Who is going to pay for Auckland’s electric trains?

Prior to March 2009 it was reasonably clear how rail electrification in Auckland was to be paid for. The project effectively costs $1 billion: half of which needs to be spent on infrastructure works and half on the trains themselves. The government was to pay for the infrastructure and the Auckland Regional Council would pay for the trains. A regional fuel tax would be imposed in the Auckland region – starting off relatively low and rising to just under 10c a litre over the space of a few years. This regional fuel tax would help repay the loan that would be necessary for electrification – plus would fund a few other projects like integrated ticketing, finishing off various train station that were half-built at the time and the Penlink roading project.

In March 2009 this all changed. The government would obviously continue to pay for the infrastructure costs (this was itemised in the 2007 budget I think), but the regional fuel tax would be cancelled – fulfilling an election promise that I must say I can’t remember ever being made. But no worries, while electrification would be delayed, it would now be funded by central government directly – rather than by the regional fuel tax.

If we jump forward to November 2009, things seem to have changed somewhat – as when Cabinet finally got around to approving the release of funds for the electric trains it was as a loan to KiwiRail, rather than a grant. You can read that whole Cabinet paper here. At the time I thought that was a bit odd, as generally when you say you’re going to pay for something you actually pay for it – rather than simply allowing an agency to take out a loan. That leads to a lot of questions, such as whether KiwiRail really wanted to take out a $500 million loan or perhaps most importantly, who is going to repay that loan?

A Ministry of Transport paper, informing the Minister for the budget estimates debate last year (one of the few that MoT did actually release to me) sheds a bit of light on that important question:

It is the last paragraph here that I find particularly interesting. It suggests that the government isn’t actually going to pay for the electric trains, but rather that the loan provided to KiwiRail will have to be repaid by Auckland, with some assistance from NZTA (although I’m not quite sure how that fits with NZTA’s cap on PT funding). I must say I find it pretty damn cheeky for the government to abolish the regional fuel tax, the mechanism that Auckland had chosen for funding its electric trains, on the premise that they’d pay instead – only to then later say “oh actually you’re going to pay for it after all”.

Another paper that was released to me, which is a letter from Steven Joyce to Len Brown in October last year, provides further detail on this issue. The letter follows up a meeting held to discuss the $30 million funding gap for rail (which has a number of causes, with pretty much all of them leading back to decisions made by Steven Joyce), and has this to say about the costs of Auckland’s electric trains: 
The other strange thing about funding the electric trains this way is whether it makes any sense for KiwiRail to still be involved in the process. If the government, through KiwiRail, is not stumping up the money to actually pay for the trains then why are they the lead agency managing the procurement? Why should KiwiRail (or some other central government agency) end up owning the trains if they’re not the ones who are going to pay for them? Surely if the new electric trains are going to be funded by Auckland Council (through Auckland Transport), with subsidies from NZTA as well as from fares, then it seems logical for either Auckland Council or Auckland Transport to actually own the trains outright?

On the matter of train ownership, announcements last month of changes to the structure of how Wellington’s rail system will be managed may have some interesting impact on Auckland, should a similar structure happen here. Here are some details from the government’s press release:

The funding and ownership package includes:

  • The Matangi and Ganz Mavag trains operating on the network will be held in a Rolling Stock Owning Company majority owned by GWRC
  • GWRC to take over ownership and responsibility for stations (other than Wellington Station), car parks, train stabling and the electric train depot
  • The Crown (through KiwiRail) to retain ownership of the metro rail track network, the traction and signalling assets, and responsibility for ongoing investment in the upgrade of these assets.
  • GWRC to pay a track access charge to KiwiRail (with subsidy from the NZ Transport Agency) that reflects the fair cost of maintaining the tracks and other assets.

This seems an almost complete turnaround from the government’s position back in 2009, which seemed to involve a great centralisation of ownership (at least in Auckland) into KiwiRail of things like the stations and the new trains.

I do still think it is pretty underhand of the government to say it would pay for Auckland’s electric trains, but then effectively renege on that through a complicated loan process that for some reason is going through KiwiRail (and it would be interesting to find out whether this funding procedure is different to what’s happened with Wellington’s new trains). However, if there’s no other way of getting the trains funded, then at the very least I hope it will be Auckland Council – rather than KiwiRail – who end up owning the new trains. After all, if you’re going to pay for something it makes sense to actually own it.

9 comments to Who is going to pay for Auckland’s electric trains?

  • So… NZ Government is effectively writing out loans to itself… writing out loans to its own agencies (NZTA) to be paid back using money from itself..


    • rtc

      It’s quite normal for certain government agencies to have to cover debt costs associated with their operations through their own funding – if you don’t think this happens in Australia then you perhaps need to pay more attention to what’s going on.

      • While I take your point, I was under the impression that NZTA was funded through government grants to it and also collections of petrol tax/road user charged, which I thought could only be spent on roads (and not public transport).
        Please correct me if I am wrong, but it just seemed that NZTA will just be churning money from the government back to the government.

        • Are the road constructions and SH extensions funded by loans too?

        • You are right Bris, except that Joyce has effectively ‘capped’ the amount of money that NZTA can spend on PT operating costs at 2008 levels (adjusted only for inflation). So there’s little ability for NZTA to pay its share.

          I don’t mind Auckland paying for our electric trains – just give us back the ability to have regional fuel tax like what was going to pay for them in the first place.

          RE: road construction – no my understanding is that NZTA can’t borrow money to cover ‘lumpiness’ in its spendings (on state highways or anything else). It needs to collect enough money each year to cover its spending.

  • tochigi

    this whole process illustrates that Joyce is a scam artist and Auckland is being ripped off by him and his cronies. the train tender process has been corrupted too. nz gets the corrupt govt they voted for. well done nz.

  • Geoff

    I don’t see any issue here. Aucklanders agreed to pay for the trains through a fuel tax. The government has just changed the way we will pay, from a fuel tax to a mix of fares, rates and NZTA contributions. But it’s still the same people paying. In fact it’s fairer, as train users will pay more than motorists, whereas previously it would have been motorists paying more than train users.

    • Geoff, no, the muddled and still unresolved changes to the ordering and funding and ownership of the trains reflects more than a reluctance on the part of this government to support PT in general and rail in particular. It is yet another example of how sly and underhand they are prepared to be with our money in order to concoct complicated administrative obstacles in the path of the Auckland rail revival. Joyce never hesitates to say how uneconomic rail travel is and this is another example of him making damn sure he is right.

      Why is anything this government has to do with rail in Auckland so secret, and so complicated? They aren’t a subtle lot, they sell themselves on their straightforward business-styled actions. Red tape cutters; not deep thinkers. Yet this is a Byzantine mess. All we ask for is a level playing field: what would building Puford by loan do to the economic evaluation of that road? Add interest to 2+billion and see your numbers get even sicker. And, you may argue, it would be fairer as it will be used by people in the future so they should pay for it too….. No this, like the track access charges, is a way to lumber expenses on to rail, even if covering them from other agencies, to make sure the spreadsheets look as bad as possible.

      The regional fuel tax was too fair, too efficient, too visible, and would give AK too much power to decide to do crazy things like build rail to the airport, without WGTN preventing it. The mixed messages are only there because they represent an argument between what he’d like to do- close the whole thing down, and doing enough to pretend that he supports these things that voters want.

      Additionally the extra 10 cent tax was designed to not only fund alternatives to car travel [except for crazy inclusion of Penlink in there- what a strange project that is turning out to be] but also as a ‘stick’ to help wean us off the addiction to wasteful fuel use through price signal. Although frankly oil price rises have already rendered such a figure pretty modest, and I’ll say again, it hasn’t even started yet. But think how we could be transforming Auckland with this money?

  • The difference is Geoff who owns the trains. Originally Auckland was going to own and have control over the trains. Now Kiwirail is going to own them yet everyone else will pay for them. Either Kiwirail should own them and Auckland leases them, or Auckland should own them and pay a management fee to Kiwirail. Having Kiwirail own them but paid for by everyone else is just weird. The funding needs to be considered as a whole – capital costs, operational costs, and any leasing costs before we can determine what the best outcome is.

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