Price tag for Auckland rail link balloons

Associate Finance Minster Steven Joyce (Photo: Tinaz Karbhari)

Bridges on CRL “It’s not a case of spray and walk away, handing over some money at a set amount and leaving Auckland to it.”

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The price tag on Auckland’s underground rail link has increased to between $2.8 and $3.4 billion, up from a previous forecast of $2.5 billion.

The government today signed the heads of agreement, under which it will fund 50% of the City Rail Link (CRL) project.

The heads of agreement outlines arrangements for establishing an independent Special Purpose Entity to deliver the CRL, working with Auckland Transport, KiwiRail and others as necessary.

There is no mention in the government's announcement on whether it will pay half of the $400 million enabling works. The council last year introduced a ratepayer and business transport levy to help pay for the works. There is also no indication how the $100 million a year operating costs for the CRL will be paid for. The council has been keen to introduce motorway toll charges or a congestion tax. 

The technical and operational aspects of project delivery are to be carried out by Auckland Transport working to the City Rail Link company.

Auckland accounts for about a third of the Local Government Funding Agency's $6.6 billion in loans, below the 40 percent limit. The city can also raise debt internationally and has a retail bond programme on the NZX debt market. 

Despite the announcement, the chances of the cost of the project blowing out were almost a given, as reported by NBR in April.

Research on 44 international rail developments shows the average cost escalation of each project was 45%.

CRL project director Chris Meale told the council’s governing body in March that "conversations on this issue are just starting with the government.

“There is always a risk of a budget blowout, but one of the keys to the project’s four work packages is how we manage, in a construction sense, the risks associated with the project.

“We have tried to structure the project in the best way possible to avoid the known hazards. The real test of the cost will be when the constructors put their cards on the line as they tender for the work packages.”

Mr Meale says the team is itself working out the best assessment it can of construction costs before tenders go out by continually reviewing the project’s designs.  

In 2013, the government agreed to jointly fund the CRL 50:50 with Auckland Council but to not provide its share until 2020.

But in January, Prime Minster John Key announced the government was to accelerate the delivery of the CRL by pitching in half the funding two years early.

In June this year, however, he admitted the CRL will “almost certainly cost more than they [had originally] thought.”

A more detailed sponsors’ agreement will be developed in the coming months to give effect to the Crown’s and council’s commitments. The government will start to make the Crown funding available once this is in place – which may be as early as 2017.

Associate Finance Minster Steven Joyce says the agreement between the government and the Auckland City Council is an “important milestone” in the CRL project, a 3.4-kilometre underground tunnel between Britomart and Mt Eden.

“The heads of agreement sets out in-principle commitments from the government and Auckland Council and contains broader funding, governance and risk management arrangements,” he says.

“It also outlines arrangements for establishing an independent Special Purpose Entity to deliver the CRL, working with Auckland Transport, KiwiRail and others as necessary.”

Auckland Mayor Len Brown described the signing of the agreement as an "unprecedented and historic milestone." 

Meanwhile, Auckland council member Cameron Brewer says the escalation in the price tag is "exactly what we feared."

"We now know the revised funding envelope, but no one still has any idea of the full and final costs. That will remain the worry for some years." 

He says another big funding hole that still needs to be addressed is the $100m plus shortfall that’s required to be found each and every year once the project is complete to keep the 3.4km CRL operational.

Deal to ease pressure on council's balance sheet
The city rail link deal with central government "will take some pressure off Auckland Council's balance sheet," chairman Craig Stobo told a Local Government New Zealand (LGNZ) briefing in Wellington. "We think we've got some capacity for them." 

LGFA's lending to 51 councils was 24% higher than in August 2015, though the amount of debt local bodies had taken on was smaller than projected in their long-term plans with some capital expenditure projects deferred for a year. 

Stobo said the agency was focused on the fastest growing councils and didn't have any concerns about LGFA's ability to fund capital expenditure programmes. 

LGNZ president, and Hastings district mayor, Lawrence Yule says capital spending intentions were typically scaled back from those projected in the long-term plans as councils contend with tensions over rates increases and spending priorities. 

"There's an argument that some councils aren't spending enough on capex to repair infrastructure - I think that's a strong argument," Yule says.

"That same view is shared by the Office of the Auditor General - it's not just worrying about councils that borrow too much, it's actually (that) some councils aren't borrowing enough to fund infrastructure planning."

Last December, the Auditor General's report on 2015-25 local authority long-term plans found common weaknesses undermining infrastructure strategies were unclear on the effects of an aging society, lacked analysis to show the financial sustainability and affordability of projects, didn't make clear the long-term impacts of projects, and didn't take a deep enough view of long-term economic activities. 

(With reporting from BusinessDesk)

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Rates increases or transport levies will balloon too...

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$5B by the time it's finished.

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Seems a reasonable bet given almost every single major infrastructure project in the history of man has gone at least 2X over budget. 

The real question is: who'll pay for the inevitable overrun? Will the council and government still go 50:50?

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It'd be interesting to see or calculate the cost vs actual (not made up projections) utilisation.

The western Auckland link summarises what a joke choo-Choo gate is. When sitting at a rail crossing, having waited eternity for the choo-Choo, it has become sport for our kids to spot and count the passenger (s) on the train. You'll be lucky, even at peak hour most days, to spot a reliable 10, city bound morning.

Auckland's train routes ought to have been built as the city did. This hasn't happened. The key issue now is people have to drive significant distances to get to a train station which takes you to places nowhere you want to go. The acid test will be how many of the $800m / 10000 employees will use it.

Len's choo-Choo set is historic in being as big and costly flop as his mayoralty (and extra-mayrolty antics).

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Why don't you look at ridership statistics from 200o or thereabouts through 2015? That's a lot more meaningul than citing anecdotal "evidence" from your kids' entertainment.

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It's been the same for 3 years. The only increase appears to be in the prices of tickets which is probably the cause behind persistently low patronage utilisation. The under utilised trains in Auckland are a waste of time and money.

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Ps: what is ridership?

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This is an exaggeration, but it would be surely have been more sensible to close the west rail line and use it as a light rail corridor with street trams running into off Symonds st and Parnell road and trams branching off the light rail corridor down Dominion Rd and past Eden Park etc. Rather than the recent electrification of the old Auckland suburban rail sytem and the reinstalling of of an updated electic heavy rail unit system in Wellington , still incredibly powered by old obsolete Direct current substations, rather than the AC used in Auckland and on the NIMT, it would surely have been cheaper to have completed AC electrification from Auckland to Wellington and just used light rail on the other suburban lines. In terms of the rising price of the loop, surely a longer route for the main tunnel , using cut and cover, say running under Victoria Park, Ponsonby road, on the surface on the side of Williamson road, under Bond st, cut and cover, running below the bridge, over the motorway, on a clip on, under the bridge, to connect with the west line just before Kingsland station while much longer, would have little risk and be far cheaper.

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And how is the bill for the east west link looking so far? Is NBR going to ask about that project?

Considering the cost of unlocking the rail network compared to a couple of Km of road for trucks to move around Onehunga seems excellent value.

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Auckland Mayor Len Brown described the signing of the agreement as an "unprecedented and historic milestone..."

"...no one still has any idea of the full and final costs. That will remain the worry for some years."

Further into the abyss of debt we go, indeed!

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Given Auckland councils track record it is hardly surprising.....

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The study that said that the average cost overrun was 45% also said that, on average, they carried half the number of passengers that were predicted.

A computer and GPS coordinated minibus fleet could do a better job on existing roads for much, much less.

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Uber shared ride anyone?

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Great time to be investing - money is essentially free to borrow for entities like Auckland.

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Eh? In which planet in what universe are you from? Planet Clinton?

Go check the interest rates and bill ole mad Len has hocked Auckland up to.

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Mind you, that's definitely the message Key & Co are sending to youngsters: "Don't worry about the price, low interest rates mean it's a great time to buy a house!"

What could possibly go wrong?

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Staggering, fiscal incompetence by all of those involved in this vanity project. I have no doubt that this folly will eventually bankrupt Auckland City.

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If only Auckland could apply a tax on all foreign property purchases to alternatively fund some of this stuff. There's plenty of money available in Auckland to help improve infrastructure.

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If Auckland had sorted out it's rail network 40 years ago like any other first world city, we wouldn't be paying extra now. And we wouldn't have wasted billions on road congestion for last few decades. We are paying for our inaction, get over it.

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Agree with Bryan. It's never stacked up on cost-benefit of making a worthwhile difference to a post WW2 decentralizing city such as Auckland. Nor compared to the point-to-point ride in infinite combination made available by roads and cars.

Like old generals planning for the last war, it's a massive reach for the past from the point of view of overall transport requirements of a 21st C decentralized city

The real cost of course is not the few billion here and there or a 100 million per year running the thing - the real cost is in two other places - the ongoing traffic congestion for the vast majority and the densification drive 'to make rail work' by locking up the land supply - leading to the house price escalation nightmare and a permanent intergenerational wealth gap between those who own property and those who don't.

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The fact is the day that the trams were scrapped in Christchurch (sept 54) and Auckland (Dec 56) passenger patronage on the replacement buses halved.Trams made a profit till their last days in Auckland and Wellington, buses never Trams have a. Smooth ride, buses shake.

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It wasn't economic 40 years ago by a very large margin.

Now it has been superseded by modern technology which is cheaper, better, and more flexible. Modern technology that will reduce congestion, rather than increasing it.

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All this bickering about whether it will cost 2.8B or 3.5B or even 5B misses the point.
We do not have a sustainable transport infrastructure that many cities much smaller than Auckland have.
A city congestion tax will cover the extra funding needed anyway.
Lets give the project the support it needs and get on with it.

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Step 1: Teach Kiwis to drive. Educate them green means go (takes so long for brains to engage) and to keep flowing on round-abouts.

Step 2: Get rid of buses, bus lanes, on-ramp-light-congestors and trains. Buses and trains are the issue clogging things up. Plus, Auckland too sprawly. They don't take you anywhere and never will.

Follow step 1 and 2. This resolves Aucklands issues.

NZ has just 4.5m people. There are no traffic or congestion problems just idiots and fools spending everyone else's money. Trouble is NZers let them do it.

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Fifty years ago the Holyoake National Government, began to conclude that rail and bus passenger transport intercity and suburban was no longer much, if at all required. At the time the British 1963 Beeching report was seen as indicating that the future of rail was in freight ( it wasn't the purpose of Beeching for the Tory Govt, was to get rid of the 10,000 steam engines and reduce rail losses and the scale of the system and modernisation required, by simply cutting out a third of the system closing politically possible lines, rather ones in Scotland or Wales). The introduction of the jet 737, the collapse of the US Passenger rail system and the bankruptcy of NYC in 1968 ( partly related to the US Mail moving their business from passenger trains to trucks in 67) and plummeting passenger patronage on suburban buses and rail in the main, centres other than Wellington, meant that by the late 1960s Muldoon the dominant finance Minister and Treasury were increasingly uninterested in supporting rail or bus passenger transport of any kind and this refusal to fund non profitable services or even buy new urban buses reached its peak in 1984-93 when the logic of Muldoon and Roger Kerr prevailed.
But it has been clear than increasing popualtion in Auckland and Wellington since the start of the 21C has creating serious congestion requiring massive public transport investment and some form of railed transport provides a smoother ride and the chance to move large numbers of passengers in multiple. A major political problem is the two North Island cities have recently assumed a size and nature, which demand they be treated and funded differently from the other Metropolitan areas, South Island and regions . In the past the other two big cities Dunedin, Christchurch were, historically, at least till the 1990s, regarded as equal scale public transport services. But now , have only a residual public transport demand and the real historical public transport demand in those cities was really soley on one or two corridors, in Dunedin St Clair- City-Normanby once the cable cars and trolley buses to the hill suburbs closed and in Chrsitchurch the pre 1950 tram system got 80 percent of its patrons on the two north-south routes-both two thirds Columbo St and Nth to Papanui and Cranford and south to Cashmere and Lincoln Rd. Before the eathquake the rather artificailly regenerated Chrsitchurch bus system had almost its entire patronage on the core route from Hornby -University-CBD- New Brighton and on the main three miles from the Square to Merrivale and Papanui.

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With the pending Auckland Council Elections, and the train wreck that Len Brown has created, I am mortified to read that if Goff gets elected mayor he will give Len Brown a job on council. (ref The Herald Monday 12/09). Can all you sensible people please vote Vic Crone to avoid a Goff/Brown council bankrupting Auckland City.

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Crone - a "drop-in" candidate with virtually no experience in piblic sector. Yes, it IS different than the private sector. Rememebr good ol' Dick Hubbard - good business guy, terible mayor. Crone will be Hubbard v2.0

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The use of the term "budget blowout" is misleading. The reality of these big projects is that they are put forward and approved at a projected cost far less than the promoters of the project know they will have to pay. The simple reason is that if the real cost was shown up front, many of these projects would be rejected straight away.

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This will be similar to the Channel Tunnel. Thatcher said it would happen despite what would come to pass and indeed it did and she viewed it as her legacy to the UK. Maybe Brown has the seem one-eyed view a legacy of construction as opposed to a legacy of destruction.

Once you start digging that whole you had better just keep digging.

How funny would it be that after all this expence workers are forced to work from home. For fifteen plus years now we have been told that in the future we shall work remotely so may be this is what we should all do.

Why do not government local and central offer businesses an incentive to have workers work from home? Reduction in business tax etc. Certainly would not cost $5odd billion and just think of the lose per year with staff being stuck in their cars.

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If central government was truly serious about improving Auckland's infrastructure and addressing the traffic chaos and loss of productivity caused by Auckland City Council's insistence on strangling vehicle commuters to death, then it needs to do x 2 key things. 1) Establish a panel of personnel who understand the art and science of moving materials and have them oversee and revamp Auckland's entire roading network 2) Have the Chinese oversee and undertake all major infrastructure work who have the work ethic to complete it in a fraction of the time than their New Zealand counterparts.

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>2) Have the Chinese oversee and undertake all major infrastructure work who have the work ethic to complete it in a fraction of the time than their New Zealand counterparts.

It also cuts the cost down when you don't need to worry about minimum wages, health and safety laws, steel quality, sand percentage in the concrete and the like. This is an excellent suggestion and much money will be saved.

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Chinese are smart people. They'd probably either chuckle or say that only folk dumb as stumps would allow, pay for and put in trains in Auckland.

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