It was heartening to open up the newspaper this morning in Wellington and read this opinion piece on the poor economics of the “Roads of National Significance” (RoNS), prepared by Dr Michael Pickford, the former chief economist at the Commerce Commission and now an independent economic researcher.
Transport Minister Steven Joyce announced the Roads of National Significance programme in March 2009, before knowing what the return on the proposed investment might be.
Nine months later, a final report from consultant SAHA International raised serious doubts about the programme.
The Government never published the report, and later sent it back for reworking. However, a copy of the original was obtained by an expressway action group on the Kapiti Coast.
And then that Kapiti group kindly sent me a copy of the report, which can be read here.
Though the programme as a whole could have a positive return, above-average returns on some projects can mask negative returns on others. Projects with negative returns should not be built.
The SAHA Report shows that three of the expressways had negative returns when assessed conventionally – the value of the benefits generated, in terms of travel time, fuel savings and reduced accident costs, is less than the sum of the costs to build and maintain them.
Among these is the Wellington to Levin expressway. It has a benefit-cost ratio, or BCR, of only 0.6, meaning that the project would generate benefits amounting to only 60 per cent of the costs.
The table below shows the results of SAHA’s economic analysis of the various RoNS. You can see why the government has tried to do everything it can to bury this report – given that some of the projects have absolutely pathetic cost-benefit ratios:
I’m not quite sure of the exact reasons SAHA’s assessments differ from NZTA’s assessments – and it would be interesting to find out a bit more information on that fact. But anyway, the article continues:
Mr Joyce has repeatedly claimed that building the roads would promote economic growth. This was tested in the SAHA Report, which attempted to incorporate the indirect or growth benefits of the roads.
These were measured in two ways, one being as “wider economic benefits”, or WEBs. When the “low” estimate for the WEBs was added, the BCR of the Wellington-Levin project remained below one, but it rose above one using the “high” figure.
The WEBs concept is relatively new internationally. The SAHA Report urged caution. It made repeated caveats about the poor quality of the data and the uncertain accuracy of the estimates. It cited the British Government’s Eddington Report, which found that “agglomeration benefits” of the type included in the “low” estimate could be up to 30 per cent of the conventional benefits in highly congested urban areas in London.
Yet the estimate for even the “low” WEB figure is much higher than 30 per cent. The Kapiti Coast is hardly a centre for economic growth in the country. The largest employer is thought to be either the local district council or the Pak’n Save supermarket.
The contentiousness of evaluating “wider economic benefits” is something that really needs to be resolved in my opinion. There are some projects that it would appear obvious will result in wider economic benefits – such as the Auckland CBD Rail Link – as it will encourage the concentration of economic activity in the CBD and therefore generate agglomeration benefits. For other projects, with the Puhoi-Wellsford road and the Wellington Northern Corridor Road, the veracity of these WEBs seems highly questionable. I’m yet to see how Puhoi-Wellsford does anything other than undermine agglomeration by encouraging the dispersal of economic activity.
The article sums up:
IN SHORT, the addition of so-called growth benefits fails to tip the scales in favour of building this road. The SAHA Report concluded that “accelerating the Roads of National Significance . . . may not be the optimal investment and funding outcome when considered in its broadest context against other roading projects and/or other government portfolio areas”.
After the unhappy experience with the Muldoon-Birch “Think Big” energy projects of the 1980s, New Zealand could be burdened with massive new debt to fund the Key-Joyce “Think Big” roading projects of equally dubious merit.
That’s a pretty damning assessment all round.