Last week the Herald ran their annual Project Auckland report which focuses primarily on the being built and talked about. I was asked to write something on what is important for the government consider in their upcoming decision on Light Rail.
Given most people are unlikely to have seen it, I thought I’d also post it here – even though they managed to spell my name wrong. For regular readers most of this should be nothing new.
We can’t risk railroading of Auckland’s transport planning
In the coming weeks, the government will make a critical decision: who it will partner with to deliver light rail in Auckland. The choice is between two competing bids, one from their own transport delivery agency Waka Kotahi (NZTA) and one from NZ Infra, a joint venture between the NZ Super Fund and Caisse de dépôt et placement du Québec (CDPQ), a Quebec-based pension fund.
At the highest level, the decision is twofold: what will be built and how it will be paid for.
The choice of a delivery partner currently rests on the financing aspect. But both bidders were required to submit technical solutions, which will form the basis for the more detailed discussion and planning yet to come.
According to Minister of Transport Phil Twyford, both proposals now involve metro-style driverless trains, which would run alongside the motorway from the airport, then through the isthmus via a combination of elevated, trenched and underground sections.
This is a departure from previous planning for Auckland light rail, and is similar to Vancouver’s SkyTrain and Copenhagen’s Metro – as well as a line CDPQ is currently building in Montreal.
There are numerous benefits to the new approach, but the key downside is higher costs. The $4.5 billion City Rail Link shows the cost and level of disruption caused by digging through the city centre. Is the government comfortable to repeat that, and more, when for the same money they could build 2-3 more conventional, but still high-quality, light rail lines? The latter option would bring desperately needed high-quality public transport to a wider proportion of Auckland, and sooner.
At this stage, the financing side is the focus. A key factor in the recently announced $12 billion New Zealand Upgrade Programme is that the government is now capable of borrowing at near record low levels of less than 1.5%. The NZ Infra proposal would need to be extraordinary to appeal as an alternative to those low borrowing rates.
The minister has described the NZ Infra bid as “unique and compelling”. He has also characterised it as a “Public-Public Partnership”, saying “every time you ride a train to work, you’re effectively paying for your retirement”.
In fact, you’d be disproportionately paying for other people’s retirements.
The Montreal project mentioned earlier is the expected blueprint for NZ Infra’s Auckland bid. There, in return for providing half of the CA$6.5 billion construction costs, CDPQ gets a 70% stake in the resulting infrastructure. The local and provincial governments are on the hook for the operational costs of running services; plus a distance-based fee to cover the capital costs. CDPQ gets first bite at that fee until they achieve an 8-9% annual return, which they will enjoy for 99 years.
We understand the equivalent proposal for Auckland would run for 50 years, but CDPQ’s stake would be 70% of the upfront funding, and of the returns.
So the government is effectively deciding whether to sign up our children’s children to a 50-year deal, the profits of which would largely go into Canadian retirement funds. This doesn’t sound like a compelling investment in our future.
Even to get to this point, the process has been unusual. Best practice for developing major projects is to first identify and analyse the problems you face, then explore the best options to solve them. Only once that work is done should you consider funding models and how to engage with the market to deliver the chosen solution.
Those first two stages typically involve major engagement with stakeholders and the public, whose feedback helps shape the project to ensure the best outcomes.
Here, that process has been turned on its head. The government is leaping to consider who’ll fund and build something before working out what the something actually is.
A handy example of the risks of this approach is Melbourne’s Westgate Tunnel. After the deal was signed, the budget blew up from $5.5 to $6.7 billion – to mitigate community concerns that would normally have been discovered earlier in the process.
Similar cost escalations here would have political and economic implications, and could put the entire project at risk. Auckland’s history is already littered with grand schemes that failed for cost and political reasons, and many missed opportunities to get it right.
Australia’s experience also tells us that once large-scale infrastructure like this is privatised, the owner can start demanding greater influence over what happens in other parts of the city. In our case, this could range from dictating the location of parking and local bus routes, to preventing delivery of other large strategic projects if they’re seen as a threat to profitability.
Light rail, done well, will open up Auckland for success. We simply cannot risk transport planning in our powerhouse city being railroaded by a poorly-devised private ownership model.
After submitting the piece the NZ SuperFund confirmed in a parliament select committee that CDPQ does not have a 70% stake in NZ Infra but they also haven’t denied a rumour that they’re seeking a 7% return from the deal. I don’t have any specific information about that but the companies office registration shows NZ Super Fund and CDPQ both having a 50% stake in NZ Infra Ltd.
Now we await the government’s decision.