Within the next few weeks the government will be deciding on who they partner with to deliver light rail in Auckland. It will be a choice between the NZTA and NZ Infra, a joint venture between the NZ SuperFund and the Quebec based pension fund CDPQ.

There are plenty of things the government will need to consider but one of the important ones will be how much they’re prepared to sign future generations up to significant and ongoing costs, both financially and strategically.

I’ve written before about CDPQ’s financial exploits in Montreal where they’re paying less than half of the construction costs of the REM project but get a prioritised 8-9% return annually for 99 years and don’t even have to pay operational costs. It is expected they’re trying to replicate something similar here and it’s hard to see how anything approaching that can be justified when the government can borrow at less than 1.5%.

As well as the financial side of the deal, the government also need to consider the strategic implications of it. To see the potential impacts of that we don’t need to travel all the way to Canada, a quick look across the Tasman should have every minister deeply worried about importing the ‘Transurban effect’.

This effect is highlighted in an excellent article in The Conversation recently. It focuses on Melbourne’s Westgate Tunnel project but if feels that if you were to find and replace that with Auckland and Light Rail, it would perfectly describe what we’ve seeing happen here.

It talks about how governments are increasingly looking to deals with private financing as a way to deliver ‘transformational’ mega-projects as a way get them built and avoid them having to survive through electoral cycles. Increasingly these projects are coming in the form of unsolicited bids or ‘market-led proposals’ as they call them.

In the rush to sign up these deals to show they’re doing something, governments are creating a lock-in to build projects before the full implications of them are known.

Lock-in happens when the real decision to build a project is made well in advance of processes that are publicly declared to inform that decision. Once governments are locked in to a project, it can make alternatives appear increasingly unviable, if not unthinkable.

……..

Revelations that Transurban acted in secretive and strategic ways to secure support for its West Gate Tunnel raise serious ethical questions. What does it mean to be a “good partner” to government? How should powerful private corporations obtain a “social licence” to operate?

The unsolicited bids add an extra dimension because they’re projects that aren’t in existing plans and therefore divert resources and attention away from projects that have been agreed are needed.

Government policies for assessing market-led proposals give powerful private firms like Transurban influence over strategic planning. This contrasts with the relatively limited influence granted to affected communities and stakeholder groups advocating for sustainable transport solutions.

Acceptance of Transurban’s bid allowed a multi-billion-dollar toll road to override plans that had been taken to an election. These plans were simpler and far less expensive. The plans had been developed with the local community to better manage freight traffic by upgrading access to existing freeways.

The West Gate Tunnel process involved expedited planning that bypassed broad-based community consultation. John Holland and CPB Contractors were selected in April 2017 “to get to work” on the project. That was five months before public hearings concluded in September. Over 500 submissions were received.

Add to this the suppression of independent and critical oversight and a heavily redacted business case, and a very concerning picture of Victoria’s market-led process emerges.

The Westgate Tunnel project

Another useful article is this from 2016 in The Age on how Transurban became so powerful and able to exert influence over transport in many Australian cities.

It quotes former Premier Jeff Kennett as saying they’ve “mastered the art of out-manoeuvring governments“.

This kind of long-term planning and strategic aquisitions, explains one company insider, follow the “blueprint” laid out by former chief executive, Kim Edwards, who led the company’s CityLink bid in 1995 and who held the top job until 2008.

“Kim always said once we get our foot on this important bit of the road network, the state will have to deal with us on everything.”

Simple but ingenious. CityLink was not just important to the Melbourne road network, it was its new spine, linking its far flung south-eastern suburbs with its west, and Melbourne Airport to the north.

Control over such an important asset would give Transurban influence over, and/or benefits from, every major road or transport scheme that connected or competed with it, or augmented or crossed it.

A controversial clause in the original contract gave the company direct and remarkable influence over Melbourne’s development by allowing it to claim compensation if the state built roads or other infrastructure that competed with CityLink.

Even the Andrews government will have to negotiate with Transurban because its proposed Metro rail tunnel will need to burrow below CityLink’s Burnley Tunnel.

With light rail it’s not unreasonable to expect there’ll be a requirement to reorganise buses around it but depending on the deal the extent of that could be significant. Perhaps more worryingly is what implications it could have on future development. For example, what happens if Auckland decides it needs another light rail line on a nearby corridor, would that give NZ Infra an opportunity to stop it it if they believe it will take passengers off their service? Alternatively if we decide to extend the line they build to the North Shore or somewhere else will be required to use NZ Infra to do so, removing competitiveness from the process?

Images of what NZ Infra may have proposed for Auckland

Back to Transurban, so how does it get such good deals

In its short life, Transurban has become known as a formidable bargainer and reader of political play. “When they leave a negotiating room nothing is left on the table, not even the Laminex,” says Harris. “They just have this reputation for being superb negotiators at the taxpayers’ expense.”

I understand CDPQ has a similar reputation and it can be seen with the REM project where they ended up with a better deal than they themselves initially offered.

Of course we’re recently seen our own issues, with even normal PPPs. Two weeks ago the NZTA announced they’ll give the builders of Transmission Gully another $191 million to complete the project as well as wiping the $16k per day late fees. If they hadn’t of done that the issue was heading to court.

This brings us to another critical point in all this, the entry of another player in the transport market in Auckland. For example on the rail network we already have more than enough issues between Auckland Transport, Kiwirail, NZTA and Transdev with them all blaming each other when things go wrong. Will adding another player to the overall transport mix help or hinder this?

Let’s hope the government are considering these impacts when deciding who they chose to deliver light rail.

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70 comments

  1. Next month is when Labour shows us if they’ve learnt anything or if they’re going to keep f**king up.

    Excellent post. Gee whiz.

  2. “I have an idea, Why don’t we submit our roads to a corporate overlord for 99 years!” Said no politician ever… Crazy how disjointed perception of different modes is and just how ingrained the subsidy to the car is.

  3. Labour are buggered both ways on this. Either they go with the good option and national calls them out for being anti business. Or they go with the bad option and national calls them out (rightly in this case) for being terrible negotiators.

    Looking At how this government has been about debt it’s bigger chance that they choose the bad option.

      1. I think that is why they will go the PPP option. They could have a watertight contract in place before the election. It feels a bit undemocratic really, and if National take the same route for their pet road projects it could be disastrous.
        They should have just written AT a cheque on day one and we would probably have a fair chunk of Dominion Road done by now…

    1. “ Either they go with the good option and national calls them out for being anti business.”

      Little substance to that. They just went for a better option financially with more control over things down the line (pardon the pun).

    2. Are you sure that Labour’s buggered over this?

      Reading between the lines: I get the overwhelming impression that they’re looking for a way to can’ it. And I’m pretty sure that that’s what most of the voting electorate wants.

  4. A big concern for me is the Queen Street section. A while ago AT showed plans for light rail on Sandringham and Mt Eden roads that used the same Queen Street section as Dominion Road. I get a feeling that will end up being too hard in the future if we don’t own the infrastructure.

  5. The worst part is that no one seems to win.
    I guess you have to assume that they won’t get 9% in the current interest rate climate. I imagine it will be more like 5%. In that case the government loses (could borrow at 2%) and the super fund loses (they normally achieve much better than that). Also both sides are locked in for a long period of time – but the super fund’s main purpose is to fund baby boomer superannuation, the money needs to be spent over the next 20-30 years. Its all very odd…

    1. I don’t know where you get the idea that the whole super fund has to be spent in the next 20-30 years. The returns from the fund will be used to partially pay pensions going forward forever. That’s how these things work, it’s typical NZ to have this short term blow the lot mentality.

      1. I thought the main purpose is to fund the large number of post war boomers who will retire at once. But looks like I am wrong (either about the purpose or the timeframe):

        “From around 2035/36, the Government will begin to withdraw money from the Fund to help pay for New Zealand Superannuation. The Fund will continue to grow until it peaks in size in 2070s.”

  6. They should have just given Auckland Transport $200 million per year and told them to get on with it. Less ceremony and less expense. Contrast Twfords approach with how the Provincial Growth Fund operates.
    The Provincial Growth fund has given Kiwirail 9.6 million dollars to build a container yard at Kawerau.
    https://www.kiwirail.co.nz/media/investment-in-kawerau-hub-welcomed/
    This is a good move which in time will modernise how rail freight is handled on rail east of Tauranga. There are a few other locations which could do with a similar treatment.

  7. One observation about Sky train in Vancouver is that it is built narrow. If we go down this route then if at all possible I’d like to see it built with wider carriages – similar to standard gauge rather than narrow gauge. Shouldn’t cost much difference but does offer more capacity and a better user experience (especially for wheelchairs etc).

    Why not go do the path of really making it a PPP… ie actually own half the project publicly and instead of 99 years go for 50. Put in clauses to allow for competing networks and around future extensions.

    I remember only a a handful of years ago this blog advocating for a Skytrain style system with the current routes plus the Shore and linking back West.

    https://www.greaterauckland.org.nz/2012/06/10/the-future-role-for-driverless-trains/

    https://www.greaterauckland.org.nz/2012/05/19/vancouvers-skytrain-the-perfect-pt/

    https://www.greaterauckland.org.nz/2013/06/18/the-impacts-of-vancouvers-skytrain/

    https://www.greaterauckland.org.nz/2012/05/10/further-analysing-vancouvers-pt-success/

    https://www.greaterauckland.org.nz/2012/05/20/vancouver-skytrain-ride-the-system/

    Missing a post here… someone else might be able to find it?

    1. Track gauge has little to do with carriage width. E.g. Quite a number of standard gauge carriages were imported and regauged, many are still in service. However these are narrower than the widest carriages custom built for NZ (2.82m ex-british carriages vs 2.97m NZR’s Silver Star).

      SkyTrain has different widths on different lines: narrower on the original system (2.65m), wider on the Canada Line (3m). Both types run on standard gauge tracks.
      Street running LRVs/trams width is typically <=2.65m.

  8. So the lasting legacy of Michael Cullen isn’t going to be nine years of excellent fiscal management or Kiwibank or providing for our future incomes. His lasting legacy will be a bullshit transport solution that is looking for a problem and an ongoing financial haemorrhage of cash heading for Canada. Well done Sir Michael!

        1. Other than joining to a city centre with no more capacity for buses. But built a giant turnaround at Eden Tce and that problem is solved!

    1. Someone who is a big enough fish, and is smart enough about it, should lobby politicians and the public constantly and consistently that choosing the bad deal is sending their hard-earned tax dollars overseas.

      It seems to strike a chord when choosing banks, why not constructing “public” transport?

  9. I would say currently our NZTA/AT is a monopoly and they just accept whatever highball quote they get from their preferred constructors.

    Having another private competitor would add some competition and hopefully make the subsequent quotes from NZTA/AT more competitive.

    The key is to not to sign any clause for claim compensation if the state built roads or other infrastructure that competed with the private projects. Also the contract should be carefully crafted so that it does not give the private operator too much lobbying power or monopoly over the other projects. We need to look at other successful examples from the other cities and see how they contract it differently.

  10. I’d like people to start taking note of just how many of the problems we face (in transport and across society) are largely a by-product of democracy and short-term election cycles. This article is yet another example of it. The way the 3 year eletction cycle incentivises corrupt, self-interested decisions by our leaders should be cause for serious concern. It’s not bad leaders, it’s a bad system. We know this because the issues persevere regardless of the leader involved.

    1. Agree.

      Year 1 is getting a handle on how things run (especially when Government’s change).

      Year 2 is Business Case Hell;

      Year 3 – Sign something quick, as we may be out of a job in 6 months.

      Would support 5 year terms. Either that, or we need to find benevolent dictators.

      1. 5 year terms sound good when I like the government, 3 year terms when I don’t …
        (More seriously, agree the longer terms are worth a try for reasons you’ve given, but may be try 4 years rather than 5.)

        1. Twyford knew he had only got 3 years he just needed to get on his skates not dithering around trying to get the process right. And ditto to most of the rest of the labour ministers. They needed to be more direct like New Zealand first. I have mentioned the Provincial Growth Fund. But another one was the defence spending. At least our airforce won’t be flying 70 year old planes anymore but we won’t have light rail running to the airport or any where close after the election. Not that I am in favour of that any way. But I would rather not have the national back again.

    2. Agreed.

      We might even need to set up a long term infrastructure planning commission that are independent to political parties.
      The chairman is appointed with a term of about 10 years.

    3. This is why we need a specialised national public transport agency to plan, fund and procure public transport services whether is bus, regional, ferry and/or light rail for all 16 regions in NZ.

    4. I’ve thought since I was an adolescent that terms of government should be 4 years. It gives administrations more time to go through with their plans (and cop the backlash if they fail). In my opinion; 3 years is too short and results in poorer governments for the following reasons:
      1) they don’t plan for the long term and are less willing to take the hard decisions that could cost them support (as they have less time to recover)
      2) the undesirable effects of their policies may be delayed, which may result in them being reelected before it hits the fan.

      And I think that people’s support for shorter terms is small-minded & petty. I neither like nor trust politicians but they’re a necessary evil and it’s better to be pragmatic instead of emotional.

  11. In principle I don’t mind private projects, be it someone wants to build a private motorway or rail. If we were in a position where private operators can run and make money that would be fantastic. Ex Japan, or ex italy where train operators can be private but pay for track use. However, I would expect the private operator to be getting returns on the project from it’s use, not to be paid by the govt.

    So for example, if superfund does build the project, okay go ahead. But they carry all the risk of it, and if no one uses it, it’s their money down the drain.

  12. Putting aside that money is cheap at the moment and paying 7-9% doesn’t make sense, my main question is: why are the Canadians involved at all? I’d be a lot happier if the money was going to our own super fund (they’ve certainly got enough in the pot to pay for a whole range of infrastructure projects).

    1. Totally agree. Even if the deal ends up being a rip off. At least the money benefits our future retirees. Who let’s face it, will need all the help they can get.

      1. Based on the Stuff article from yesterday, it sounds like the government would be effectively underwriting the Superfund investment and so I’m not sure that the Superfund would have a significant financial risk. But there would be far cheaper ways for the govt to use taxpayer money to support the Superfund – they could just give it money directly without having a large portion of it go overseas.

  13. There’s no doubt driverless trains are the future. It might be more expensive upfront but offers massive operational savings year after year. One of the biggest issues in Auckland is the slowness of PT, even the heavy rail lines still feel very languid compared with the norm in many other countries. So I’m coming round to the idea of a proper grade separated or mostly grade separated rather than light rail down the centre of the road. Yes I know, it will have “priority” but I’m sceptical about how well this will actually work. Maybe the Kumeu-CBD line should start first, it would be easier to fully/mostly exclusive ROW.

    1. I’m not being anti, but how do driverless trains cope with problems ?
      I saw a a real problem this morning. I caught the 11.14 am DMU shuttle
      to Pukekohe, and walked to the rear of the front carriage, to my favourite
      seat. I noticed a funny smell, looked down, and there was a heap of
      brown human s**t between two seats.
      Do driverless trains have train managers ?
      I am not making this up, it really happened.

      1. Cameras, passenger feedback, roving transit officers. This happened with a train manager on board, can’t stop every ‘incident’ when thousands of people are using it.

      2. Although, you could look at it another way – it likely only happened because :
        A) there is probably no on-train toilet facility, and quite possibly no working WC at Pukekohe station either.
        B) few people on the train, thereby letting the person feel sufficiently alone to drop their pants and poop.

        Shitty behaviour I agree, but would be resolved by better facilities both on and off the train, and more people onboard would also dissuade that sort of stupid behaviour.

      3. Grumpysmurf, did the driver (or any staff member) do anything? That’s awful.

        I was on an Outer Link last year which stunk to high heaven with dog shit. Most passengers had to hold their clothes over their noses. Not knowing where it was was really unnerving, too.

        The driver did nothing, didn’t really acknowledge. He had fresh air each time the door opened.

        1. Heidi: I pointed the mess out to the TM when he walked through
          the DMU, doing the usual head count. He immediatley used his
          phone (I assume to someone at HQ) and i heard the phrase “take it
          out of service” used, and thats what happened at Pukekohe.
          He did all he could – no complaints there.
          Fortunately there was only three passengers in the car, none of them children.

      4. Well the fact is Grumpysmurf: Driverless trains only exist on grade-separated networks (usually metro’s of some sort).
        And those networks usually have gated entry that keeps a great deal of undesirables out and surveillance cameras galore. Of course, people can still defecate inside trains but they’ve got little chance of not being caught and it gets detected and cleaned up pretty quickly.

    2. Where do you suggest driverless trains be operated releasing they need their own dedicated right away where unwanted vehicles, humans, animals, etc don’t interfere with their operation?

      Remember driverless train systems are gold plated operations and Auckland is not the only region that decent public transport services.

    3. “There’s no doubt driverless trains are the future.”

      Not really. Driverless trains require a completely grade-separated network, which is only a tiny fraction of networks world-wide. The vast majority of trains will continue to be driven by humans for a long time to come.

      1. Why? It’s much easier to automate a guided vehicle like a train than any car or truck. Within twenty years, train driving will be done/monitored from a central control centre for many rail networks, including NZ. It will certainly occur well before self driving cars become feasible.

        1. Erm…. …because there’s a considerably higher chance of the train possibly colliding with something on corridors that aren’t grade-separated.
          By your tone: I don’t think you understand that this isn’t my opinion.

        2. Oh and a considerably higher chance of something damaging/interfering with the sensors that the driverless operation’s control systems need on networks that aren’t grade-separated.

          Plus; those sensors are very expensive to begin with, which is fine for urban networks with heavy traffic but hard to justify on long lines that see few trains a day

        3. Zippo – You need to take off your ‘fully autonomous driving vehicles’ tinted glasses, that driverless vehicles do need their own dedicated rightways so they are not disrupted by unpredictable humans, animals, vehicles. etc.

          Daniel Eyre – I agree with your comments about driverless rail operations need completely grade-separated networks.

        4. Cheers, Kris.
          The other thing I should’ve mentioned is that they’re not really “the future” but pretty much the present. And a decade ago. It’s a pretty established technology.

  14. I’ve got concerns about lock-in. They say that they still haven’t decided what they’re going to do, but there is a real risk with locking into a procurement arrangement before settling on major questions of scope and confirming the business case. It means we could get tied into providing something that is very expensive and leads to the taxpayers or Superfund members paying a lot if the revenue isn’t there. There needs to be some ability to walk away or downscale once the final bill becomes known.

    And why should the Canadians get a safe prioritised return for facilitating the roll-out an expensive solution if we are carrying the can?

    The issue of light rail procurement also came up in parliament question time last week. Bishop was asking why, if the Superfund / Canadian proposal offered such compelling advantages, they had not gone to the wider market to see what others could offer along the lines of the new proposal. Twyford said he was relying on existing guidelines and the advice of officials, but didn’t really provide any substantive reason why they hadn’t gone to the wider market. I think the procedures for this type of situation need to be changed and they should generally be testing the wider market. The Australian experience and the favourable reception given to the Canadian proposal suggests unsolicited proposals will continue to happen.

  15. Well sure hope the government doesn’t take this PPP option. So stupid of thy do and they don’t even beat the risk properly anyway.

    I don’t think National would cancel either version if it was well underway to be quite honest if it stacks up.

    Yes agree with higher up comments that 3 years election cycle is too damn short. I think from memory about the time of the MMP referendum we had the option of 4 years looked at but was too much of a risk getting locked into an unstable government given we hadn’t “trialed” MMP yet one the NZ environment.

  16. I simply can’t believe that an elevated light metro in the style of the Vancouver skytrain would be anything other than vastly more expensive than extending the Onehunga branch into Mangere (and I include the associated cost of double-tracking, degrees of grade separation, new Onehunga platforms, etc).
    It was a stretch for me to accept that even a simple surface-level light rail with its own right-of-way running down Dominion road etc. would be much if any cheaper to begin with, but this is getting crazy.

    And it’s only more reinforcing my impression that the government is really looking for a way to cancel the light rail.

      1. Somebody really didn’t want the Onehunga line extended to Mangere/airport. Steps seem to have been deliberately taken to prevent this being an option. Starting with the Mangere Bridge not being properly designed to accomodate rail and the over ridge south of the existing station.

    1. Daniel Eyre – ‘And it’s only more reinforcing my impression that the government is really looking for a way to cancel the light rail.’

      also Daniel Eyre in the Skypath topic re: new harbour crossing ‘People don’t want to build something that big and expensive without a good reason. Like most things in this world: There’s no conspiracy.’

      Make your mind up mate!

      1. Ahahaha ah no.
        There’s no contradiction here. I’m not presenting any conspiracy, it’s a fact that the government haven’t done anything about that light rail to the airport beyond the election bribe. Soon they’re going to award a tender for just the plan. And the project is not popular with the public.

        No sorry, not the same as these completely alleged theories about the additional harbour crossing.

    2. They did look at the option of extending the Onehunga line back in 2016: https://at.govt.nz/media/1927342/draft-smart-indicative-business-case.pdf

      They thought it would cost about $1b more than extending a light rail already coming down Dominion Rd, while they thought each option would have about a 40 minute or so travel time to Britomart / Aotea. I am not sure if they still think light rail could meet that travel time though.

      I do wonder how the travel time for a link via Onehunga would compare against the light metro option. You’d think it would have a big cost advantage. And while an Onehunga link might be more expensive than an airport rail link via Puhinui, it does provide service through Mangere etc.

      1. That said study was done by the Auckland council and has been highly questioned.
        At any rate; it recommended a different light rail to a Vancouver-style light metro (which would be considerably more expensive)

  17. Relevant – another form of PPP for infra, in this case just piped utilities of new suburbs.

    But also perplexing. Treasury/Minister of Finance said publicly at this years Infrastructure conference that govt will never share central government GST take (aka “Value Capture” from urban growth) with Councils to fund growth infrastructure – but also criticizes any alternative. Are they just control freaks? How *can* we fund new urban growth infra if Treasury denies Councils funding options?

    https://www.interest.co.nz/property/103804/less-certain-and-more-expensive-treasurys-take-complex-model-levy-landowners-pay

  18. The Victorian Government are deciding on another market-led proposal, this time for a new ~$7b rail tunnel to serve Airport and regional trains from Sunshine to Southern Cross Station, proposed by a consortium that includes the Airport and the private owners of Southern Cross Station. They have put $30m into developing their proposal. The government seem wary of it at this stage, particularly because of the access charges that would be levied on regional trains to use the tunnel. The consortium appear to have been quite aggressive in getting local councils who would benefit from the tunnel to lobby on their behalf.

    It is a shame that in the West our privatisation models are only of the Transurban type, where taxpayers pay much higher costs for capital than government borrowing. The model used for one of Tokyo’s newest train lines, the Tsukuba Express, was for the central government to loan a publicly owned company for the cost of building the line at zero interest. The company is owned by a consortium of local and prefecture governments, and includes land value uplift as one of its revenue streams. The debt is therefore off the central government’s books. In an earlier era the Japanese government helped private railways by agglomerating land parcels, and the private company built and operated the line. However this is too risky now, and various tiers of government now take a greater role.

  19. An update from the Thorndon bubble: https://www.stuff.co.nz/national/119863249/government-splits-three-ways-on-light-rail-as-more-details-emerge-of-dramatic-super-fund-plan

    “Labour Ministers are erring towards signing New Zealand up to a long and expensive public-private partnership (PPP), while the Greens are understood to favour something more modest. NZ First wants something more modest still, publicly suggesting that its caucus is likely to axe any proposal put to it. “

    1. From the article: “Cost estimates shared with Stuff by sources familiar with the matter are now as high as $20 billion.”

      Whatever outcomes they wanted to achieve, there are far cheaper options available to achieve them. It would be a terrible investment decision.

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