Three routes for a road tunnel through the Kaimai Ranges, linking Tauranga with the Waikato, are being investigated by the NZ Transport Agency - and a preferred option should be locked in by the year's end.
NZTA regional director Harry Wilson says one option involves building a road tunnel near the existing rail tunnel, another is building a tunnel near Thompsons Track, between Katikati and Apata. The third option, known as a summit-level tunnel, involves building a tunnel half-way up the existing alignment of State Highway 29.
So far 10 options have been identified in these three locations.
"To date, high-level cost estimates indicate the price for each option including approach roading would range from $1.5 to 2 billion," Mr Wilson said.
"While we are not discounting the possibility of building a tunnel, the early indication from the cost-benefit analysis shows that the cost of building a tunnel could outweigh the benefits of the project."
Mr Wilson said once the benefits from the Waikato Expressway were realised - moving traffic more efficiently and safely from Auckland to south of Cambridge - the NZTA expected traffic volumes to increase to a level where the rest of the route forming the "golden triangle", between Tauranga, Hamilton and Auckland, would needsupgrading.
New Zealand Road Transport Forum chief executive Ken Shirley said the time and fuel efficiency of a road tunnel, combined with a predicted 70 per cent increase in freight being transported by road and rail over the next 25 years, may well mean a tunnel stacked up in 20 years.
For something as strategic as this tunnel in the "golden triangle", Mr Shirley said all the highways linking to the tunnel, and exactly where it was positioned, also needed to be considered.
Tauranga economic growth agency Priority 1 chief executive Andrew Coker was supportive of further exploration of the idea between industry and NZTA and keen to be involved and understand some of the decision making that was happening.
However, he said the tunnel "sounded very expensive" and the existing road could be upgraded for significantly less cost.
Mr Coker said the growth and economic benefit of a tunnel, to the "golden triangle", which he described as the engine-house of growth for the country's future, needed to be understood.
"I think particularly for a country the size of New Zealand I would encourage the industry and NZTA to continue discussing and exploring the long-term benefit-cost."
The NZTA expects to identify one preferred option by the end of 2010. The recommended option will then feed into the development of both the Waikato $2 billion tunnel proposed for Tauranga's Kaimai route and Bay of Plenty's Regional Land Transport Strategies.
Acting head of road policing in the Western Bay Sergeant Mark Holmes said police "would encourage any improvements to the current roading structure if the result is a reduction in serious injury and fatal crashes".
While State Highway 29 has been notorious for crashes, Mr Holmes said making the road straight and free from bad weather came with its own set of problems, which would have to be addressed by tunnel designers.
Among these were emergency vehicle access and lengthy road blockages and safety risks should a heavy motor vehicle crash occur in the tunnel.
The announcement has been welcomed by the New Zealand Road Transport Forum, which had been urging the Government to look at a tunnel.
Derek Dumbar, the forum's Waikato/Bay of Plenty director, said the agency's costs were much higher than the tunnel investigation carried out by consultants Connell Wagner for the forum in 2008.
He said Connell Wagner's cheapest option, at the narrowest point of the Kaimais south of Katikati, was just over half a billion dollars for a tunnel 1.2km long.
It meant the Katikati bypass would not be required because all Auckland traffic would use the tunnel.
Mr Dumbar has been promoting the tunnel for nearly three years with the idea that the Port of Tauranga would become the North Island's major port.
He said the heavy transport industry would be prepared to pay tolls to use a tunnel.
Tauranga Mayor Stuart Crosby said the tunnel was absolutely critical to the port becoming New Zealand's number one port.
He understood that another option to the tunnel was to make significant cuts to State Highway 29 over the Kaimais to take some of the steepness out of the road.