NZ Super’s 1500-page rail bid is just the start
NZ Super's CEO says the fund and its Canadian partner have done detailed work on Auckland Light Rail but acceptance of their proposal would trigger more negotiations that could take another six months, Dileepa Fonseka reports
A ‘go’ decision on light rail this year will trigger a bevy of negotiations and agreements, one of the bidders in the process has confirmed.
NZ Super Fund CEO Matt Whineray told the Finance and Expenditure select committee on Wednesday morning that NZ Super/CDPQ’s proposal for Auckland light rail had been sitting with officials since December last year.
Whineray said the proposal they submitted was “robust”, but he noted that a decision on it would trigger further negotiations and agreements under the Ministry of Transport's process.
He also walked back an earlier denial from a spokesman that the fund could seek a 7 percent return on the project.
Some have questioned whether choosing a PPP for Auckland Light Rail would be worth it given Crown borrowing costs of less than 1 percent.
Transport Minister Phil Twyford told reporters at a media stand-up on Wednesday afternoon the difference in cost between a PPP or Government borrowing was important but not the only factor.
"The cost of capital is only one factor to be considered, there are an array of other issues."
The Ministry of Transport and Cabinet are weighing up whether the Crown's own agency, NZTA, should build and operate Auckland Light Rail, or if a consortium of NZ Super and Canadian pension fund CDPQ should do so instead.
"We’ve proposed that we own particular aspects of the risk and the Government owns some other bits of the risk, until you resolve that you can’t put a hard number on what you think the required hurdle will therefore be."
Ministry of Transport CEO Peter Mersi told the Transport and Infrastructure select committee last year that the decision on light rail would be on the preferred delivery partner rather than a ‘specific’ light rail solution.
However, Whineray told the committee NZ Super and CDPQ Infra had submitted a detailed 1500-page proposal to the Ministry of Transport last year that contained a cost breakdown with a detailed route, design, and list of stations included.
“Their [MOT] process was to chunk that up and to have different people reviewing it,” Whineray said.
“I’m not surprised that the CEO of MOT hadn’t read it at that point,” he said.
Whineray said a decision on a delivery partner would trigger a negotiation towards an interim project agreement.
He hoped an agreement on that would be reached in less than six months.
Whineray told the committee a detailed planning and development phase would follow that, when design and consenting work would be done.
“So you’ve got a couple of phases, the idea of the interim project agreement is that you can sign that and get people working on all these parallel paths that we need around design and consenting, technology, route alignment, station alignment, etc,” Whineray said.
Whineray also walked back earlier denials by a Super Fund spokesman that its proposals could seek out 7 percent return from its investment.
He told members of the committee that NZ Super sought an 8 percent return across its entire portfolio, similar to the 7 percent return a Stuff report had said the fund could seek from an Auckland Light Rail PPP.
He said whether 8 percent would be the rate of return NZ Super/CDPQ could seek from light rail would depend on the “risk profile” of the project.
“That all depends on this to-be-done discussion with MOT around whose owning which part of the risk here. We’ve proposed that we own particular aspects of the risk and the Government owns some other bits of the risk,” Whineray said.
“Until you resolve that you can’t put a hard number on what you think the required hurdle will therefore be,” he said.
The prospect of an Auckland Light Rail PPP has raised the spectre of contracting costs and other issues that have affected PPPs in the past.
Max Rashbrooke, author of Government for the Public Good, and a critic of PPPs, told Newsroom the actual details around PPPs could change quite significantly between the proposal and the signing of a contract.
Rashbrooke said PPPs often entailed massive contracting costs to obtain “watertight” complex agreements that had to take into account surprises that might arise over a long period of time.
The Guardian reported contracting costs on a London Underground PPP ran to £500m.
Infometrics Economist Brad Olsen said the low cost of Crown borrowing was another reason why it might be more “efficient and straightforward” for the Government to take on the project itself without going through a PPP.
“To the ratings agencies the kind of additional borrowing we could be doing will not materially affect our financial position as a country,” Olsen said.
“We’re trying to find any way possible in New Zealand at the moment to essentially have debt that we don’t call debt,” he said.
“We shift things on-balance sheet and off-balance sheet, effectively all they’re doing is playing a bit of a money-go-round.”
A wide array of lobby groups have already raised concerns around their lack of input into the process.
At the end of last year Bike Auckland, the Employers and Manufacturers Association, Generation Zero, the Automobile Association, Heart of The City and Greater Auckland blog all signed a letter protesting at being kept in the dark about light rail plans for Auckland.
Twyford said the Government would put out a lot more information and engage with the public after a delivery partner was chosen.
Asked whether the public wanted input into the decision between NZ Infra/CDPQ or NZTA, Twyford said he didn't think that was the case.
"I'm not sure that's right, I think what people are concerned about is 'are they going to get a good rapid transit system, where is it going to go, what's it going to look like?' and all of those issues will be the subject of public engagement as soon as Cabinet's made its decision," Twyford said.
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