The battle to electrify Auckland’s rail system has been a very long and arduous one, and while good progress on the tendering of the electric trains and the upgrade of the tracks is happening, it seems as though there’s still a huge debate over where the cost of the electric trains will eventually fall. This funding issue is the subject of a rather interesting paper in the ARC’s transport and urban development committee meeting, which is set to happen tomorrow morning.
Basically, Auckland’s electric trains were originally going to be bought by the ARC via a rather large loan, which they would repay from money raised from a 10c per litre regional petrol tax. In March last year the government canned that plan, got rid of the regional fuel tax and said that they’d pay for the trains instead. Or at least that’s how it came across at the time. In actual fact we waited 6 months for final decisions to be made on the funding of electrification, and eventually the decision was made to loan KiwiRail the $500 million needed to buy Auckland’s electric trains. This is outlined in the cabinet paper (which was released to the ARC) that relates to the purchase of the trains:
Considering that the ARC (who along with NZTA fund the rail system’s subsidies) was banned from raising additional revenue through the regional fuel tax to cover the costs of repaying its loan, I should damn well hope that the debt facility is not made available at a commercial rate, as otherwise effectively the funders of Auckland’s rail system would be required to fund the electric trains but not have the ability to raise the extra money to do so. Pretty unfair. Furthermore, one should remember that Wellington’s new electric trains are being 90% funded (I think) by the government, with no real expectation that the funders of that system will have to pay for the trains via some sort of loan repayment.
As shown below, there are two main issues that the ARC has with how this process seems to be turning out: how much more should be paid for “track access fees” to reflect the money that has been invested in improving the rail network over the past few years, and whether (and to what extent) the ARC and NZTA should be required to contribute to the repayment of KiwiRail’s electrification loan:Now this is pretty complicated stuff. It has taken a while for me to get my head around it all, and I probably didn’t until I heard the Radio NZ report on it this morning.
The two issues, track access fees and how the electric trains eventually get funded, are quite separate matters in my opinion. Looking at track access fees first, I think it’s fairly reasonable that these increase over time to reflect the significant investment that KiwiRail (and OnTrack before them) has made to improve the rail network. There should be recognition of the wider benefits that improving the rail system brings (remember the Onehunga Line’s cost benefit ratio of 3.1, 85% of the benefits being to road users) in setting the level of fee that KiwiRail get paid for track access, but certainly some increase is not unreasonable in my opinion. A fairly decent analogy is that if your landlord renovates your house, gives you a new kitchen and an extra bathroom, it would be fairly reasonable for them to up your rent.
However, in terms of paying back the cost of the electric trains, I think it’s actually fairly cheeky for it even to be suggested that the ARC and NZTA should have to pay back KiwiRail’s loan. Clearly, if KiwiRail ends up owning the new trains, then it’s fair enough that some sort of lease is paid on them, but at a level that is realistic and (importantly in my opinion) comparable to what happens in Wellington with their new trains. Forcing the ARC to come up with (at least a decent chunk of) the money to effectively pay for the trains would be taking us back to the pre March 2009 situation, but with their funding stream (the regional petrol tax) taken away. An analogy might be that you want a new car but know you can’t afford it so you decide to get another job to pay back your car loan. But then someone (let’s say your parents) steps in to say that you’re not allowed that extra job, but quite nicely they’re going to buy the car for you… except that you eventually realise that even though they bought your brother (Wellington in this case) a new car, they’re actually going to make you pay back the loan after all – just to them instead of the car dealer directly.
It’ll be interesting to see how this situation plays out. I certainly hope that it doesn’t affect the completion date of the electrification project and that we can come to a fair resolution of the funding issues.