City Rail Link: Auckland Council diverts $500 million savings to over-budget project

Thursday, 18 April 2019

Construction work on the City Rail Link beneath the former Chief Post Office building, now the Britomart Train Station, in the area where the 'northern tunnel' will connect through to the existing lines and platforms.

Aucklanders will miss out on $500 million of future council projects to fund the city's share of the rising cost of the City Rail Link.

The estimated price of the twin downtown rail tunnels is now $4.4 billion, $1b more than previously calculated.

'Nobody is surprised that there's been a major increase in the costs, no matter how unwelcome those costs will be,' said Mayor Phil Goff.

Goff said the council believed it could meet it's half-share of the increase, through changes in financial management and some asset sales.

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The higher price unveiled on Wednesday, is due to increased construction costs, previously announced design changes and a provision for further rising costs due to a 'hot' construction sector.

City Rail Link CEO Sean Sweeney announcing the project will now cost $4.4 billion

The chief executive of the council-government joint venture company described the level of increase since the $3.4 billion estimate of 2014 as 'not unusual'.

'I can understand people being surprised and upset, but this is the right cost, and I think the previous numbers were actually low,' said Sean Sweeney.

Auckland Mayor Phil Goff calls the higher CRL cost no surprise, but unwelcome

The higher cost was unveiled at the same time as a multi-national consortium called Link Alliance was named as the preferred bidder for the main tunnelling and fit-out work.

Phil Goff said he was told of the new figure late last Friday, but had himself previously referred to the likelihood of the cost going up.

'There had been speculation before that, but none of us knew - we had anticipated an increase given the 8 per cent (annual) increase in construction price indexes,' he said.

Goff said council officers had come up with a five-component funding plan that didn't increase rates, or blow-out the council's debt-to-revenue ratio.

The biggest single contribution will come from re-negotiating short-term council loans to take advantage of lower interest rates, saving an estimated $120 million.

A further $100 million will come from halving the size of the council's cash 'float'.

Goff said the possible sale of three city centre car parks, and leasing out the Aotea Centre car park could generate $100 million - only half of which would be put towards the CRL costs.

Other savings could come from more sharply calculating the future cost of long-term contracts such as with the operators of city bus services, and trying to defer the council's share of CRL payments to the tail end of the project.

'We will still do all of the things we talked about in our 10-year budget last year, but there will be future projects that have not yet been put to us, that might have been possible, but that won't be possible in the future,' Goff told media after the announcement.

Goff described the proposed funding options as being a specific response to the CRL cost increase, but also agreed some would have happened anyway with the proceeds applied in ways that would no longer be possible.

Both full council, and the cabinet are expected to sign off the higher costs of CRL next month.

Sweeney detailed how the higher cost figure had been reached.

The biggest sum of $327 million is due to the higher cost of construction since the 2014 estimate.

A further $310 million is a contingency fund to cover possible future cost escalation due to a stretched construction sector.

Last year's decision to making stations wider and longer to accommodate nine-car trains instead of six-car trains, is a future-proofing move costing $250 million.

Additional costs around the project, but not directly due to construction, add a further $152 million.

Transport Minister Phil Twyford, said the government was committed to seeing the project through, but pointed a finger at the previous National-led government.

'The re-costing exercise has shown that the last Government did not set aside enough money for inflation and cost escalation,' he said in a short statement.

Goff took a poke at the current government and said no other city had to pay for half the price of a rail project.

'I've argued that case to Government (which) has refused to revisit the deal saying that was what was agreed between the previous Auckland council and National Government,' he said.

The twin tunnels, stretching 3.5 kms from Britomart rail terminus to the existing line at Mt Eden, is the biggest transport project in the country.

It was championed by Goff's predecessor Len Brown from 2010 and, by 2013, had won government support for it, with initial council-funded works starting in 2016.

It will create a rail loop through the CBD, adding two new stations, doubling the capacity of the rail network and cutting train journey times into the city centre, for example by 17 minutes from Henderson.

The project is expected to be complete by late 2024.