Sunday, November 09, 2008

National's first chance to pause a Labour pet project

Rail electrification in Auckland. The leftwing dominated ARC is dying for the incoming government to pay for this, with the regional petrol tax the outgoing government voted for. The NZ Herald suggests National would pay for it, I think the incoming government should get a full briefing on the economic and fiscal position before committing to it.

So whilst I'd just kill it in its tracks so to speak, here is a starting point for John Key:

1. Demand a full economic benefit/cost of the project to be independently commissioned by The Treasury, requesting data from the ARC and other Auckland councils, with support from the NZ Transport Agency and MOT. It should highlight clearly:
- Total project capital costs including optimism bias not identified by ARC, and contingency risk.
- The total operating subsidy expected after the project is completed, on a per passenger basis. Compare this to the subsidy per average bus passenger.
- What proportion of new patronage is expected to come from existing bus passengers, existing cyclists and pedestrians, existing motorists and people making new trips they otherwise wouldn't have done.
- The proportion of those costs that ARC is prepared to pay for and what it expects central government and the new petrol tax to pay for.
- The economic value of travel time and vehicle operating cost savings that motorists will gain from the project, and any reductions in public transport subsidies. This should be a range based on a host of sensitivity tests. In other words, will this reduce congestion?
- The counterfactual. What happens if this does not proceed? What more cost effective alternatives exist? This includes buses, and reforming road governance and pricing.

Auckland wont fold if this project is delayed a year, but you do need a decent view on why congestion exists in Auckland, and it isn't because there isn't an electric railway.

Meanwhile, scrap the regional fuel tax - that will help give the economy a boost, ACT should support you on this, and say that as part of the wholesale review of government spending, central government funding of railways will be put on hold beyond that contractually committed.

By the way John, send whoever your incoming Transport Minister will be, with Bill English on a fact finding tour of the USA to see how little difference urban rail projects have done there in relieving congestion, and how much money they have cost. It might give you a new insight on how to deal with Auckland local government - you might wonder why you should listen to the ARC at all given its wholesale acceptance of the Green Party dogma of railways and Smart Growth.

So while I would scrap it John, at least suspend it - let your government get officials and consultants not involved in promoting the project to review it with tight terms of reference - get the facts about how what real value this will provide.

3 comments:

daniel said...

Why is this kind of common sense not standard in govt?

john-ston said...

Liberty Scott, I suspect that even if Key wanted to, he cannot stop electrification for the simple reason that the contract for stringing up the cables has already been let, and to stop it would be far too expensive. To borrow the term, it has been "Britomarted" (that referred to how Christine Fletcher managed to water-tight the Britomart project before she lost office).

In terms of your specific points, here is my perspective

"Total project capital costs including optimism bias not identified by ARC, and contingency risk."

What sort of optimism bias are you talking about? If you are talking about patronage figures, I can point out that patronage spikes as a result of electrification can and do exist - the "sparks" effect is reasonably established.

In terms of cost blowouts, I do think that these need to be seriously considered

"The total operating subsidy expected after the project is completed, on a per passenger basis. Compare this to the subsidy per average bus passenger."

The ARC has estimated that by 2016, the subsidy per kilometre would be very similar to that of bus services. I must add that while there may be bias, the subsidy levels would undoubtedly vary depending on how operations are post-electrification.

I must point out that the Joondulup Line in Perth presently achieves 75% cost recovery, so the scope for low subsidies is certainly there; if the operations are done properly. The problem is that operations are usually done poorly, and Perth has performed the best of the lot.

"What proportion of new patronage is expected to come from existing bus passengers, existing cyclists and pedestrians, existing motorists and people making new trips they otherwise wouldn't have done."

I wouldn't be sure, however, I suspect that there will be a good portion of car drivers that would start utilising those services. For instance, when Perth closed down the Fremantle Line in 1979 and replaced it with buses, patronage on that corridor dropped by 30%. Four years later, when the rail line re-opened, the patronage on that corridor went back up to its old level.

The issue with rail and buses is their average speed. If you have a competing public transport service with a higher average speed, then people are more likely to use the higher speed option. The Northern Busway certainly had an impact on congestion; there has been a 10% drop on traffic on the Harbour Bridge since the Busway opened.

"The proportion of those costs that ARC is prepared to pay for and what it expects central government and the new petrol tax to pay for."

The ARC plans to use the fuel tax to pay for the following

- new EMUs
- stringing up the cables (although, this will be the part of the fuel tax taken by the government)
- an expanded bus network, especially to Stonefields and Flat Bush
- more ferry services

I don't think that the ARC would be able to fund much on their own; they have essentially squeezed as much money as they can to get things to how they are now.

"The counterfactual. What happens if this does not proceed? What more cost effective alternatives exist? This includes buses, and reforming road governance and pricing."

Moving to busways would cost $1 billion; this would include the need to acquire land along rail corridors, and there would be the risk of RMA issues around Hobson Bay.

The primary issue is that various items of rolling stock need replacement within the next five to ten years. I don't think that the ADKs will survive for much more than five years; at the present, they are forty years old and most Australian DMUs were being retired by that age. Similarly, the ADLs are likely to need to be replaced within ten years due to their age as well.

When you consider this, with the cables strung up, you would be best to go with electric rolling stock, as it is less costly. I cannot imagine getting new DMU stock off-the-shelf for a Cape Gauge application.

Furthermore, the problem is that even if the project is delayed a year, you have the ten tonne elephant of the Rugby World Cup - ideally, we would like to see some of the project done by then and minimise the negative image of Auckland's Third World rail fleet; delaying it by a year will mean that tourists will be shipped around Auckland on ageing ADKs and it will leave them with a negative image of Auckland, and by extension New Zealand. Indeed, I don't think we can even toy around with a year due to the state of the ADKs.

"By the way John, send whoever your incoming Transport Minister will be, with Bill English on a fact finding tour of the USA to see how little difference urban rail projects have done there in relieving congestion, and how much money they have cost."

I would also suggest that the incoming Transport Minister and Bill English take the opportunity to visit Perth, Brisbane and Calgary. The failures of the United States have been because of two reasons. Reason one is that they utilise light rail solutions; light rail is slower than heavy rail and as a result is less attractive than heavy rail. Reason two is that many of these projects have been tied in with urban renewal - the Auckland plan isn't going to be tied in with urban renewal.

Of course, Perth and Brisbane are far more similar to Auckland than the United States cities, and so would be better examples.

libertyscott said...

John-ston: I'd be disappointed if you didn't comment. You may be right, but it still should get some thorough appraisal.

By optimism bias I mean costs, the UK government does this, New Zealand should as well. Patronage optimism is an issue as well, I think ranges of confidence need to be established.

Your Perth example is excellent, and would be a great advance. I hope that can be achieved in Auckland.

I'd be less optimistic on congestion, but let the work be done. Northern Busway did parallel major petrol price increases, so cause/effect is difficult to be conclusive of in the short term.

Moving to busways sounds cheaper, in the long run, to me, as renewals are bound to be. However I'd like to see the work done. You're right, others are worth visiting too.

I'm prepared to be convinced that if electrifying rail in Auckland congestion can be reduced and the subsidies for public transport reduced, it could be a good deal - but if Aucklanders can't be convinced to pay through fares or rates, then central government shouldn't pay more than it would otherwise through standard transport funding processes.

I will always oppose subsidising public transport without addressing the price of roads, but it will be a credibility test of how best to spend taxpayers' money to see if this project gets the sort of review I am suggesting.