have highlighted exactly how they’ll do that. Instead of a set repayment, like on a loan, CDPQ will be paid 72 cents for every kilometre any passenger travels – currently about NZ 86 cents per km. I understand that this figure is also indexed to inflation.
Similarly, the same can happen if ridership is lower than the annual projections established. The annual fee the REM will receive from the government is based on a rate of 72 cents per passenger per kilometre.
If riders aren’t there, “we receive the same amount and it’s our problem,” he said. “There’s nothing (in the contracts) that account for anything other than revenue per passenger-kilometre.”
In a recent interview with Presse canadienne, a source of authority in the area of public transit noted that the portion of the annual fee paid by the Quebec government for the operation of the REM, once the network is in place, should amount to approximately $240 million, the return required by the Caisse.
In a report last week, the auditor general, Guylaine Leclerc, said the Caisse will have a “priority return,” but said “there are still some risks for the government that could lead to additional funding.” Those risks could cost another $600 million.
She said traffic projections are conservative but realistic, which could mean higher-than-projected revenue.
Tall said that under the agreements with the province, if the projections are exceeded by 15 per cent, the portion paid by government decreases, and if it exceeds 40 per cent, the REM will receive only the value of a passenger’s ticket. A clause provides that beyond this threshold of goodwill, the Caisse could ask for “an economic and financial rebalancing.”
To put things in perspective, as of just over a year ago Auckland’s rail network carried around 250 million passenger kms for the year and with fare revenue of around $48 million. An average of just over 19 cents per km so at best fares would cover only a very small proportion of these costs.
One thing that’s notable is the different tone to different audiences. The article above comes from a newspaper and talks about how there’s risk to CDPQ but the quote below to an investor newsletter is basically saying how they can’t lose as well as what kind of returns it is delivering. That same article also effectively mentions they’re looking to do this same model in NZ.
Solid return every year
“For us, (REM) will pay us 8% to 9% every year,” Mr. Sabia said. “That’s not cyclical, not affected by business cycles; that’s 8% to 9% every year. Our target return for our overall portfolio is (annualized) 6% to 6.5% long term. There’s no way this asset offsets our fiduciary responsibility. It allows us to do two things: get a significantly higher return than our long-term rate of return, and it gives us returns that are more stable, more countercyclical.”
Mr. Sabia called claims that such investments are contrary to fiduciary responsibility “kind of a paper tiger.”
Exporting investment ideas like REM has drawn attention to CDPQ as a global investor, Mr. Sabia said
On top of the all this, the deal has a 99 year term on it so CDPQ will be getting this 8-9% return for a century. An interview with the Super Fund last year suggests the same length of contract would occur here.
“That [the Montreal light rail network], is a 100 year asset. They [CDPQ] expect to own it through that. We think in that same way,” says Whineray.
To pay for their share, it appears the Quebec government are looking at how to capture the value of property price changes and development, something we need to do here too.
Running the trains
For paying per passenger km you’d think that would include operating the trains too but it appears is another cost to be covered by central/local government. Again to that newspaper article above
The REM is a $7-billion project that is privately owned by the Caisse de dépôt, but half of that amount will be paid for with public funds. Quebec and the municipalities will finance the REM’s operation, and estimates suggest it could pay out more than $11 billion over 20 years.
So about $550 million annually on top of that construction cost just to run the trains.
If all of this doesn’t work and ridership isn’t higher enough then there’s ….
The out clause
Another newspaper article talks about there being risk of lower than expected ridership, so what happens if that occurs.
The Caisse de dépôt has the right to sell off Montreal’s REM commuter light-rail network five years after it comes into full operation in 2023 if it feels one of the line’s four branches is underperforming, with Quebec having first rights to acquire the train line.
Alternatively they could just replace it a branch with a bus
It would be up to the Quebec government to decide if a sale is required, or if other options, such as compensating the caisse for an underperforming line, or simply closing it down and replacing it with bus service, was more warranted.
Everything we’ve seen so far indicates the NZ Infra proposal is pretty much identical to what’s happening in Montreal. As a summary, here’s what we can expect should the government choose them to deliver Light Rail.
- A significant upfront government contribution will be required, likely around half the cost of the project.
- Ongoing payments of perhaps around 90 cents for every kilometre travelled by every passenger on the train for the next 100 years – committing multiple generations to significant ongoing costs. The exact figure will need to be enough to provide them an annual 8-9% return on their investment and much of that will be to fund pensions in Canada.
- Auckland Transport will still to have to pay to run the trains on this new network.
- If it all fails they can sell and walk away.
Why any government would even consider signing up to a deal like this, especially they’ve just reported a huge surplus, they’re below their debt targets and bond rates are down around 1% is beyond me. If you do think it’s a good deal, I’ve got some snake oil to sell you.
What’s more, had they not been distracted by this absurd offer, we could have had light rail construction started already.
Whaaaa? Nearly a buck per kilometre profit taking, before cost of operations is counted? How much with the fares be then? Isn’t each line around 20km? Who’s going to pay $20+ each way to get to work? Just when we’re trying to lower our existing fares… I guess that means massive subsidies locked in for a century?
Good article, thanks Matt. I hope Phil Twyford reads it. There has been so much delay and wasted political capital. As you say, we could have started. The longer it delays the more urgent it becomes, especially in the North west. If they don’t get started and the government changed then we’re stuffed.
Wow, what a disaster for Quebec! It’s disheartening that our officials and politicians seem to be as gullible as theirs, and disappointing that our own Super Fund would be party to this. I’d much sooner take our time and get light rail right than blunder into a situation like this.
Do you not think that the NZ Super Fund should be in the game of making money to secure our future pensions. Or would you rather that they forgo that future to provide social good today?
IMHO they should be seeking the greatest return for the least risk that they can.
Quebec receives massive subsidies from the rest of Canada in the form of equalization payments, this year over $13 billion. Add in the corrupt contracting environment, and deals like this are no surprise.
Wow Ministry of Transport officials are idiots for not smelling this scam a mile off. 5 minutes on Google suggests this is something we should run away from as fast as we can. For example:
“Critics charge that the REM is a backdoor to the privatization of public transit in its own right, and by privatizing key public transit infrastructure, in the long run it will limit the potential to expand other systems, such as the city’s Métro or commuter rail. Moreover, the project’s developer has chosen a route design that would be highly favorable to its own real estate holdings and would further support suburban residential construction, in which it is a major investor. This has led some to condemn the project as a real estate venture masquerading as a public transit project. To top it all off, though a considerable amount of public money will be used as start-up capital, contractually obligated annual returns will essentially remain in private hands.”
“in the long run it will limit the potential to expand other systems”
Yes, I believe if our government continue with this madness, the upfront and ongoing costs will very much prevent our managing to implement a RTN network.
Anything we’d try to do later, when financially limited by a deal like this, could only ever be too little, too late, and probably fiercely fought over.
Whereas if the government had simply got on with the job, and hadn’t wasted time on fantasies, the initial LR lines would’ve led to more RTN lines and multi-modal access for all would’ve been achieved.
“real estate venture masquerading as a public transit project” – that pretty accurately also describes how London’s underground system was established.
this is also how the old Auckland tram system was established, privately run by property developers to entice people to commute from theire new suburbs in the far flung greenfields of then Auckland into the city
Imagine if those early tram companies had owned the tram lines they built?
If the tram companies had been able to keep their corridors grade separated from cars (except for intersections -where they could have been given priority). If that had been the case then many/most of the tram companies probably would never have lost profitability, requiring public transport effectively to be nationalised in NZ in the 1930s.
In this alternative history, over time the most successful tram lines would have had a huge incentive to ‘subway’ the corridors to make them even more grade separated and faster, the various competing private tram companies would also have had an incentive to invest in modern technology delivering faster and better rail services….
That is what happened in Tokyo and is part of the reason the city has such a successful transport and housing system.
“privately run by property developers to entice people to commute from theire new suburbs in the far flung greenfields of then Auckland into the city”
… as an unprofitable loss leader, then dumped on the council to continue to fund in perpetuity once the land was all sold.
Brendon Harre – That’s what happen in Los Angeles with Henry E Huntington Pacific Electric Railway (Red Cars) that become the catalyst to the urban property boom of the early 20th Century.
That is a brilliant article Matt L. Well done. It is time someone shone a light onto these shysters.
Great post Matt, as always. Those figures are just astounding. $2.95B of CAPEX with a 8.5% return ($250m/yr) indexed to inflation, exempt from income tax, discounted at a 6.5% nominal post tax WACC resulting in a $2.5B NPV. Wow. No wonder they want to do more of these.
For reference, if you discount at 1.5% (the Canadian governments 30yr bond yield) the NPV jumps to 28.5B. i.e. the cost to the government of using CDPQs balance sheet is over $25B in today’s dollars – 6% of Quebec’s GDP.
All in all – madness!!!
p.s. these were super quick NPV calcs so I’m sure there are errors but you get the gist
At the end of the day, the government/council is always going to have a lower cost of funding than any private-public partnership (PPP) and often the risks of the project fall back on government/council anyway, so it’s often just smoke and mirrors to get around debt constraints, even if the rating agencies would probably look through the mirage anyway. So the taxpayer/ratepayer ends up with more costly infrastructure than it should.
Maybe the government could write one of those “Lessons Learned” reports… it could have a section on the PPPs for the Roads of Non Sense that are costing us so much each year. A section on this scam. Maybe a section on the political damage…?
It’s the sort of thing that Treasury should be writing, yes.
I think you will find they are the last people to highlight that kind of message.
PPP’s are just the rich ensuring they have a risk free income. A fancy kind of term for parasites.
There are some of those reports here, for the London Underground PPP:
I guess the Twyford appointed NZTA Board are hobbled from calling this out as they are now a competing bidder. NZ Super Fund have neatly backed everyone into a corner on this and their silence is deafening. Meanwhile a little girl waits……
Is the new NZTA board backing this proposal, or was it the last one?
One major reason we have boards at NZTA and at the Super Fund is to ensure that these organisations act in the best interest of the country, which they are patently failing to do in this case.
If it’s the new boar backing this, then Mr Twyford has some explaining to do.
The decision was removed from the NZTA a few months ago as they are effectively putting in a competing bid. Ministry of Transport is responsible for making the decision between the two bids.
Maybe now driven by cabinet and the finance ministry?
Bragging about a (albeit probably fake) 7.5B surplus whilst having not delivered on
-Fuel tax for nothing
-Government EV fleet targets
It’s all getting quite repetitive and boring now. I would say roll on 2020 election but even with more Green Party seats I can’t see much changing.
Go somewhere else with that Trumpian trash. You dont get to claim that treasury have faked a $7b surplus.
It’s valid to question it – most of it is from ‘revaluation’ – especially since they apparently aren’t confident or motivated enough to do anything with it, which seemed like the point of his comment.
Thanks, you’re right, that’s exactly my point. If its true surplus and they aren’t spending it on things they have a mandate for then something isn’t right.
Trumponian trash, come on now! i’d love them to pull through with their promises..don’t throw your toys out the pram Sailor Boy!
Except that a big chunk is from revaluation or in more technical terms ‘bullshit’.
This is not the first time that the NZ government has been “guided” by a large external party to “invest” in a scheme that is not in the best interest of the country. I long for the day that we get politicians that actually stand up to this type of thing. I hope I am wrong but would not be shocked if some official is not get an incentive to push this. I would rather find out those involved are naive than complicit.
The frightening thing for me is why the decision is taking so long. Does the NZTA proposal come with 50,000 kiwi build houses, which it could at a NPV of about 28.5B.
To play devil’s advocate using the private sector or a commercial model to provide rapid transit is a successful in a few places around the world. Tokyo’s very efficient commuter rail services are privately owned for example.
I would not structure the rapid transit ‘private sector market’ in the way Montreal are doing it though and Matt is right to call that out.
An alternative private sector model is for rapid transit infrastructure providers to be also investors in residential and commercial development around their stations. That way they capture the uplift value they create (which helps align incentives correctly), this revenue is then used to offsets the infrastructure costs.
There is a proposal to do that for UK’s major cities, by giving newly-created ‘development rights’ to the land within 800m of stations to UK rail companies — such as National Rail, Transport for London or Transport for Greater Manchester. They could then invest the money made in transport improvements.
The link to the UK proposal is here
The problem with emulating the successful private Japanese rail model is that it would require re-engineering the city from multiple different angles -car parking, congestion charging, removing restrictions on intensification, reforming land assembly rules…. Just having private rail providers will not achieve the same beneficial outcome. It is simplistic and naive thinking.
I write about what I think are the key aspects of Japan’s successful private rail model here.
Problem with the proposed structure by the Super Fund is it creates the wrong incentives. Non-fare box revuene? Transit oriented development? Their return is purely on person-kms.
And I’m not seeing any analysis that understands higher fares impact on ridership.
I hope the MoT will question the modelling behind the proposals they receive.
Yes if the Superfund proposal is as Matt reports then it is very simple and liable to be gamed and result in unintended consequences.
Hong Kong’s MTR also successfully uses this model: https://www.theguardian.com/cities/2019/mar/19/how-public-transport-actually-turns-a-profit-in-hong-kong
MTR Corp is publicly listed but still majority owned by the city government. I’d argue that this counts as a public-private partnership.
I agree. MTR makes it money from its property holdings not from fares. MTR is going money for the KongKong Government.
When Twyford said in August that the government would look at two proposals, we heard of the NZTA option:
“The NZTA is exploring a range of procurement, financing and delivery models, including alliances and public-private partnerships, and will continue to develop these.”
What more do we know? Are they going to choose one model from this range to be pitted against the NZ Super Fund bid?
If NZTA decide on a different technical design, the only way the government could compare the two designs would be if the NZTA option has a very similar financing arrangement. If NZTA present a different financing arrangement, the only way the government could compare the financing options would be if the NZTA option has a very similar technical design.
Whole thing seems bonkers. Surely they should’ve designed it technically first, and then looked at finance options?
Agreed. I don’t understand why the spec wasn’t set and then tenders taken on the spec, as opposed to letting the tenders set arbitrary specs which then have to evaluated independently of each other and then compared on that basis, as well as financial merits.
The whole thing is backwards as all hell and we could have already been a year into getting the thing consented and built.
I’m also not seeing why Auckland should settle for less than other projects in terms of Government funding. LGWM has a commitment at 60%. Maybe they could front us the 10% of the CRL that we’re funding that Wellington doesn’t have to pay for LGWM and then we can put that towards our 40% of LRT across the district.
The LRT project was only a concept stage. The next stage wasn’t funded yet. Now the whole process has been “railroaded”.
My understanding was LR was going to be 100 % central government funded much like a state highway, but I could be wrong.
Whoah. Gravy train, or… poutine train?
Whilst the the government fluffs around with this decision more and more house are being built along the SH16 corridor. And more and more people drive, as there’s no other choice. Whole suburbs are being created as completely car-depended (after all it’s not like one can use PT out of NW to get anywhere). This is absolute madness. Meanwhile the congestion is getting worse.
Frankly – despite all the hope I had in this government – it’s clear that even best intentions don’t get anything built.
So in a nutshell, they’re going to charge us interest rates above the market rate (8-9% vs approx. 3%)? I don’t understand why this would even be considered…
Yeah, classic stuff from our transport agencies and planners. Step 1 – Build a Metro centre at Westgate. Step 2 – Plan for more urban zoning around Metro centres. Step 3 – Bring forward zoning timeframes to enable housing to be built around said metro centre. Step 4 – Don’t build PT system to serve metro centre. Step 5 – Complain that people are wedded to private vehicles…
The following is a press release from the AA from Business scoop it wouldn’t let me paste the link but you can read it there.
“The AA says its Auckland Members are sold on the idea of rapid transit, and that the onus is now on the Government to come up with a solution that delivers meaningful transport benefits at the same time as being affordable.
This follows a new survey of Auckland AA Members, which garnered 1600 responses from all over the Auckland region.
Survey results showed that 91% of Auckland AA Member support the idea of expanding Auckland’s rapid transit network – that’s to say, rail, modern trams or rapid bus.
AA spokesman Barney Irvine says that, after much talk but little action on rapid transit, AA Members are keen to see the Government get on with it.
“AA Members value rapid transit for its transport, environmental and place-making benefits. They want to live in a city that provides these sorts of services to its residents and visitors, even if they themselves wouldn’t necessarily be users.”
So what is that clown Twyford doing he really needs to get things moving and its not just the light rail as I am sure you are all aware off. The Prime Minister should replace him he’s not up to the job.
Question missing from that survey – “What impact do you think AA lobbying over the decades has made on the lack of progress with Auckland public transport?”
Slowed it a lot / Stopped it dead / Made it go backwards for decades
I got another
“What part of my anatomy can the AA kiss if they believe they can be rehabilitated overnight?”
Feel free to join in
I’ve been saying this from day 1 – that’s the whole purpose of the Super Fund, to juice up the capital markets by creating avenues for profitable investment in NZ. The purpose of this proposal is not to promote public transport (let alone reduce emissions) but make NZ more attractive for these Québecois parasitic investors.
Yes this is the time for those of us who shat on the idea back in the comments of this https://www.greaterauckland.org.nz/2018/05/10/light-rail-procurement-starts/
to say we told you so.
That is a great read miffy. A whole lot of enthusiasm has been completely lost.
None of this takes into account the Twyford factor which reliably suggests while he remains a minister, this will never happen in any form!
Not because it shouldn’t, not because he is sensible, simply because he is not capable of leading an egg and spoon race!
Very true. Or maybe they will replace him with Iain Less-Galloway who will recommend in favour of the Quebec nonsense after failing to read the report telling him to not approve it and probably after not even reading the concise summary telling him not to. then they will appoint a QC who will say it was ‘unfortunate’ rather than saying it was downright inept.
In times of near zero or negative interest rates, an 8-9% return is nuts. While this “tax” is possibly OK if it stays within country, similar to how our “super” system works now, paying canada at this rate is dumb. I can’t think why the government would even consider this.
By “Automated” I’m assuming “driverless”, so completely grade separated, fenced off corridor. Gold standard. Do it once do it right sounds good but keep the money in NZ.
“Do it once do it right” is an excellent strategy to get almost nothing done in our lifetimes.
Another way to phrase that is “spend all your budget on 5km of gold instead of 50km of silver.
File under ‘careful wotcha Wish for….’
Agreed, PPP’s make no financial sense, in effect you are adding the cost of a commercial return to a piece of infrastructure which in the first instance requires subsidies in order for it to operate. Hence in the long run it requires even greater subsidies.
However, the attraction for the government is that it takes the upfront cost off the books and makes their surplus look better. Politicians main concern is staying in power, so if they can keep their powder dry (ie money in the bank) it means they have more money for the next election lolly scramble. Therefore we are likely to see a PPP in some shape or form and “free EV vehicles for students’ or some other such vote buying trick.
Government debt has no direct impact on the surplus. The surplus simply means we are bringing in more money that we are spending, this is often used to pay down debt.
Using a PPP rather than straight borrowing does not mean the government has more to spend next year, it just means they will have less debt in the future, although in reality the debt just sits on someone else’s books.
I’m no accountant (thank god), but I struggle to see how a liability to make scheduled payments is different to debt.
PPP’s do not increase core crown debt. By keeping debt down through reduced spending (ie deferring projects and running a surplus) it makes the case for more empty promises at the next election which on paper can be shown to be able to be funded with Joyce telling them their numbers don’t stack up.
Here’s a good article on how ppp’s really effect us.
It is better for appearances I guess. You can make arbitrary amounts of debt apparently without increasing your public debt.
This is a terrible idea – you basically kick the capex costs down the road, and people end up paying literally billions more in the long run. They’ve done the same with toll roads here in Melbourne- it’s great for shareholders but terrible for taxpayers and users.
Problem is that without a PPP this project looks unlikely to happen. Labour just scraped in with the last election, this time National will have a very large surplus for a tax cut bribe and Labour have hardly rewarded their voters from last time. At this stage I would say National will win the next election and kill off light rail – unless there is an impossible to terminate private contract.
The surplus is of course also available to Labour. They could either increase spending or introduce tax cuts of their own, they have one advantage too in that they can bring in these changes in the 2020 budget.
I doubt Labour will give tax cuts. So it will come down to Labour making promises that they couldn’t keep last time vs National tax cuts.
I think they will, just with a different target than National. I can see them bringing in a tax free lower threshold.
Even if I’m wrong and increase in spending in health or education could be locked in as part of budget 2020, this is very different to some future promise.
I simply can’t how a party led by the fill in team of Bridges and Bennett is going to somehow carry National to an historically unprecedented vote that would allow them to govern alone. This is pretty much their only avenue to power.
Kind of hard to claim that everything is broken and then give tax cuts instead of fixing it isn’t it? I think this election will be a choice between a national $50 a week tax cut (for average income earners) or labour promising to build and fix stuff again.
Agree that national have no talent, but if the tax cut bribe is big enough they will win. It’s very similar to the Clark Cullen situation where they ended up with surpluses too big and the tax cut promises were too little and too late.
It’s worth remembering that Clark and Cullen won two elections by hoarding those surpluses, but the also loosened the purse strings in 2005 when it mattered and it got them across the line.
While your right that it is contradictory to say things are broken and offer tax cuts, that won’t matter if the voters see the tax cut and like it. Jacinda has shown this term already that she comes from the same school of thinking as Clark and Key, if it’s popular no one will remember that it was a back flip.
Jimbo – National are hardly likely to win unless they have a competent leader at the helm. That’s certainly not Bridges. I never expected him to last – he is an interim placeholder until a real leader comes along. But if National really do want to win in 2020 then they need to be organizing a coup pretty soon….
That’s their problem – a number of their caucus would prefer they didn’t win the 2020 election as it will help their personal ambitions in 2023 or 2026.
They are quite happy to let Bridges sleepwalk along as long as he keeps the vote high enough that they keep their seats. The knives will be out in early 2021 if they do loose the election.
Exactly why should the public expect NZSuperFund not to make good money to support our pensioners? That’s what the proposal does.
And exactly why should anyone expect this particular light rail financial model be any different in the NZTA-favoured version?
It’s so silly clutching at one concept, when it’s the only one that’s gone public.
The only ones able to make the comparison of the two is MoT. So hold your breath until there’s something to compare.
We know that the NZSuperFund proposal is non-compliant with the RFP, so there is every reason to expect the financial model is different. They are also suggesting a more capital-intensive construction approach from the RFP. None of this suggests better value for taxpayers or users. And it has delayed the process.
So it’s not ‘clutching at one concept’.
The winner doesn’t have a model to comply to. NZTA has to, not MoT.
MoT must choose from models, not RFP’s.
Only road users like AA expect stuff for free. It never is.
In light rail standard NZTA and Ministerial processes have failed.
Based on their past performance with motorways and highways we know it is unlikely that NZTA will expect the government to pay so that a foreign company can then own it and clip the public ticket year after year.
We should we allow the NZ Super fund to make money by sending larger streams of cash to foreigners? If that is their idea of making money for NZ then it is time to sack the whole lot of them and give the superfund money to private wealth managers.
This isnt going to be free. Someone is going to make money. It’s not Like Kiwirail, or like anything NZTA have done.
Would you pay the NZ super fund 9% on your mortgage when the local bank is offering 2%?
Well, we have the government of non-delivery.
Big non-deliveries on housing and PT.
Who’s been in charge of both?
This has shades of Kiwibuild. Rather than trying to work with the market in partnership, just take the bull by the scruff of the horns and build the fucken thing! Old school (yo!) Public project delivered by public agency with public funds. This government is so ‘National-lite’ at times….
I quite like Twyford and Robertson but I think they both cocked up. On day one Grant should have said “Phil here’s 6 billion, build light rail”. On day 2 Phil should have said “AT here is $6 billion, build me light rail and make sure you have some tracks down by 2020”
As much as Twyford takes the flak, I think the problem was that the money wasn’t offered up.
Completely agree, the biggest problem here is they were basically given a small portion of the funding and told to go and find a PPP to fill the void. This was only way it could ever end.
so he didn’t sell it well enough.
It was an election ‘promise’, wasn’t it?
Not having every last dollar of the project’s funding locked down was no reason for the government to stop progress on the design and development of light-rail for this stupid ‘bid process’.
Did the previous National government lock down every single dollar for the Roads of National Significance before getting NZTA to progress design and consenting? No.
Did Auckland Council have full funding approval for City Rail Link before progressing with design and consenting and even early construction? No.
The $1.8 billion allocated to light-rail in ATAP would have made a pretty decent start on the project and built momentum for expanding it further. The smart thing to do would have been to progress design, consenting and even construction of this early phase. By that point the economy is probably in a recession and you’ve got a great “ready to go” piece of infrastructure to spend some borrowing on and keep things humming along.
People are missing the obvious here. Maybe LRT has been delayed because AT’s proposed LRT lines went to the wrong places, and missed the parts of Auckland that have been denied rapid transit. If AT could put together an all-of-Auckland LRT solution then we could finally get some consensus and momentum.
David – how on earth could the North west or Mangere be considered the ‘wrong places’ for LR?
The NW and the SW (Mangere) are exactly the two points of the compass missing Rapid Transit in Auckland, now that the Eastern Busway and is underway.
A more grandiose plan is exactly not the way to progress anything, rather it’s through ongoing additions to the Network where absent, and constant improvement of existing parts that we complete it.
Yes Jimbo maybe Twyford should have arm twisted Robertson into giving him a 10 year Rails of National Significance programme, with $15bn in funding (up from $10bn to account for inflation and pop growth)… like Joyce did to English to get moar roads….
Good post. The sooner they drop this proposal the better.
Looks like Trojan horse to me. Follow the money.
Hah! It’s hard to believe this govt can’t see it’s a scam, I suspect they really do but are using the proposal to further delay any LRT decision.
I’d bet this scheme will be ultimately exposed as way too costly and therefore become the scapegoat that finally kills off any hope of LRT in Auckland. This will let NZTA off the hook too so they can get on with moar roads and maybe cheaper guided busways.
It certainly seems bizarre that the government, having had their previous flagship project in KiwiBuild completely fail, is now putting all their eggs into this basket that smells completely rotten.
Hard to know if this is just incompetence or whether there’s some deliberate conspiracy going on – which would be very strange given how genuine the government has seemed when it comes to improving Auckland’s rapid transit network.
This government are simply incompetent. Well meaning and with the right intent, but absolutely naive, incompetent and ineffectual. Disappointing to say the least.
Well said, Zen Man. This is exactly the same description of the 1972
to 1975 Kirk labour government – they only lasted three years, too.
Kirk was a reasonably popular leader who probably would have won another election had he still been alive, although I agree it was an inexperienced government.
I wonder if New Zealand First just wont allow the light rail scheme and the endless delays is just Labours way of saving face till the next election cycle kicks in. After all they have had to backdown over other key policies. But I still blame Tywfords arrogance and incompetence and Jacindas inexperience in every promising this project in the first place surely after all the history off the CRL they would have known that these. Mega Projects are not. Politically worth it.
Here I am replying in to my own post but to illustrate my point I have just heard the Govt announcing that they will be streamlining the process for consenting prefab housing. For Pete’s sake they are two years into a three year govt which promised to build 100,000 houses so why would it take so long to get to this obvious first step in advancing their goal. Even then the legislation won’t be introduced till next year. What on earth is going on at least the Kirk government made decisions even if they were wrong but if I remember rightly there biggest problems came after Kirk’s death the biggest one was the first oil shock. The worse thing was when when Rowling put the price of a jug of beer to one dollar.
The worst thing that Government did was to introduce the DPB –
one of the biggest social disasters this country has had.
I understand this Labour Government is sensitive to accusations of fiscal irresponsibility like those heaped upon their predasessors. Could this be the reason they are not taking advantage of low interest rates and low bond rates to get these mass transit schemes moving?
I find that hard to accept given their coalition partner’s determination to get cars off city roads, there was never an opportunity like this.
The level of public debt, as distinct from the price you pay for it (the interest rate), may be what is concentrating their thinking. Having got debt down very low, at one level I can understand why they want to keep it there.
Maybe, but I hope that this is not the rationale. There’s no logic in a government saddling its people with huge long-term expenses just to make the accounts look better in the short term.
There’s no logic, and it’s inconsistent with acknowledging the huge costs that will fall over the next decades due to climate change and also, to trying to repair polluted environments and inappropriate infrastructure.
Saddling future generations with any sort of debt because we can’t be mature enough about tax to pay for what we need to do is bad enough. Multiplying that debt up by bad financing arrangements for apparent short-term political gain is inconsistent with a care for wellbeing.
Well, that’s how our preferred transport system, roads currently works. We spend billions building them and expect the population to borrow money, often at high interest rates to buy motor vehicles so they can use them. Committing people to debts they have difficulty repaying to own a rapidly depreciating asset. But if everything goes really bad they can live in.
Even the worst PPP funding model may be significantly better than this.
Very good point. PT at public+private low interest rate vs roads+Cars at public low interest rate and private high interest rate (12%+).
The Super Fund proposal is also built to North American light rail standard, and essentially creates a fully dedicated corridor all the way.
There’s essentially three ways to build light rail.
The most expensive is North American style, at around $260m per km. Dedicated corridor, ballasted track, signals and level crossings.
Mid-range style, with largely on-street tracks but with stations, around $100m per km including stations.
Economy grade, aka the older sections of Melbourne’s network, and our own Christchurch and Wynyard networks, all on-street and with simple curbside stops or middle-of-road basic curb-style platforms. Around $5m per km.
Neither the NZTA nor Super Fund proposals have seriously considered the economy grade solution, or at least a mash of the mid range and economy models. The proposed lines could be built for a lot less than $6b if they weren’t going for the gold-plated versions.
The economy grade solution would only be that cheap if the services didn’t have to be removed. This is what makes on street sections expensive, not building stations.
Is anyone actually building new light rail networks to the economy standard?
Christchurch and Wynyard trams are not transport; they are fairground attractions; even worse they get in the way of actual transport.
They move no one nowhere, at no pace. Loop-de-loop, at about 5kph. pfffft.
That’s a fair general description of the options but the costs of those are off, and no way near as simple as you say.
Your economy grade, you’re talking about streetcars. Well $5m a km would barely buy you the track and power supply systems. That might be close to correct for a short stretch of single track tourist loop, but a meaningful length on road will cost a lot more once you include the civil engineering works and service relocations. There are still al lot of roadway and intersection changes required of a functional streetcar. I would suggest budgeting a minimum of $30m a km for a simple system.
Your mid-range style actually describes closer to the upper end of the costs of building proper light rail in a street corridor. But it’s not the stations that cost so much, but the civils and relocations to lay the track and insulate services from stray currents. You can budget $30m to $100m for proper LRT, it depends on the corridor.
Now your “most expensive” dedicated corridor with ballasted track. You are well off the mark there. Ballasted track on a dedicated corridor is the cheapest per km in itself, much cheaper that slab or imbedded track for a street. However, the cost comes not from the rail systems but from the civil engineering. If you have a clear corridor on good ground you can build electric double track on ballast for less than $30m a km. If you are on a decent corridor but have bridges and underpasses to build, say going alongside a freeway or a freight line, it could easily be double that. If you are talking about a taking a route across the suburbs, buying and demolishing properties, reconfiguring services and local streets, building new overpass roads and the like, you could easy spend $260m a km. If you are building viaducts budget four or five times as much, if you are in tunnel with stations budget ten to twenty times as much.
The North American interurban model is quite an effective system. In the suburbs where there is space it is mostly cheap, fast double track, a railway by any other name. In the urban centers they tend to run on street corridors for the last few miles, which lets the trains get right into downtown to where the people want to go without having to buy up hundreds of buildings or build expensive tunnels. You Aucklanders can see already how hard it is to put a railway tunnel through downtown with your city loop.
It sounds like the Auckland light rail plan was the american model, three quarters dedicated railroad and running between the traffic lanes on the hard bits in the middle. That’s got to be the most cost effective model. This superfund pitch sounds like its a straight up metro line, which is gonna cost you something like ten times a much.
Thank you for the figures they help a lot
I believe Canberra LRT was delivered for AUD$63m/km while a price figure for all 18km of Airport to Botany Rapid Transit if it were to be LRT was $75m/km. That was an average price mind you given most of A2B is on grass shoulders or grass medians leaving Puhinui Road between SH20 and Lambie Drive, and going over the Southern Motorway (Te Irirangi Drive) the more expensive parts.
So $1.5b maybe $1.7b if Manukau goes elevated would seem reasonable.
The Edinburgh LRT line is a mixture of 2 km’s worth of street running and the rest is off-road. The construction of the off-road portion was quite straightforward; but where the whole project went haywire was in the on-road construction. Here, the killer was utility relocation, which took twice as long and cost twice as much as they thought it would, not least because there was so much under the street that they didn’t know was there. End result? The scheme ended up costing twice as much per mile as originally budgeted, or around £100m/mile ($NZ110m/km, more or less).
Metro (tunnelled) schemes are expensive, I understand because of the cost of the stations, but would welcome your insight on this.
Yes. Tunnelling, or more precisely boring, in itself, is not too expensive, depending on the geology, especially for narrower train tunnels. But building underground buildings for large numbers of people to use at once, safely, is very expensive. ie stations. Especially in the middle of existing cities, which where you need them. Very disruptive.
Cut and cover under street tunnelling (actually in engineering terms this isn’t tunnelling at all, but bridge building; creating a supporting structure), is also expensive and disruptive. All street utilities have to be found and moved, huge piles driven to hold up existing buildings, and much much more material removed, and often replaced. eg Albert St, where a very deep and perfectly good brick stormwater drain had to be ‘moved’, ie a new one bored, one that wouldn’t have to be touched if that had been a surface LR project. These are very messy, slow, and disruptive projects (eg Albert St).
This all means that yes, in increasing order: greenfields ballast track laying on an open easy topography is the cheapest (cheaper than highways). Followed by the same in hilly or swampy or rocky places. Then comes brownfields with say an old right of way to repurpose. Then a new alignment through a city. Then elevating, and last of all undergrounding.
A good rule of thumb is 1:4:10
Though as you point out with Edinburgh example, surface depends a great deal on what environment the surface line is being put through.
For LR surface on say Queen St will be at least an order of magnitude cheaper than underground. The stations are just stops, are essentially already there. Services under Queen St were upgraded about 15 years ago, too with the last upgrade. And counterintuitively it is arguably the easiest street of scale in the city centre to block; it has no through-route transport function except some buses that can go to Albert St once than reopens with 24/7 bus lanes.
“A design engineer”, have a read of this…
It’s a valid point to look to Christchurch, where the cost is around $5m per kilometre.
So the Auckland Light rail pantomime continues to entertain
Looks like LR is a gone goner, dead and buried, just the blame and wake to go
In regimes gone by, there’d have been a quick text from the leader’s office saying they would appreciate a letter of resignation from the appropriate minister to be on their desk when they get in on Monday morning.
Anything less sends the message that Aucklanders are electoral cannon fodder, and the hundreds of hours they lose to congestion each year and the rising emissions it causes are acceptable collateral damage for a political bait and switch.
This kind of investment is obviously completely new to the NZ Super Fund but it’s not for CDPQ and so on the basis that of best predictor of future behaviour is past behaviour I’ve focused on them.CDPQ’s current flagship project is the Réseau Express Métropolitain (REM) in Montreal, Canada. It is a CA$6.3 billion, 67km, 26 station, fully automated light metro project – although much of the length comes from a complete replacement of some existing commuter lines so much of the right of way, including tunnels under Mt Royal, already exist and just need to be upgraded. The first stages are expected to open in 2021 and the full network by 2023.
Update. The first segment was due to open December 1, 2022 but it has been postponed to “Spring” 2023, with the rest of the project put into service at the end of 2024…
You are right that almost half of this project is replacing an electric train (Deux-Montagnes) that existed since 1918 (isn’t ironic that it opened during the Spanish flu epidemic and closed during this pandemic!)
CDPQ had assured this whole project:
1) would be ready on time!
2) would be on budget (now over 7 billion $)
3) service on the Deux-Montagne line would not suffer any interruption “except for one or two weekends”. So far, it is approximately 2,000 days of interruption.
Not to mention this project looks ugly, very very ugly, nothing like their nice artist sketches…
I would love to see the full proposal offered, could be an astoundingly good deal compared to the light rail project picked now, despite all the drawbacks mentioned in this article.
Perhaps our projects are so easily politically weighed down with side quests that paying a private company way too much would still provide better transit outcomes than using homegrown lower cost financing and public ownership.
I agree, would be interesting to see the details that Twyford wasn’t willing to make public back in 2018-2020.
Still, would be ideal if we didn’t have to pay 8% interest over 50 years.