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‘I have not quantified the benefits’: the astonishing truth about NZ’s most expensive road ever

Remember that proposed new highway from Penrose to Onehunga, the East-West Link, set to cost close to $2 billion? Turns out no one has worked out, using current figures, if it’s worth the money – and it’s most likely no one ever will. And it’s not clear if the responsible ministers even know this.

You don’t need to take my word for it. This week the New Zealand Transport Agency (NZTA) released the evidence of its own economist, John Williamson, to a board of inquiry looking into the East-West Link.

In that evidence, given on Tuesday June 20, Williamson said:

I acknowledge that I have not prepared a quantitative assessment of the economic costs of the [East-West Link] Project. Neither have I quantified the benefits. However… I do not consider that it would be practical (and may not even be possible) to undertake such a task nor do I think it is helpful.

Just to reiterate that astounding point: the NZT’s own economist says there is no new benefit:cost analysis and they don’t think there should be one. Williamson also said:

Based on all the information available, I am confident that the economic benefits of the Project will outweigh the economic costs (especially if the construction costs are not included).

So: just, “trust me” and by the way we’re not counting the cost of building the thing? Even though the East-West Link is going to be the single most expensive piece of road ever built in New Zealand? The Waterview Connection – complete with tunnels and all those flyovers – cost less.

The board of inquiry is convened under the Resource Management Act to receive evidence on whether NZTA should be granted a resource consent to build the East-West Link. The substantive hearing will start next week. We’ll come back to what else Williamson told the board of inquiry below.

Just three days earlier, on Saturday, Transport Minister Simon Bridges was on Three’s The Nation saying something completely different. Although Bridges must have known what Williamson was about to tell the board of inquiry, he assured viewers there actually was an up-to-date benefit:cost analysis for the EWL. He said it was 1.9, and he promised to release the details to the public.

Bridges appears to have been confused. The 1.9 figure applies to the BCR for the project in December 2015, but costs have risen substantially since then and the project itself has changed, with several variations made to the 2015 plan. It is NZTA’s reluctance to update that 2015 figure that worries critics of the project.

(In benefit:cost ratios, a number greater than 1 means the benefits outweigh the costs, although for several technical reasons, it’s usually desirable to have a BCR of 3 or 4 for the benefits to be considered strong. Less than 2 is weak.)

The proposed shared path along Orpheus Dr, Onehunga, part of the East-West Link. Source: nzta.govt.nz

Bridges also claimed on The Nation that the East-West Link was a project of “long standing” that had been in development for years and was supported by everyone involved. In fact, the EWL did not appear on any transport plans for Auckland, even long-term ones, until around five years ago. Nor is it supported by all parties – the Auckland Council, for one, has been asking hard questions about it. Even if the road is to be built, there are several options for the route – some of which appear to have a much better business case than the one NZTA advocates.

Under questioning by the Greens’ Julie Anne Genter in Parliament yesterday, Bridges again said the BCR was 1.9, but this time he acknowledged the figure dates from December 2015. Genter asked if he could confirm the cost of the project had risen since then by $1 billion and he replied, “No.” He said the BCR had not changed, even though she tabled data from NZTA showing higher costs.

He repeated the inaccurate assertion that this is a project of long standing: “This is a project that’s significant, that Auckland Council has prioritised, that Auckland business has prioritised, not just over a few years, over a very long time.”

The EWL is not mentioned in the Auckland Transport Alignment Accord (ATAP), which is the agreement signed last year between government and council on the way transport projects in the city should be progressed. Why not? Then finance minister Bill English explained at the time that because it was one of the Roads of National Significance (RONs) and planning was well underway, it didn’t need to be. But work hadn’t started; the road wasn’t even consented. English was effectively suggesting the government believes that when a roading project is especially important it doesn’t need to be subjected to the normal scrutiny.

Meanwhile, here’s the current finance minister Steven Joyce, as reported in the Herald just two weeks ago, speaking about transport infrastructure to the finance and expenditure committee in parliament:

“I think there is unfinished business now for all of us to think about what are the true wider benefits of some of these projects and trying to get a bit more discipline to them in the years ahead… From my perspective, I think it is important that we go through the benefit:cost ratio discussion.”

So, Joyce wants more discipline in applying BCRs to projects, Bridges says there is a good BCR for the most expensive roading project in our history, but the government agency in charge of that project says there is no BCR and there probably won’t be one.

“The East West Link is one of the New Zealand Government’s top priority transport projects in Auckland,” says the NZ Transport Agency website.

Let’s look at what else Williamson told the inquiry. He repeated, in various ways, the idea that accurate benefit:cost analysis was problematic, unreliable and unnecessary. He wasn’t going rogue on NZTA, either: the agency’s own Economic Evaluation Manual (last published in January 2016), which he quoted, bluntly states there are “practical limits to the amount of time and energy that can or should be spent in gathering information and calculating total activity benefits”.

Williamson said it was “inappropriate to use the BCR to calculate economic wellbeing of the proposed EWL” and repeated that he had “not undertaken a quantitative economic assessment but [considered] an economic analysis of a transport project is unlikely to ever be complete”.

And, perhaps, the clincher:

It is most likely that costs and benefits for the preferred alignment have, and will continue to change… Indeed, the outcome of this Board of Inquiry may well lead to further changes in both. However, given the time and cost required to repeat this analysis, once an investment decision is made by the Transport Agency it is not usual to continue to subject a preferred option to ongoing economic analysis. [Our emphasis.]

In other words, if they get the go ahead, he doesn’t expect there will be a new BCR. Which is to say that the most expensive road we’ve ever built will happen without anyone knowing for sure whether there’s a good business case for it.

Is Steven Joyce aware of this? Is Simon Bridges?

Just asking, because The Nation followed up Minister Bridges’ assurances on air by asking his office if it could provide the “new” BCR he had promised. The minister’s office responded with the “latest on the BCR for the East-West Link”. It said:

  • The cost range for East West Link remains as previously reported and as per the Detailed Business Case: $1.05 billion to $1.5 billion (in 2015 dollars) which equates to $1.25 billion to $1.85 billion when adjusted for escalation (i.e. allowing for inflation).
  • The Benefit/Cost Ratio (BCR) could range between 1.4 and 1.9, but the NZTA anticipates that the project will deliver a 1.9 BCR.
  • The cost estimate and economics will be updated following the outcome of the Board of Inquiry to account for any changes that occur through the Resource Management Act approval process.

Three things about that. First, it flatly contradicts the minister’s claim there is a new BCR. Second, it’s still as unclear as ever how the old BCR, based on 2015 dollars, can still be relevant when both the scope and anticipated costs of the project have changed.

Third, this claim by NZTA, that a new BCR will be done after the board of inquiry, contradicts the earlier claim by NZTA – to the board of inquiry, given by John Williamson – that he doesn’t believe there will be a new BCR. The writers of Yes, Minister would be proud of them today.

Visualisation showing the proposed new road dipping into a trench around where the Onehunga port is with the current Onehunga Harbour Rd going over the top, and a walking and cycling bridge above. Credit: nzta.govt.nz

A word on business-case modelling. Williamson is right that BCRs are hard and can be misleading. If the economic value of a transport route was the only thing that mattered, there would never be any roads to take people on holiday. There’s no business case for that at all. How do you measure the economic value of improved stormwater services, which are a by-product of most road building? And it’s notoriously problematic to measure the economic benefits of passenger transport projects. If a commuter gets to leave home half an hour later in the morning because of a new busway, how do you quantify the value of that? And how do you anticipate the pick-up – the rate at which the service will be used?

At Greater Auckland they’ve done some good work on this, showing, among other things, how consistently Auckland public transport use in recent years has exceeded planners’ expectations. (And the latest annual figures, to the end of May 2017, show 18 percent growth across all public transport.)

But freight, now that’s a different matter. Building a road whose only purpose is to move trucks carrying containers should be relatively easy to quantify, shouldn’t it? The patterns of container movement and the time it takes are known. The time savings that road will allow are reasonably predictable. So where’s the BCR for the East-West Link?

It seems absurd that planners will not produce a proper BCR for a freight road. It is hypocritical that the politicians do not insist on it. It is unconscionable when politicians – in this case Simon Bridges – mislead us about all this.

The East-West Link is likely to cost close to $2 billion. As Harriet Gale discussed here yesterday, a part-alternative, to build a third rail track for freight in the area, would cost less than $60 million. Curiously, Minister Bridges also told The Nation he had not seen any details of the third-track proposal. In fact, it was submitted by KiwiRail for the 2017 budget. What is the minister telling us when he says he is not familiar with the budget proposals of his own officials, made just a few months ago? The third track, for the record, was rejected.

And there’s this: according to evidence before the board of inquiry from Donal Curtin, an economist contracted to the Campaign for Better Transport (CBT), the available data suggests the BCR for the East-West Link could actually be as low as 0.96. As his colleague Cameron Pitches says, the CBT believes the East-West Link can built, with most of the same benefits, for $1 billion less than the government currently plans to spend. No wonder NZTA doesn’t want to talk about it.

The word outrage springs to mind. Why is the East-West Link happening? Because the trucking industry wants it.

When then-PM John Key announced in January last year that the EWL would be fast-tracked, Ken Shirley of the Road Transport Forum responded by saying, “We have long advocated for the East-West Connection as a critical piece of infrastructure to free up freight movement around Auckland. It is a top priority for the industry and it is good to see the Government recognises that.”

Notably, he doesn’t speak for everyone in the trucking industry. Don Braid of Mainfreight is on record arguing for better rail instead.

But Shirley and co have some heavyweight supporters in the business community, especially Michael Barnett of the Chamber of Commerce and Kim Campbell of the Employers and Manufacturers Association. Barnett calls the EWL “critical infrastructure” and Campbell says, “for business in Auckland, this is absolutely essential”.

Given the lack of reliable business-case analysis, how do these views get established? It helps them enormously that New Zealand does not have an integrated transport and freight strategy and that the options for transporting freight are not considered side by side. Roads are planned separately from rail; state highways are considered completely on their own. The planners and politicians rarely ask: What’s the best way to move this freight? Instead, it’s far more likely to be: Where do we build the next road?

And why is that? Because the trucking companies want it.

simon@thespinoff.co.nz


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