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No Economic Rationale for $760m Warkworth Toll Road

This is the fifth in a series of posts based on the Campaign for Better Transport’s submission to the Puhoi to Warkworth Board of Inquiry. The full presentation is over at bettertransport.org.nz

In this post we look at the economic justification for the Puhoi to North Warkworth Toll Road (PNWTR).

In the executive summary of the Assessment of Environmental Effects (AEE), the NZ Transport Agency has provided the following table of economic effects:

Economic Summary from the AEE executive summary

Economic Summary from the AEE executive summary

While the NZTA assert that there are positive economic effects from the project, the only evidence supplied is a letter providing a high level assessment.  The letter contains general assertions such as “there will be improvements in the economic welfare for Auckland and Northland businesses and residents”, but no quantitative analysis is undertaken.

NZTA claim that the Project will lead to reductions in vehicle operating costs, yet travel time savings for many in the Warkworth and Matakana regions will be in the order of one or two minutes.  Tolls will add significantly to vehicle operating costs, so claiming vehicle operating costs will reduce is unsubstantiated.

No evidence-in-chief has been supplied to back up any of the positive economic effects claimed in the Executive Summary.

At the Board of Inquiry,  NZTA’s Tommy Parker said the idea of the PNWTR is to stimulate the economy in the north:

It is also important for the Board to know that this is seen as a lead infrastructure so the nature of the policy is to provide infrastructure that will stimulate economic growth in areas of economic potential, and that you will be aware that the two regions that will be affected by this project is New Zealand’s most prosperous region in Auckland and one of its least prosperous regions in Northland. So the idea is to connect the two, get greater connectivity between the two to stimulate the economy in the north.

The reality is there is no correlation between travel time savings and economic growth in Northland.  In March of this year, Statistics NZ published regional GDP figures. Here is the chart for Northland:

Northland GDP (source Statistics NZ)

Northland GDP (source Statistics NZ)

 

On 25th January 2009, the Northern Gateway Toll Road (NGTR) opened, offering a travel time saving of up to 9 minutes.  This is a far greater travel time saving than that offered by the PNWTR, so you would expect to see a corresponding increase in GDP for Northland if there is a linkage between road building and GDP.

You can see that immediately after opening, GDP in Northland dropped, before rebounding to the 2009 level.  There was clearly no correlation for the NGTR, so it is likely that the PNWTR, with smaller travel time savings, will also have no correlation with economic growth.

NZTA have not quantified how project travel time savings equate to economic benefit. Table 7 of the Traffic Assessment Report shows Northbound travel time savings:

Table 7: Northbound travel times in minutes

Table 7: Northbound travel times in minutes

The third column is headed up “2026 Project using fastest route”, because in the bottom three scenarios the fastest route is via SH1, not the toll road. The use of percentage figures gives the impression that travel time savings are significant. However, the travel time savings for the Warkworth, Woodcocks and Eastern Beaches routes are miniscule – just one or two minutes at most times of the day. (Ignorning HS and HE which stand for Holiday Start and Holiday End). It is unlikely that these travel time savings will equate to any meaningful economic benefits.

Here are the Southbound trips from Table 8:

southboundtts

Travel time savings are claimed to be greater, but the odd thing here is that this is because the base case travel times are so much more than for the north bound trips. No reason is given in the report for this.

It may be related, but there is a bit of an anomaly with the routes used determine travel times. The report says the 2026 Base Case assumes that the Western Collector will be completed. This is shown on the map below.

Warkworth Western Collector, forecast to be complete by 2021

Warkworth Western Collector, forecast to be complete by 2021

The Western Collector should offer travel time savings to Woodcocks and possibly to the North for trips on the existing SH1. However, looking at the travel time routes used for the 2026 scenarios, the Western Collector clearly isn’t used to determine the base case numbers above.

Figure 15: 2026 Travel time routes of the Transportation Assessment Report

Figure 15: 2026 Travel time routes of the Transportation Assessment Report

Instead of turning opposite McKinney Rd, trips to and from Woodcocks are modelled to take the long route. This will be overstating the Base Case travel times for trips to the Woodcocks area and possibly to / from the North as well.

Contrast the complete lack of economic evidence for the PNWTR with the evidence-in-chief supplied for the Basin Reserve Board of Inquiry. Here is what NZTA’s economist has to say about that project:

From Basin Reserve BOI Evidence In Chief

From Basin Reserve BOI Evidence In Chief

NZTA acknowledge that economics are relevant considerations under the RMA for the Basin Reserve Flyover, but apparently this is not the case for the PNWTR. You could argue that a Benefit Cost Ratio of 1.2 is hardly a ringing endorsement of the economic worth of the Basin Reserve flyover, but at least NZTA have bothered to carry out some kind of calculation of the benefits of travel time savings, vehicle operating cost savings and so on against the cost of the project. Presumably the economics of the PNWTR are so bad that NZTA would rather not provide an economic assessment at all. NZTA should not be able to pick and choose which projects they provide an economic business case for, and which they do not.

Bear in mind that the discussion of economics at the Board of Inquiry takes place in the context of the Resource Management Act.  Commissioner Chandler made the following comment at the hearing on the 10th April:

MR CHANDLER: Perhaps I’ll just mention, Mr Pitches, talking about cost benefit ratios, the Board of course cannot take cost benefit ratios into account in its decision making.

MR PITCHES: All right. So just to respond to that. Benefit cost ratios generally are an indicator of the economic worth of the project, which is why I included it in my presentation. I still stand by my statement that the Resource Management Act place weight upon the economic value of the proposed project and should be considered.

To me it seems ludicrous that the Board should not consider the economic worth of the project, as measured through a benefit cost ratio.  If the NZTA were proposing a 32 lane motorway then surely a Board of Inquiry would be obliged to test the economic rationale. But then again I’m not an RMA lawyer.

Perhaps it comes down to how adequately the NZTA have considered alternatives.  I will be covering this in my next post.

27 comments to No Economic Rationale for $760m Warkworth Toll Road

  • Bryce P

    As we all know, this motorway will achieve virtually nothing for anyone but at an extremely high price. The definitive white elephant.

  • Stu Donovan

    I’m fairly sure New Zealand cannot afford to spend $760m on highway projects which deliver no net economic benefit.

    This seems to be the classic case of Transit/NZTA’s highway engineers having too much time on their hands, and too much influence on Government.

    • Stu Donovan

      I suspect the influence was initially the other way around, i.e. Transit/NZTA –> Government. But of course, the current Government was receptive to the idea.

      • Not sure about that. The 2008 National Land Transport Programme had something like $3.4m budgeted for investigations into the realignment of Schedeways Hill on the existing SH1. $500m was spent, but apparently all work stopped once Govt decided they wanted a four lane toll road.

        • Greg N

          Cameron, in your presentation to the BOI was the economics question discussed and/or was any comment made how come the Basin Reserve BOI can and does consider BCRs/economic benefits and yet the Puford one according to the Chair doesn’t? Different terms of reference or different interpretation?

          And if the BOI has to ignore economic arguments, then does that mean that all issues of economic benefits for anyone anywhere a non-starter and off the table completely so any talk of benefits like faster trip times or safer journey should be ignored?

          Or is this a selective economic benefits – whereby the stuff NZTA says is good and relevant is the only stuff that is consdered by the Board and why the toll question is ignored?

          Be interested in your take on the above having attended and seen the tenor of the evidence for and against and the tenor of the questioning by the BOI members.

          • Hi Greg – I presented all of the above to the Board but they didn’t let on which way they were thinking. You can only get a feeling for that by looking at the questions the Board asks. NZTA’s lawyers argued the following in their opening statements. I don’t know if the Board fully accept this argument or not.

            The High Court in Friends and Community of Ngawha held that the cost of the work, even compared with the cost of developing an alternative site is not generally a matter for challenge. Rather the financial aspects of a development are a policy decision to be made by the minister.

            In addition while a cost benefit analysis may be helpful to the Board’s consideration of alternatives there is nothing in the language of section 171 that imposes a legal duty on the requiring authority to prepare a cost benefit analysis or require the Board to consider a cost benefit analysis. In any event the evidence of Mr Edmonds concludes that assertions about the costs of, for example the upgrading of pinch points along the existing State Highway 1, are ill founded.

        • Stu Donovan

          I suspect there was a lot of pressure internally within Transit/NZTA for this project to be given a higher priority well before this Government came to power. The fact it wasn’t on the agenda earlier probably reflects the limited influence these people had over the previous Government’s policy direction.

          IMO Puhoi to Warkworth is little more than a “toy for the boys”. It’s just a crying shame that the fiscal/economic fortunes of NZ Inc can be so severely undermined by a few people’s delusional views on what constitutes a “worthy” transport project.

  • conan

    And of course we in Auckland get to fix and maintain the old road, and live with a substandard road as AT will never be able to afford fix the issues with it.

    Much like the old Albany highway as detailed here:

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11243085

    • Yes, exactly. I don’t understand why Auckland Council and Auckland Transport support the new toll road in their submissions. Looking after the old SH1 and fixing the Hill St intersection is going to cost a heap of ratepayer dollars, even at 50% funding.

      • Stu Donovan

        I’d guess that AT and AC support the project for two simple reasons: 1) there’s people within these organisations who like roads as much as NZTA’s highway engineers and 2) both organisations are scared of annoying NZTA and thereby losing funding for their own “marginal” projects.

        I suspect the second point is more relevant; bureaucratic “quid pro quos” are quite common (and to some degree understandable – you scratch my back, I’ll scratch yours, and both our jobs will be easier). While you’re correct that this project will has a net negative impact on AC/AT’s local road budgets, this is probably marginal in the context of AT’s overall budgets – and therefore not worth destabilising wider relationships with NZTA. Unfortunately it’s an example of where pragmatics has won out over principle.

        All we can hope is that the Board of Inquiry actually takes its role seriously, and by extension sees the holes in the evidence put forward by NZTA in support of the project. The near complete absence of economic evidence, for example, heralds a new nadir in transport planning (in particular) and public policy (in general) in New Zealand. And as you note, the lack of economic evidence would *seem* to be at odds with the principles of the RMA (it’d be great if anyone with a legal RMA background could comment on this issue).

        The whole Puhoi to Wellsford highway becomes more animal farmish over time … it’d actually be funny, if it was not such a huge misallocation of scarce public funds.

    • Bryce P

      There is nothing wrong with that piece of road. Nothing. It is signposted as 80 km/h. Both drivers knew the area. All responsibility comes down to the driver.

  • Loraxus

    Wait, what? They don’t even have to TABLE their BCR calculations? Local government has to calculate BCR ratios for the last little cycle lane project before they get 50 dollars of NZTA subsidy to buy a pot of paint, but these bozos don’t even have to do an economic assessment if they don’t feel like it???

  • My understanding of the recent RMA reforms was that there was a greater emphasis now on aspects like economic development being considered in applications (s.32). While I can definitely understand the concern from many quarters about this change in emphasis of what was essentially an environmental protection Act, I wonder whether it can also be used to hoist the Govt by its own petard: “P2W Project doesn’t meet sufficient economic development criteria? Sorry, RMA application declined…”

  • Riccardo

    I think people are missing the point. BCRs and economic evaluation became all the rage in the 80s as right-leaning governments sought to control government spending (ditto the fetish for privatisation etc). But todays right leaning government is not “your fathers right leaning government”.

    Right leaning governments used to stand against a unionised, socialist agenda when there was one. But they have no real rationale any more, hence all the Angry White Men Tea Partying etc.

    Brownlee and ilk no more want rational road policy than they wanted gay marriage to address human rights, or climate change policy based on science, or wanted Maori equity based on legal arguments. In other words, not at all.

  • mfwic

    But you are all making the mistake of thinking that decisions should be rational. The RMA isn’t about wise use of resources. It is about handing out designations to any government department that wants one regardless of how little sense the project makes.. In that regard it is a direct descendant of the right of a King to do what ever the hell he wanted. On the other hand if you are not the government then you have to make a case and mitigate your effects. This road makes as little sense as keeping the rail designation through Mt Roskill intended to serve a new port that will never be built!

    • Bryce P

      At least the rail designation through Mt Roskill could be used for passenger services though.

      • mfwic

        The road could carry passenger services too but it is still a poor use of money just like the Mt Roskill rail designation.

        • Bryce P

          Except there is a road there that already carries passengers. Oh, and SH16.

        • conan

          How is the Mt Roskill rail designation a poor use of money exactly? What money are you referring to?

          • mfwic

            Sorry you are right. You can simply put a designation on land and blight it and there is no economic cost at all. Even better public money can be spent buying the bits of land and it can then be transferred to an SOE and sold for a pittance to a private company and there is no cost at all. And then when a motorway gets built beside the designation that has never been needed you can pay a premium for the motorway by building around the designation and there is no economic cost. And you can keep it for 30 or 40 years after the port it was supposed to serve is forgotten about and claim it has some future use for rail services that won’t happen in our lifetime and call the whole debacle “planning”.

    • Designation through Mt Roskill is still potentially quite useful if the North Auckland Line were to carry significant freight.

  • Sacha

    You’d think efficient use of resources would be a resource management issue. I understand them not wanting to trump the jurisdiction of higher powers (in this case a Minister, in others government) over priorities.

    However I’d expect a wasteful project where environmental harms aren’t matched by corresponding tangible benefits to be frowned on.

    Why carve up hills, belch diesel smoke from construction machinery, spread embedded carbon in the form of concrete, and silt up surrounding waterways? Isn’t there some requirement to robustly estimate at least environmental benefits (eg: reduced air pollution from smoother traffic flow)?

  • NCD

    NZTA would do well not to make too much of a case for the main savings being during holiday times by including “HS” and “HE” in their tables. 100 times on the blackboard for you Mr Parker: “it’s not about the holidays”

  • I wonder if the scenario will play out something like this:
    1) the road will be built
    2) after it’s built the govt will decide that it is better to have money to invest in more worthwhile and popular assets like hospitals and schools
    3) the govt will spend truckloads to show that it represents a great buy for investors
    4) the share price will be set to show a dividend return of squillions and the thing will be flogged to someone, anyone for about 200 million
    5) no one will complain because this is another economic masterstroke and its what everyone voted for anyway
    6) the govt won’t actually spend the money on either hospitals or schools as their is superannuation to be funded

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