Government splits three ways on light rail as more details emerge of dramatic super fund plan

Monday, 2 March 2020

The Government is splitting three ways on plans for Auckland light rail as the saga heads to its endgame phase.

Labour Ministers are erring towards signing New Zealand up to a long and expensive public-private partnership (PPP), while the Greens are understood to favour something more modest. NZ First wants something more modest still, publicly suggesting that its caucus is likely to axe any proposal put to it.

The Beehive has gone into lockdown, with Labour Ministers allegedly not sharing full and timely briefings with their Government colleagues, Stuff understands. None of the governing parties would comment on the record for this story.

Yet the dispute has already spilled out into the open. Associate Transport Minister Shane Jones told an infrastructure conference on Friday that the issue 'has not been to the NZ First caucus and it will need to before we have a position as a party.'

Jones also noted that there was no concrete commitment to building Auckland light rail in NZ First's coalition agreement with Labour. He also said the party were 'doubting Thomases' when it came to the 'light rail kaupapa'.

Jones made the remarks despite other Government Ministers putting him 'under strict instruction not to talk about light rail', he said.

* For the second day in a row, Phil Twyford looks like he's given Parliament the wrong information

* Is Auckland's light rail the Government's biggest bungle?

* Auckland's light rail: Under Queen St and over Mt Eden, the Super Fund's tunneling, or flying, tram**

Labour campaigned on building the first section of its light rail scheme from Britomart to Mt. Roskill by 2021.

Progress has stalled on the scheme while the Ministry of Transport compares competing bids to build the network from NZ Infra — a consortium of the NZ Super Fund and CDPQ Infra, a Canadian pension fund — and NZTA, the Government's in-house transport infrastructure builder.

The Ministry began reporting back to Ministers in February, meaning a final decision is imminent, provided parties can agree.

Labour Ministers are said to be increasingly keen on the NZ Super Fund option. Stuff has been told that this is based on a PPP with NZ Infra to build and run the rail network for 50 years.

Though currently equally owned equally by the Canadian and New Zealand Funds, this does not guarantee funding or returns would be equal. Stuff has been told these could be split 70-30 split in favour of the Canadian wing.

The Companies Office says NZ Infra is owned equally by the Canadian and New Zealand funds, but Stuff has been told this does not guarantee equal investment and therefore equal returns.

The Super Fund has strongly disputed the details, telling Stuff that they are 'incorrect', despite Transport Minister Phil Twyford telling Newshub in January the Super Fund proposed 'that they would design, build and operate the light rail line for the next 50 years'.

The Super Fund would would not comment further on the proposal, 'due to the commercially sensitive nature of the process', a spokesman said.

Labour had promised light rail would be built to Mt Roskill within four years of being elected.

Twyford's office would not respond to repeated phone calls for this story, but sent response to written questions. The office did not deny the veracity of the leaked information but said 'this is a commercial process so we won't comment on any speculation'.

Documents of the early light rail pitch that were leaked to Stuff last year did not specify how long the Super Fund proposed to run the network. There were fears it would be as long as 99-years, which is the length of the light rail PPP in Montreal, built and run by the Super Fund's Canadian partner.

Some in the Government have been spooked by spiralling cost estimates and the amount of money likely to be sent sent offshore. Cost estimates shared with Stuff by sources familiar with the matter are now as high as $20 billion.

It would mean New Zealanders could pay hundreds of millions — potentially close to a billion dollars — to the Canadian fund each year, likely through taxes and tickets sale over the life of the joint venture. This has raised eyebrows at a time when interest rates for Government borrowing are at near record lows.

For example, assuming a return on capital of 7 per cent — a global standard for PPPs — on a $20 billion project fully financed by NZ Infra, the consortium could enjoy returns of $1.4 billion every year for as long as the PPP lasted.

Renders of an early version of the Super Fund's plan for light rail, including raised tracks and a tunnel under Queen Street.

Under that scenario, if those returns were split 70-30, just under $1 billion of that income would be heading to Canada, with the rest staying with the Super Fund.

Twyford has previously called the bid a 'public-public partnership', and said the scheme's profits would support the kiwi retirees through returns for the Super Fund

'This would mean that every time you ride a train to work, you're effectively paying for your retirement,' he said.

But on those numbers it appears that Canadian retirees will be the ones who benefit most substantively from Aucklanders' light rail trips.

National transport spokesman Chris Bishop called the proposed details he had seen of the project 'unprecedented'.

'What is proposed by NZ Infra sounds extraordinary: a 50 year commitment from the Government would be unprecedented,' Bishop said.

'I can't see New Zealanders being keen to sign up to an arrangement where billions of dollars every year flows offshore to a Canadian pension fund while the government can borrow at such low interest rates,' he said.

Matt Lowrie of influential Auckland transport policy blog, Greater Auckland was also critical.

'Signing up our children's children to a 50 year deal, the profits of which largely go into Canadian retirement funds, doesn't sound like a great investment in NZ's future,' he said.

He also said questions needed to be asked about how well the project would integrate into the rest of Auckland's public transport system and whether there were any safeguards to stop the Super Fund from selling its share in the future.

This is also playing out against the backdrop of a possible inquiry by the Auditor-General into the light rail procurement process. The Auditor-General received information from people concerned with the project and is currently assessing whether or not to launch a full inquiry.

Bishop called on the Auditor-General to begin the full inquiry.

'The process so far has been a complete mess. The Auditor-General should investigate what has been a shambolic procurement process so far for Auckland light rail,' he said,