Brian Rudman: Promised electric trains derailed by misguided enthusiasm

The carrot dangled in front of Aucklanders by our new Wellington masters is that once we roll over and buy into the Super City concept, central government will suddenly start treating us like grown-ups. But the run around we're getting on public transport issues like integrated ticketing and new electric trains, sends a very different message.

Could there have been anything more dispiriting than Transport Minister Steven Joyce's announcement last week, after a trip to Australia, lauding the merits of a public-private partnership as a way of funding Auckland's long-awaited electric rail fleet.

Quoting from the PPP enthusiast's handbook, he declared "the use of PPPs can be a sensible way to procure this kind of expensive, longlife asset". They are "one way to provide value for money for taxpayers by rescuing the upfront cost to the public purse and shifting a reasonable element of financial risk away from the public sector".

He called on his officials "to look into how this might work in the New Zealand context", adding that he didn't want the investigation to delay the Auckland electrification project, planned for completion in 2013.

He holds up the PPP model being used to buy Sydney's new passenger rolling stock for special mention. For someone trying to allay our fears about never seeing an electric train in Auckland, it's an unfortunate example. That contract is running months behind deadline and the New South Wales Premier is very grumpy. The Sydney tender process proper started in August 2004, presumably after months of intricate, contract design work. The successful consortium was finally announced in November 2006.

Hailed as Australia's biggest PPP scheme, the Reliance Rail consortium agreed to deliver 626 carriages within six years, the first to start appearing in 2010. The deal included a 30-year maintenance contract. The NSW Government says it's worth $3.6 billion, however the Sydney Morning Herald last month calculated the true figure, once financing costs and the bill for maintenance over 30 years are included, at $9.5 billion. Nearly a third of that figure will go in interest payments and the like.

In February and just two years into the deal, the SMH reported that credit rating agency Moody's was so concerned that the delivery programme was already "five months behind schedule", that it was considering lowering the credit rating of the debt attached to the project. Then just two weeks ago, the SMH reported that Premier Nathan Rees was so furious at the delays that the Government might withhold a $10 million "milestone payment".

All of which is by way of saying, the PPP model so favoured of politicians trying to keep their borrowing off the public books, has a rocky track record. Mr Joyce's bureaucrats need only dust down previous reports by their predecessors on the subject. Ministers in the last Government sent their officials off chasing similar rainbows, too, and each time, the bureaucrats came back empty-handed.

In 2006, a Treasury paper concluded "there is little reliable empirical evidence about the costs and benefits of PPPs". It said there "are other ways of obtaining private sector finance" and "the advantages of PPPs must be weighed against the contractural complexities and rigidities they entail".

The consensus, as former Finance Minister Michael Cullen was wont to point out, was that Governments could always borrow money cheaper than anyone else.

While the bureaucrats have to spend time bringing another new minister up to speed on the pitfalls of PPPs, the upgrade of public transport remains stalled. When National came to power last November, the regional fuel tax was in place, ready to fund and underwrite the train purchases. The Auckland Regional Transport Agency had investigated the possibility of piggy-backing on the recent deal with Hyundai-Rotem to provide new rolling stock for Wellington but decided instead, to call for expressions of interest internationally.

Seven companies responded. ARTA was in the process of preparing a short list when the new Government unilaterally scrapped the regional fuel tax and said it would take over the train purchase process. ARTA then wrote to the interested parties asking them to mark time until August. The question now is, August of which year?

With no provision in the Budget for train purchases, and the Government waxing lyrical about the contractural minefield that is PPP, trains by 2013 seems hugely optimistic.