Week in Review

Will we find out Auckland’s light rail builder in 2020?

It is easier to say what will NOT happen with Auckland Light Rail than it is to say what will.  A light rail carriage will not travel down Dominion Rd and spades will not go in the ground this year - but will we find out who will build the system?

There’s a possibility nobody will be selected to build light rail this year, but we will have, apparently by mid-year, a decision on who pays for it. 

This was first reported in a Newsroom story last year when Ministry of Transport CEO Peter Mersi outlined that the light rail decision due this year was for a “delivery partner” not a “specific solution” for Auckland light rail. 

The elongated timeline this creates has been acknowledged by Minister Phil Twyford who has said it will likely take two years to plan and purchase land for the project then several more years to build it. 

But this year the Government will choose between two proposals to run the procurement of Auckland Light Rail and that procurer will design and later select the construction firm that ultimately builds it. 

Twyford expects Cabinet to make that decision by the middle of the year.

The choice is between the New Zealand Transport Agency and a joint proposal by the NZ Superannuation Fund and Caisse de dépôt et placement du Québec (CDPQ) Infra, a wholly owned subsidiary of a Canadian pension fund. 

Twyford has promoted the latter as a historic “public-public” partnership that would pay the pensions of New Zealanders.

But it would also pay for the pensions of Canadians and this part of the scheme is understood to have prompted some objections from New Zealand First around the amount of money that could potentially go overseas.

Other concerns have been expressed about what some see as a dramatic change in the scope of the project. 

Twyford says the CDPQ deal represents the chance for a historic "public-public" partnership. Photo: Lynn Grieveson

Auckland Transport’s original proposals for a light rail system, later handed over to NZTA when the Government took over, were intended to solve a relatively simple problem. 

Like almost everything else in the city, Auckland’s bus network was nearing capacity, Auckland Transport argued. A light rail network could solve this by carrying more passengers. 

And a $3 billion street car system down Dominion Rd could facilitate housing intensification in central Auckland. 

The system would extend out to the airport but a fast trip to the airport wouldn’t be its main aim. It is understood this plan would have achieved a trip to the airport in just under 50 minutes - slower than an alternative like heavy rail and similar to what the SkyBus offers Aucklanders now.

CDPQ is said to be promoting something different to a slow light rail system: a rapid transit system separated from the road that would achieve a 30 minute trip to the airport with four well-placed stops in-between. 

To achieve that speed some portions of the rail system would need to be suspended in the air, other parts would need to be underground and there would be fewer stops.

The term 'light rail' can describe about seven different types of public transport system from a slow tram to a heavy rail-like system reaching speeds of up to 150 km/h.

CDPQ’s proposal was closer to the heavy rail end and the longer distance between stops would likely mean less housing intensification. 

People would have to walk a greater distance to get to the station but the thinking goes a faster commute could do more to encourage “mode shift” from private cars onto public transport.

Some also argue that there would still be opportunities to intensify housing at key light rail stops and the intensification could be stronger, meaning the same number of houses would be created in Auckland overall no matter which mode of light rail was chosen.

But what it may come down to is not really a question of public transport, quick commutes to the airport, or housing but money. 

Show me the money

Twyford has said that over half of the route work will have been completed by the time both NZTA and CDPQ present their proposals and will be part of the presentations they make to the Ministry of Transport. 

That has caused some to say the process is going “in reverse” as Auckland Transport’s initial presentation had a route locked down and was almost shovel-ready according to an interview former AT chair Lester Levy gave Stuff last year.

Getting the airport trip time down to 30 minutes might even involve bypassing Dominion Rd entirely. 

But that isn’t what forms the crux of the difference between the two proposals. 

NZTA’s proposal would be fully public funded while NZ Infra/CDPQ would have the Government pay almost nothing upfront.

It is understood CDPQ’s initial proposals suggested giving NZ Infra and CDPQ the right to develop on land around the tracks and having the Government pay for light rail only after patronage on the service exceeded a certain level. 

Kāinga Ora legislation, likely to pass this year, giving Government and delegated entities the right to acquire land in a similar fashion to the Public Works Act, could well pave the way for such a deal. 

That would mean allowing CDPQ to carry the risk of any cost blow-outs during the construction phase and also insulate the Government against lower-than-expected patronage.

Aucklanders don't have to worry about road cones going up around a light rail route next year. Photo: Lynn Grieveson

But it could carry a steep cost in the long-term and light rail patrons and the Government could be stuck paying it back for up to 100 years. 

The risk the project carries would likely mean the Government will pay more to Canadian investors than it would have had it simply borrowed the money itself.

That latter option may not be totally off the cards though, even though the Government has reached the outer limits of its Budget responsibility rules pledge. 

In December last year NZTA put out an Investment Decision-Making Framework (IDMF) Review floating the idea of reducing the discount rate it uses when it analyses the costs and benefits of a project. It suggested the rate could go down to 4 percent from the previous 6 percent.

That means future pay-offs for NZTA-funded projects will have more weight when they’re assessed against present-day costs.

It brings it more in line with the rate of return NZ Super Fund expects from its investments in the long-term (as of last week hovering at 3.9 percent) and well below the five year annualised rate of return CDPQ delivered on its infrastructure portfolio in its last annual report (10.4 percent). 

But with interest rates declining and pension funds struggling to find investments that deliver a slow consistent return over a long period of time CDPQ will be willing to take a lower rate of return than it has taken on its past infrastructure investments too. 

The decision, likely to be reached this year, could come down to one question: should we borrow now or pay later?

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This was the final story in the ongoing series on Newsroom Pro of the 8 Big Questions for 2020.

1. Will Labour win a second term?

2. Will Donald Trump be re-elected and should we care?

3. Will New Zealand let Huawei build any part of Spark's network?

4. Will Rio Tinto shut down Tiwai Pt?

5. Will NZME and Stuff merge?

6. Will New Zealand regulate Big Tech?

7. Will New Zealand conclude a trade deal with the EU and or UK?

8. Will the Government appoint an Auckland Light Rail builder?

Get it early – This article was first published on Newsroom Pro and/or included in Bernard Hickey’s ‘8 Things’ morning email of the latest in-depth business and political analysis. Get it early by subscribing now or starting a 28-day free trial.

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