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The electrification battle is not over

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.

16 comments to The electrification battle is not over

  • Jeremy Harris

    I think most of us gave the benefit of the doubt to the government when the loan was announced but it does seem like it has become an exercise in trying to pass all of the loan costs onto the end user to pay up front to affect Auckland rail’s viability in a way we don’t make private road user pay full costs, trucks pay full costs, even frieght rail and shipping, bus or ferry user pay full costs…

  • LucyJH

    pretty much sounds typical of the differences between how the government has funded rail in Auckland and Wellington for the last 60 years. Couldn’t have anything to do with the fact that all MPs spend at least 40% of every year in Wellington could it?

  • Kegan

    IIRC, it was Auckland that quite happily signed up to the above/below rail funding split (without asking enough questions). I believe prior to that the funding rules were the same.

    Also, how many km of new motorway has been built in Auckland over the last 20 years or so? And in Wellington? Different regions, different priorities …

  • TopCat

    First Leaky Homes then ATA/SuperCity transition costs then Party Central now this. I’m not looking forward to my Auckland Council rates bills.

  • TopCat

    After the budget you can add another 2.5% GST to that as well.

  • Kegan, Wellington can have our motorways! LOL.

    I thought the above/below track agreement mainly applied to the funding of stations?

  • Ian Ward

    Are we being realistic about who pays? Whatever the sum, we seem to be saying its unfair and the Govt (ie the rest of NZ) should pay. Has anyone a good guide what the region should pay – noting the benefits are local. I haven’t seen ARC or Mike Lee stump up a figure.

  • LucyJH

    Well, I think the money they are about to pour into Transmission Gulley over the next few years should more than balance out any (perceived) difference. As it happens, I know of an analysis that was done which showed that, in fact, Aucklanders did miss out on transport infrastructure spending. I believe it showed that over a 20 year period we put in about 40% more (in terms of road charges, fuel tax, general tax etc) than we got back from the govt. Where was the money spent? Much of it in Wellington but also rural areas where the perception is Auckland gets all the money… We don’t. We just get more money than they do because we have a third of the frigging populationn…

    Ian – not sure if you know the history of this but Auckland was going to pay out of a regional fuel tax. We really, really wanted to but now the govt has prevented us from doing that. If they can’t tax for the money then it is very hard to see how the Auckland Council is going to get it – particularly given the massive bill they are about to get landed with from the (hidden) costs of the Super-City agglomeration.

  • Jeremy Harris

    Many things to rural properties, phone lines, power lines, sewerage, roads cannot be justified on a purely economic basis as I understand it, we do it because it is the right and fair thing to do…

  • Chris Harris

    I’ve a simple solution. Let Auckland keep all locally raised petrol taxes etc and spend it as Aucklanders see fit, and hive off a rural Main Roads Board from NZTA to do rural state highways, so that “Auckland” and “Wellington” are no longer in each others’ face. More seriously, there is an element of deja vu about this, as Robbie’s Rapid Rail fell over after about a year of argument as to how much of it should be paid for by Auckland and how much by central government. The ARA Chair Tom Pearce said in an Auckland Star story in late 1975 that the NZ Govt had “another think coming” if they thought Aucklanders would meet the charges expected, and now we have a Herald story today 13 May which reads in some ways like the late 1975 Star story. On the other hand, if this fell through due to squabbles that are, in part, artifacts of the way the books are kept (like the time before, and for that matter, the time before that) I think we would be talking about ‘voters’ vengeance’ in a big way this time. To which we might add that any such dropping of the ball or even the hint that it is to be dropped would add to the growing impression that NZ is a bit of a failed state, “Fiji with frost.”

  • LucyJH

    hi Jeremy. Well yes, I’m not advocating we should just leave people in rural areas without schools, telephones etc. But I get a little bit tired of all this harping on about how Auckland doesn’t pay it’s fair share…we do and more!

    I think electrification will go through…we have gone too far down that path not to finish the job off. It’s just a question of when. Also, there’s a risk that cost-cutting will mean it turns out badly.

  • I do think Joyce realises he can’t lump the whole loan onto ARC/NZTA/higher fares. He said exactly that in his cabinet paper. The real question is who pays what percentage, and whether was is expected of Auckland is fair, considering that our funding stream for paying for the trains (regional fuel tax) was chopped off.

  • rtc

    Well we can all dream that National gets dumped at the next election and a next government actually has a clue and pays for the trains. Joyce claims finding the money for 1-2 billion dollar roads isn’t a problem so the government has the money just not the will.

  • The problem is the ideological obsessions that fuel tax money MUST BE SPENT ON ROADS AND ONLY ROADS. So even if a rail project has 85% of its benefits being to road users (like is the case for the Onehunga Line), under the current system the capital cost of that line cannot be paid for from the fuel tax fund.

    Which means that rail has to compete against the health system and tax cuts for funding. Good luck there.

  • Jeremy Harris

    Hey Lucy didn’t think you were, I completely agree, as a passionate lifelong Aucklander I was fed up years ago of being painted as a “out of touch, townie, elitest”…

  • Kevin

    Hi all,

    I keep reading about the Kiwirail Network access agreement signed in April 2012. Does anyone know if this has been made public and if so, where I could get a copy of it?

    Thanks,

    Kevin

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