In January last year, just before the Covid-19 pandemic struck, the government announced a $12 billion spend-up on infrastructure – known as the New Zealand Upgrade Programme. Over half of that, $6.8 billion, was earmarked for a series of major transport projects across the country. A list of these and when they were expected to be under construction is shown below:
While there are some really good projects in there such as the third main and electrification to Pukekohe, both of which are already underway, the bulk of the money is targeted to major roading projects that bizarrely contradict the very outcomes the Government supposedly wants from transport as outlined in the Government Policy Statement – emissions reductions, mode shift etc.
Over the past year and a bit, since these projects were first announced, a lot has happened. Not just the Covid-19 pandemic, but also the Government declared a climate emergency and the Climate Commission provided some pretty sharp advice on the importance of reducing transport emissions.
Meanwhile, it seems like the estimated costs for delivering these NZUP projects has increased a lot – meaning the Government now faces some tough decisions. An article on Stuff yesterday highlighted the issue:
In January last year, the Government announced the NZ Upgrade Programme, a $12 billion infrastructure package which included upgrades to schools, hospitals and infrastructure needed to combat climate change.
The centrepiece of the project was $6.8b lavished on transport projects of which $5.3b was to be spent on roads.
The $5.3b cost of those projects was taken from the best estimates of Waka Kotahi-NZTA at the time. After the projects were green lit, Waka Kotahi went back and did a more detailed costing of the roads, a practice known as baselining.
Documents released to Stuff under the Official Information Act show that this took almost a year. Each month, officials provided an update to the Transport Minister Phil Twyford and later Michael Wood.
Some of these briefings warned that the baselines were facing pressures that could push costs significantly higher than those forecast in January 2020. They also warn that there is no contingency fund built into the Upgrade funding for transport, meaning any overruns will force Wood to go back to the Finance Minister for more money.
Wood has finally received advice based on those baselines. When asked by Stuff about the cost pressures mentioned in the OIAs, Wood said that the baselines responded to cost escalation seen across the country post-Covid.
When the projects were first announced, my initial reaction was that the costs seemed incredibly high. For example, the $247 million to deliver a couple of train stations in Drury seemed outrageous, especially when the huge upgrade of Puhinui to a major bus/rail interchange is being built for much less than half that amount.
If costs have increased substantially from the seemingly generous numbers used when NZUP was first announced, it raises some major concerns around the competency of Waka Kotahi, in particular:
- In their ability to manage costs, a recurring theme in recent times.
- The process they undertook to recommend these projects in the first – was anything other than pulling their wish-list out of the drawer?
On the other hand though, a fresh look at the NZ Upgrade Programme may turn out to be a blessing in disguise, giving the government a chance to scale back the programme to something more in line with their own policy statement.
Accelerating the delivery of the most costly project – Mill Road – was a particularly bizarre decision and one in need of a rethink as it not only ran contrary to many key outcomes the Government is interested in, like mode shift and reducing emissions, but it also directly undermined the phased approach to delivering this corridor that had been outlined in the 2018 version of ATAP:
Wider planning for the south has emphasised for years the importance of achieving substantial public transport mode share – so that significant growth can be accommodated without seeing enormous car dependency and absolute gridlock. Significant investment in the rail system was included in NZUP – a third main, electrification to Pukekohe and new stations – only for Mill Road to completely undermine that strategy.
Bringing Mill Rd forward in such a way also created a headache for the Council as impacts their future urban land release strategy and mean they suddenly need to find about $600 million to build or upgrade a bunch of other local roads in the area, at a time when there is already budget issues.
Interestingly, the Stuff article highlights how the NZ Upgrade Programme’s unusual funding arrangements – with money coming directly from the Government rather than from normal transport budgets – means any cost blowouts are now competing against everything else the Government spends money on, like health and education.
The baselines are now with the Minister, who has difficult decisions to make: he could either rescope the projects, paring them back into cheaper versions of what was promised; he could knock on the Finance Minister’s door for more money; or he could drop some projects entirely.
Part of the problem Wood faces is the way the Upgrade Programme was financed. Nearly all road projects in New Zealand are paid for by Waka Kotahi using money collected mainly from fuel taxes and road user charges. The Upgrade programme went in over the top of this and funded roads using debt and taxation.
The problem for Wood is that any additional funding for the Upgrade projects will also have to come from debt and taxation. That means Wood will have to compete with other Ministers for the very limited pool of new capital spending, should his projects need extra funding.
Officials warned Wood that the “Crown funds set up under the term of the last Government have limited (or no contingency) available it is likely that Ministerial decisions will be required to resolve cost pressures and/or re-scope projects across the Crown portfolio”.
“Changes to the project or programme baselines require approval from the Ministers of Finance and Transport,” officials said.
The Government could decide to top-up the programme in the Budget. The current multi-year Capital allowance is $7.8b across the next four budgets – about $1.8b a year. But that money is hotly contested by all ministers, who might object to Transport taking money to top up their own projects.
With debt levels now way higher than they would have possibly been envisaged to be back when NZUP was first announced, and huge funding pressures elsewhere on the Government’s books arising from Covid-19, it would be incredibly surprising if the Government did ‘top up’ funding for projects in NZUP like Mill Road that actually undermine their very own transport strategy. The existing transport budget is already stretched too so there’s no capacity to top up the programme from fuel taxes and road user charges.
Hopefully what we will see coming out of this baselining process is a fresh look at NZUP, with the projects that actually align with the Government’s wider goals (like the Northern Pathway) proceeding and those which undermine their goals being stopped or significantly wound back.
Maybe we might even see a bit of reallocation away from these mega projects and towards many small-scale projects that could make a really big difference, but are currently unfunded.
Finally, one thing we can expect, the sprawl/highway industrial complex is going to get very loud about about this. We can likely expect regular articles about how not building some of these roads in the middle of nowhere is preventing housing and be a calamity for the construction industry, even though things are expected to be busier than ever.