Tuesday, November 01, 2005

Transmission Gully - The Real Story - Part 3

In Part 2 I outlined the commitment Transit made to Transmission Gully, and the steps it took in the interim to ease the problems along the highway given limited funding. Transit also started to pursue Transmission Gully tentatively, gaining a land designation, buying properties and starting to plant trees on parts of the route needed for environmental mitigation. Part 3 looks at the blow out of costs that came from the first detailed investigation into the project, the response to that cost blow out and the start of the Western Corridor Transportation Study. This part also tracks increased funding for Wellington transport under the post-1999 Labour government, up till the Study.
Transmission Gully cost blow-out

Transit received the result of the detailed investigation into the Transmission Gully project in 2004. Instead of costing around $250-$270 million, it now cost around $830 million. Although there was an inflationary element, this would not account for a 350% discrepancy – the project had been underscoped. Building a four-lane motorway along this faultine, with steep gradients, soft earth with hard rock was far more expensive than previously considered. Remember Transmission Gully’s inclines would be as steep as Ngauranga Gorge, but three time as long. The benefit/cost ratio, dropped roughly speaking from 2.3:1 to, at best, around 0.8:1. Remember, 1:1 means the project breaks even. Treasury used to argue in the early to mid 1990s that it was worthwhile to proceed with all projects with a benefit/cost ratio of 2.5:1 or above. Until the late 1980s, projects with a benefit/cost ratio of 2:1 and above were routinely funded. However, Transmission Gully wasn’t just more expensive, it didn't generate any surplus benefits, its benefits didn't even cover its costs - it simply wasn’t worth building anymore.

Even taking into account the two increases in land transport funding committed by Labour (in 2002 and 2005), an $830 million Transmission Gully would be 30 years away. Arguably if nothing was done with the highway over 15-20 years, Transmission Gully would become a viable project, if only because delays would have become extreme - not the pathetic delays for traffic noticeable around Wellington, but the sort of delays London, Los Angeles and Paris encounter - such as 2 hour journey times from Wellington to Paraparaumu.
At $830 million, a toll would now recover less than 10% of the construction cost, and no private investor would want to touch it. While a few Opposition politicians and industry lobbyists argued the reason Transmission Gully wasn't being built was the Land Transport Management Act making Private/Public Partnerships and toll roads difficult to build - the truth was that Transmission Gully generated no serious interest from the private sector- unless central or local government were willing to cough up most of the cost. 90% taxpayer, 10% private sector is hardly a partnership - and no changes to legislation would change what a dog of a project Transmission Gully had become.

Of course the facts didn’t stop noisy commentators insisting that this didn’t matter – Peter Dunne didn’t care about cost. Like any MP seeking political capital, he was keen to spend other people’s money. Kapiti Wellington Regional Councillor Chris Turver argued naively that the cost increase was “Transit’s fault” and that the government should go out to tender and let someone else build it. He was completely ignorant that Transit doesn’t actually build roads, it DOES go to tender to get roads built (and had been doing so for over a decade). Having some responsibility for managing the state highway system, and contracting Wellington's rail system respectively, Transit and the Wellington Regional Council agreed that a more comprehensive analysis was needed of all of the options along the route.

This included reconsidering the coastal option, as it was not reasonable to simply assume that that route increased in cost proportionately. Also, given the Land Transport Management Act, Transit and councils were required to look more broadly than roads – and see what public transport and demand management measures could do. The Western Corridor Study was commissioned by Transit and the Wellington Regional Council - to study all of State Highway 1 from the Ngauranga Interchange to Peka Peka north of Waikanae, and the railway line. It was commissioned to determine:

1. The most serious problems along the corridor;
2. Options available to address those problems;
3. Develop packages of options;
4. Public opinion on the most serious problems and options.

The Study would eliminate options that had little or no merit (e.g. upgrading Akatarawa Road to a full highway or a rail link from Porirua to the Hutt), and soberly consider all of the issues. Despite media coverage to the contrary, it was the first comprehensive transport study of the corridor for decades.
A similar study had been carried out for the Hutt Corridor previously, which formed the basis for the Hutt Corridor Plan, which, broadly speaking, Transit and the local authorities were following.

Maunsell ( a respected consultant on transport infrastructure modelling and design) got the contract for the Western Corridor Transportation Study.

Meanwhile, Transit gained funding for the Mackays Crossing overbridge, at the northern extremity of Transmission Gully – and the part of state highway 1 that generates the most publicity. Another worthwhile project that will reduce congestion, and which would fit it well with either Transmissiom Gully or 4-laning of the existing highway towards Paekakariki.

Meanwhile – more funding

As mentioned in Part 1, Labour changed the funding framework for roading to move from benefit/cost ratios to a more strategic consideration of funding priorities and ultimately funding the objectives of the New Zealand Transport Strategy:

- economic development;
- safety and personal security;
- access and mobility;
- public health; and
- environmental sustainability.

In addition, economic efficiency was to be taken into account. In summary, it meant that while benefit/cost ratios were a useful tool to rank projects, they would not guarantee funding or necessarily stop funding of a project. While the higher the benefit/cost ratio the more likely (and lower the less likely) a project would be funded, the expected final cutoff would be 1:1. No project would be expected to proceed if its benefits did not, at least, equal costs – nor should it. Anyone would be mad to want anything funded that isn’t worth it.

While the funding framework had changed, the levels of funding were also addressed. In late 2003, the government announced a boost in land transport funding over ten years – largely to address Auckland congestion, but also providing funds for the whole country. Auckland would get $900 million of Crown funds, not funds from road users (although as road users nationwide contribute $600 million per annum to the Crown, it can be argued they did pay), over ten years for land transport projects. This meant roads and public transport. In addition, a 5c a litre increase in petrol tax (and similar increase in light road user charges) would provide more funds over that time. That petrol tax/RUC revenue would be allocated towards projects on a region by region basis, according to population – Auckland would get 35%, Wellington around 11% - the argument being that it would provide a pool of funds to accelerate projects in the regions where the petrol tax was being paid. In Wellington this meant around $220 million more over ten years (starting in 2005/06).

Both the Auckland Crown funding and the new regionally allocated funding would be allocated by Land Transport New Zealand (formerly Transfund), taking into account regional priorities. The funds would be available to Transit and local authorities for state highways, local roads and public transport projects. At the time of writing, Wellington councils had yet to fully prioritise where they wanted this funding to go – but this provide scope for more roads to be built. However, given the scale of Transmission Gully, this extra funding would do little to progress it. This is more a reflection of the sheer size of the Transmission Gully project – compare the approximate costs of projects as follows:

Transmission Gully $830 million (the 2004 estimate)
Inner City Bypass $39 million
Mackays Crossing overbridge $21 million
Kaitoke Hill realignment $16 million
Dowse to Petone upgrade $79 million

Wellington transport project

While accepting that there would be more funding forthcoming in 2005, thanks to the petrol tax increase (and a commitment to indexing petrol tax and light road user charges to inflation annually, and all that funding going to the National Land Transport Fund), there was still a major gap between funding and expectations in the Wellington region. This largely was due to desire to progress big roading projects such as Transmission Gully, and the Wellington rail project. The latter in particular had a gap of local funding – Land Transport NZ had effectively committed itself to funding its share (60%) of the basic Wellington rail upgrade package (carriage replacement and refurbishment, station upgrades, other infrastructure upgrades), but the Wellington Regional Council claimed it could not meet its share.

As a result, several Wellington Labour MPs (Swain, Hobbs, Mallard, King) lobbied then Transport Minister Pete Hodgson for a Crown injection of funding for Wellington transport similar to the $900 million provided for Auckland.

Officials of The Treasury, Ministry of Transport and local government worked for several months in a joint process, similar to that which preceded the Auckland package, and concluded in a report that recommended some additional funding primarily for roading and public transport, without specifying a precise amount (but giving a range of options). The Wellington transport project final report also concluded that perhaps $250 million more would have been usefully contributed by the Crown

Cabinet decided to contribute $225 million which would be spent on roading and public transport, including helping the Wellington Regional Council pay for the 40% share of the rail project. The Wellington Regional Council also had to raise rates to contribute – but in effect, this package meant that Wellington’s passenger rail system had secure funding for upgrades for the next ten years. Much of that will be seen in more reliable signaling, integrated ticketing, real time public transport information systems, a second refurbishment of the Ganz Mavag electric rail units and a replacement of the old Johnsonville/Melling line English Electric units in due course (an interim refurbishment is underway now).

The $225 million basically gave Wellington what it needed to maintain and enhance its public transport system reasonably over ten years, but also around $100 million of that was expected to go on roads. Projects such as the Melling interchange (getting rid of the congested set of lights at that bridge), a flyover at the Basin Reserve and advancing stages of the Kapiti Western Link Road were mooted as getting funding from that package – but it would be far from enough to progress Transmission Gully.

In essence, Labour was giving Wellington back about one-third of the petrol tax it took every year for the Crown account – for ten years- effectively 6.3c a litre for every Wellington motorist out of the 18.7c/l that goes to the Crown account. Pretty much a start that National – quantitatively – would find hard to argue against.

However, that $225 million was announced as only the first part of Crown funding for Wellington. That funding would be enough for Wellington, except the Western Corridor (although Western Corridor projects were recognised as benefiting from those funds – new trains would run to Paraparaumu, and some roading projects on the corridor could proceed) – the Minister of Transport said that a further tranch of funding could be made available once more information about what was needed on the Western Corridor existed. That information was to come from the study. Given that the Wellington transport project report recommended $250 million on top of that, it would be fair to say that the benchmark for an increased contribution was that – but until the Western Corridor Study was completed – nothing more could be said.

In two days time (I am away tomorrow): What did the study conclude? What further funding did the Government provide and under what conditions?

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