In The Power Broker – the biography of Robert Moses, New York’s brilliant and tyrannical city planner for 40 years – the Machiavellian public servant delivers a masterclass on how to manipulate elected politicians into funding his ruinously expensive megaprojects.
The most important thing was to estimate the initial budget at about a tenth of the real price. It would quickly be approved – such a great deal! – and he then used the sunk-cost fallacy to gradually ratchet up the funding.
Yes, the budget for this new park or expressway was a little higher than predicted, but did the mayor really want to tell the public he was abandoning this wonderful project and that the millions already invested would be written off? After all that lavish publicity promoting it? Didn’t he have an election coming up?
By the time the project neared completion – at 1000% of the initial estimate – the city was raising taxes, cancelling other vital builds and deeply in debt. Voters were furious – but that was a problem for the elected politicians, Moses replied coolly. He just built the roads. Shame about the mayor; Moses looked forward to working with his successor.
This tactic goes some way towards explaining the staggering cost estimate blowouts of the last Labour government’s planned key infrastructure projects: Auckland Light Rail, Let’s Get Wellington Moving, the Lake Onslow hydro project and replacing the Interislander ferries and building new terminals – for which KiwiRail spent $424 million on design and project management fees without delivering anything.
The total cost of the new rail-enabled ferries and port upgrades quadrupled in just a few years with design work on the ports yet to be finalised. The incoming government was briefed on the project during coalition negotiations. In the few weeks between the resumption of Parliament and ministers meeting with officials the cost had increased by another $400 million to a total $3 billion – almost certain to go higher.
Funding decisions are based on benefit-cost ratios and net present value measurements. These ensure that the economics behind these big capital investments stack up. If officials and executives at SOEs systematically undercost their proposals, the nation will find itself investing in ill-conceived projects that fail to pay for themselves.
The coalition’s spree of post-election infrastructure cancellations was partly driven by its pathological drive to erase all trace of the Ardern government’s existence, but it was also a signal to officials that there was a new sheriff in town. If state agencies scammed Treasury on their initial cost estimates, the government would kill their projects.
High-risk decision
Sinking the Interislander replacement was always a high-risk decision. The ships were failing – a Maritime NZ investigation into the Aratere’s power failure in 2023 found a mid-sea power blackout was caused by disintegration of the tape holding components of the electrical system in place.
The now-cancelled gold-plated replacement wouldn’t have been in service until 2026 at the earliest (and it’s hard to imagine KiwiRail delivering the new ports until the middle of the century).
So the steering failure that led to the vessel running aground just north of Picton last week would have happened anyway.
But it coincided with a sequence of similarly high-profile failures: the Air Force Boeing 757 broke down in Papua New Guinea while flying a prime ministerial trade delegation to Japan; the 18-week closure of the state highway through the Brynderwyns after slips; and a power pylon fell over, knocking out power to 100,000 Northland homes and businesses. (Energy Minister Simeon Brown noted, “A pylon should not just fall down”, but he turned out to be wrong. Transpower revealed the tower fell after contractors carrying out maintenance removed the bolts fixing it to its base plate: a pylon should and will fall over under such circumstances.)
Falling to pieces
Taken together, these incidents expose a nation that’s visibly falling to pieces.
It’s often claimed that this country has underinvested in infrastructure. If that were true it would be appropriate to make up the shortfall by directing more money into transport, water and electricity.
But a recent report by the Infrastructure Commission found we invest heavily in infrastructure – we just get terrible value for that investment, and the more we spend, the worse the value.
Nearly all our political discourse can be reduced to “This leaky bucket is empty! We must pour more water in!”
Poor procurement, poor governance, poor regulation, poor project management and political uncertainty are all blamed for the high cost of building things, and in the Interislander debacle we can see how terrible management, procurement and governance deliver that political uncertainty.
There have been suggestions that KiwiRail should not manage the Cook Strait service and the government intends to “refresh the board”.
When Finance Minister Nicola Willis cancelled the ferry spend, she described the plan as a Ferrari when we needed a Toyota Corolla, and this should be a guiding philosophy for a nation that doesn’t have much money and is bad at building things.
It’s a philosophy the government has already abandoned. Its ministers are chasing after Waka Kotahi’s thrilling new plans for a 4km mega-tunnel under Wellington like children in pursuit of an ice-cream truck, desperate to repeat the mistakes of their predecessors.
It’s hard to believe this tunnel will ever be built but we’ll happily spend hundreds of millions not building it.
Even now, the transport agency is engaging contractors and consultants to investigate the tunnel’s viability, and they are likely to report back that their cost estimate for an extended underground tunnel in an earthquake zone is surprisingly cheap – maybe a tenth of what you might expect to pay!
