Phil Twyford. Photo / Jason Oxenham
There are signs the long-time business call for private sector equity to feature in a new transport infrastructure funding model will get government support — but where's the action, asks Tony Garnier.
Auckland's traffic congestion and transport infrastructure deficit are legendary. There is an unprecedented demand for new infrastructure.
A key weakness has been getting council and government focused on delivery of outcomes with speed and urgency.
There are lots of plans but no clear outcome statement or confirmed road map of the single joined-up transport system and story needed to get Auckland in front of its population growth curve. Auckland Business Chamber's Michael Barnett and EMA's Kim Campbell have advocated such ideas to successive governments and councils.
Instead, Auckland Council's preoccupation is a defensive strategy to keep its debt to revenue ratio to just under 270 per cent, arguing that borrowing more will jeopardise its agency rating and therefore increase borrowing costs.
Shovel-ready key projects like Mill Road and Penlink have repeatedly been pushed back.
Auckland Council has refused to leverage capital from its huge asset base, and been slow to adopt alternative "value-capture" revenue and private sector capital tools used widely elsewhere, including North America, Britain and Australia.
In 2016 the Productivity Commission issued a Better Urban Planning Draft Report recommending that new value-capture mechanisms should be considered, noting that well-conceived and implemented public projects can increase land values by up to 50 per cent.
Value-capture methods include the sale of development rights and land taxes that allow agencies to capture a portion of the property value uplift from those directly benefiting from major public infrastructure investments.
On the plus side, central government has begun financing major infrastructure projects by public-private partnerships like Wellington's Transmission Gully and Auckland's Puhoi to Warkworth roading projects.
But there's a way to go. Though this procurement method has started to bring the Government and private sector together to deliver key infrastructure, it hasn't yet been applied to address the balance sheet constraints Auckland and other local councils have in trying to deliver major infrastructure.
That seems about to change. In the nearly 12 months the Labour-led coalition has been in office, it has been deliberating on mandating a special purpose vehicle (SPV), Crown Infrastructure Partners (CIP) set up by the previous National-led Government, to fund infrastructure (roads, sewerage and storm water systems) for new housing developments in a procurement method that takes debt and delivery risk away from the council for core growth infrastructure.
While waiting for details on what CIP's mandate will be, an option the Government also has is to move the funding of major infrastructure from its own balance sheet to the private sector.
It is a procurement model that the Spanish construction and transport investment conglomerate, Cintra, is successfully applying world-wide, especially in the United States, to get critical infrastructure funded and built with pace and urgency.
Cintra's US involvement includes a 50-year private-public partnership concession with Texas state to finance, design, construct, operate and maintain a 90-mile toll road from north of Georgetown to Seguin.
The terms of the concession agreement transfer key risks — such as construction cost, over-runs, construction delays, traffic and revenue risks and financial risks — to Cintra.
The terms of the agreement also give the state a share of the toll revenue over the next 50 years, with that share increasing as toll revenues reach certain levels, eventually reaching a 50-50 split with Cintra.
A step too far for a Labour-led Government? Perhaps. But encouraged by business organisations, the group of senior ministers driving the agenda — Finance Minister Grant Robertson, Transport and Housing Minister Phil Twyford, Economic Development and Environment Minister David Parker, Regional Development Minister Shane Jones — have all consistently talked about turning on the tap of infrastructure finance, and introducing innovative funding solutions (for NZ Inc) like "infrastructure bonds" and "value uplift capture".
Government has set a target of reducing Net Crown Debt to less than 20 per cent of GDP:
surely a strong incentive for it to issue a serious invitation to private sector equity investors to help fund the projects?
Notes Barnett: "There is no shortage of cash and no shortage of private sector interest to invest. Whether it is the NZ Super Fund, iwi and other Kiwi institutions or it is China or Spain or anywhere else, it doesn't matter provided it works and delivers the desired result, and fast."
Government has talked up Auckland's $1.3 billion transport congestion cost as a "crisis." The message from senior ministers is that to solve the crisis the city needs more focus from central government. Business agrees.
If Auckland becomes gridlocked and is choked by growth, then New Zealand will be stuffed. But where's the commitment and strategy to address congestion as a crisis in need of urgent action — a here and now agenda?
Since 2014, successive governments have been investigating options to manage congestion on the motorway network. A group of officials are looking at a GPS-based toll network or transport pricing system on the premise of delivering something in the next 10 years.
Meanwhile Auckland's new stop-gap regional fuel tax, supposedly designed to generate revenue to help ease congestion, is already garnering criticism as unfair in terms of its impact on the less well-off.
Another criticism is that any benefits or reduced congestion from the tax is years away.
Council's debt constraint means it can't or won't spend the money before securing the tax revenue, which will take time to raise and there is no clear evidence that, in the face of Auckland's inexorable growth of motor vehicles on the city's roads, congestion will in fact be eased, or by when.
What business wants is an attack on congestion that gets immediate results and also gives relief to low-income households that depend on a car to travel to work.
An immediate option for Auckland is to expand the gantry-based toll system at the Puhoi tunnels across the motorway network.
Cintra operates motorway network tolling systems in cities across Europe, United States and Australia. In a possible adaption for Auckland, Cintra's system of dynamic tolling used in two Texas PPP concessions would offer a balance between toll-free and tolled lanes which are managed with the toll price increasing during peak periods.
Instead of every motorway lane being tolled, Cintra reports that a mix between free and managed lanes — or low and high-priced lanes — is especially successful in that it gives choice to users. There is always a "free" lane available for the low-paid sector and those not in a rush to catch a plane or get to work.
Notes EMA's Campbell: "Waiting around for credible GPS-based technology is like waiting for a train to nowhere. The gantry system that operates for the Puhoi tunnels is proven — A toll can act as a sort of user-pay regional tax where 'if you don't buy you don't pay'."
He believes Aucklanders are ready for a network congestion tax. It would convey to central government that Auckland is genuinely prepared to pay its way for a more successful city.
As spelt out in a recent Cabinet paper and under-reported keynote speech by Twyford, the Government wants a joined-up urban development system linking transport, housing and urban planning — not just for Auckland, but across New Zealand.
Legislation establishing an Urban Development Authority (UDA) is due in Parliament shortly. The Authority is expected to have all the powers of a local government to drive urban development, including:
●Infrastructure funding and financing — to enable a more responsive supply of infrastructure and appropriate allocation of costs; and,
●Transport pricing — to ensure the price of infrastructure promotes efficient use of the network.
The Government wants transport planning and investment to lead urban form, not follow it.
In a bid to get an aligned process in place between Government and Auckland Council, a new Supporting Growth Alliance has this month been formed to take responsibility for planning and confirming around 60 transport projects to support Auckland's urban growth.
The Alliance will support the development of the huge residential and business growth already under way in the priority areas identified in Auckland's Unitary Plan — Warkworth, Silverdale-Dairy Flat, Whenuapai-Hobsonville and Takanini-Drury-Paerata where it is estimated around 30 per cent of the region's growth will occur over the next 30 years.
The idea is that all four growth areas will build on Auckland's proposed rapid transit network for the future, including Light Rail to the northwest.
As a collaborative consortium of government and professional service firms, the Alliance will be responsible for the whole approach, to identifying and protecting routes for the transport network while providing efficiencies in the planning process.
Notes Twyford: "Previously we haven't been able to provide certainty to communities, landowners and other stakeholders about transport infrastructure to support development. Now we can start to answer some of their questions."
It has taken two years of Wellington-Auckland agency talk to get to this point, and the establishment of the UDA is on a 2019-2020 timeline.
To get Auckland's transport system in shape to cope with the city's inexorable growth, Government is playing a long process-centric game using existing organisations. It is an approach with obvious risks.
The tangle of multi-agencies, council and local board groups that operate under what Barnett calls a "business as usual" culture make it difficult to build and maintain momentum to get things done with speed and certainty.
To meet the business call for urgency, the government should take a further step, says Campbell — establish a single, empowered and accountable Auckland-Wellington transport authority tasked to get things done faster, and report milestones achieved to the Government and public monthly.
They have both publicly indicated their frustration that none of the five-or-six "shovel ready" projects that the Government inherited have started.
If the Government is hell-bent on having concrete outcomes to celebrate before the next election, it will probably therefore depend on what progress is achieved by NZTA over the next 18 months on the "game-changer" rapid transit network the Government has tasked it to plan and build. (See story, D16)
There has been a 72% reduction in overall congestion as a result of variable tolling on two managed lane projects Cintra has in Texas:
1. No additional lanes; improved
shoulders, road design helped non-tolled lanes flow better
2. Non Tolled Lanes (General Purpose or GP) traffic 14% higher than before
construction
3. General Purpose congestion down from 29% to 9% (time spent traveling at speeds below 50 mph)
4. 72% reduction in overall congestion
● Tony Garnier is an Auckland-based business consultant
A potential low-system is set to form on the northeast coast of New Zealand.