Rail loop cost blowout highlights our infrastructure headaches
Infrastructure Minister Shane Jones isn’t waiting for his prized new “i-body” to begin before encouraging Treasury’s expert advisers to think about innovative solutions for an estimated $500 million-$1 billion cost blowout on the Auckland central rail loop.
Jones says the expected blowout on a major project, which resulted from an election promise by former Auckland mayor Len Brown, is proof of why an independent Infrastructure Commission is so necessary.
Jones contention is that Brown pushed for the scheme and “got the last regime over the line” in an atmosphere that was too coloured by politics rather than sound decisionmaking. The upshot is the National Government agreed to fund the central rail loop 50-50 with Auckland Council. The project cost has since escalated due to a range of pressures — not the least of which is the city’s growth rate and the greater uptake of public transport by Aucklanders.
Six months ago, the Herald reported the city’s proposed new underground rail lines will reach capacity 36,000 passengers per hour by 2035 (just 10 years after the central loop opens) instead of by 2045. Last month, the Weekend Herald reported council sources saying the blowout could be between $500m-$1b.
Current Mayor Phil Goff and Finance Minister Grant Robertson say they have yet to be presented with formal advice on the blowout size. But if the funding deficit has to be met upfront, it will cause problems for each partner. Robertson’s focus is his Crown debt reduction targets. Auckland Council is up against its own funding constraints.
Robertson yesterday told the annual finance breakfast in Auckland that the infrastructure commission was critical. “It is the place where we want to talk about the innovative financing methods … about how we can use not only the balance sheet of government and local government but also of the private sector and how we can drive forward our infrastructure needs”.
With the Government’s May 30 budget cycle well underway, solving the issues relating to the central rail loop is critical.
Jones says this is where Treasury’s expert advisers on the “i-body” (or the New Zealand Infrastructure Commission, Te Waihanga as it is formally known) come into play.
Former investment banker Simon Allen, who chairs the expert panel, was a pioneer in the use of special purpose vehicles while serving as chair of Crown Infrastructure Partners and, with Auckland Council adviser John Duncan, has been instrumental in building support for innovative financing solutions.
Allen was the inaugural chair of the NZX and also the Financial Markets Authority. He has also been a director of ABN Amro Craigs and Auckland Healthcare.
Crucially the expert panel is also bolstered by Infrastructure New South Wales CEO Jim Betts. Betts’ expertise is undoubted. He led the development of the NSW 2014 State Infrastructure Update and the recent 2018 State Infrastructure Strategy, providing more than 200 projects and policy recommendations to that Government. Since the establishment of Projects NSW in 2015, Betts has also been responsible for the delivery of the state’s infrastructure priorities.
The remaining expert panel members are John Rae, who chairs the National Infrastructure Advisory board, NZTA strategy manager Jenny Chetwynd, National Infrastructure Advisory board member Fiona Mules and newly-appointed Minter Ellison Rudd Watts chair Sarah Sinclair.
Jones’ expectation is that both Allen and Rae will go on to serve on the commission. The commission’s task is to forge a consensus on longterm infrastructure strategy, enable infrastructure planning to be coordinated and provide advice and the best practical support to infrastructure initiatives.
Importantly, the commission will have procurement and delivery support functions. The Treasury’s Infrastructure Transactions Unit will later move into the commission.
Jones is clear the commission must not be stacked with corporate sector appointees. He would like to see one appointee with on the ground experience — possibly a unionist.
The central rail loop funding issue is likely to catalyse Auckland Council to also look at innovating funding options.
Then there is the role of the NZ Super Fund. The way in which the Super Fund slapped down its bid to fund the Auckland light rail project removed vital competitive tension from the process to the chagrin of some senior politicians.
It is moot that this would not be possible in the new environment.
The fund has also suggested international investors pay a concessionary tax rate of 14 per cent on profits made in New Zealand on unique signature infrastructure projects (instead of the 28 per cent corporate rate).
The Michael Cullen-led tax working group agrees and has recommended the Government considers the development of a carefully designed regime to encourage investment into large, nationally significant infrastructure projects that both “serve the national interest and require unique international project expertise to succeed”.
This is a purely political choice. One that may be made before the commission kicks off.