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.
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?
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.