Scope, costs and benefits of $8.7bln infrastructure programme remain unclear

Government pushes ahead with revamped $8.7 billion NZ Upgrade Programme despite officials warning of unclear costs/benefits and 'light touch' governance

9th Jul 21, 4:36pm by Jenée Tibshraeny

Northern Pathway indicative concept illustration

The Government has been warned “significant risk and uncertainty” remain around its $8.7 billion New Zealand Upgrade infrastructure programme.

It has been revealed the Treasury and Ministry of Transport in mid-April wrote to Finance Minister Grant Robertson and Transport Minister Michael Wood to say they couldn’t point to one project in the programme where the benefits, scope, cost and schedule were clear.

They provided this feedback after a major “baselining” exercise, which concluded the programme would cost almost twice as much as the $6.8 billion expected in late-2019.

Another high-profile announcement

But despite the two agencies findings holes in the programme’s review, the Government still went ahead and announced an updated version on June 4.

Wood and Robertson said six of the 32 infrastructure projects wouldn’t go ahead as planned. Upgrades to Mill Road in South Auckland, State Highway 1 between Whangarei and Port Marsden and an expressway between Te Puna and Omokoroa were among the projects axed.

They said projects that would go ahead as planned include Ōtaki to the north of Levin, Penlink, SH58, SH1/29 in the Waikato, Melling, Takitimu North Link Stage One, and the Canterbury and Queenstown transport packages.

They also announced plans to build a bridge for walkers and cyclists alongside the Auckland Harbour Bridge - the “Northern Pathway”.

An additional $1.9 billion was allocated towards the NZ Upgrade Programme, hiking its cost to $8.7 billion.

Confidence lacking

The Treasury and Ministry of Transport less than two months prior, in mid-April, said they hadn’t yet had the opportunity to appraise the $785 million Northern Pathway’s “baseline information”.

They said the “significant risk and uncertainty” around the NZ Upgrade Programme would reduce over time.

“However, for around $5.5 billion of projects, a preferred option (which includes the preferred route, alignment, form, function, design and level of resilience) has not yet been selected or a business case completed by the delivery agencies, their Boards and their partners. There has also been no quantified risk adjustment to account for this uncertainty,” the Treasury and Ministry of Transport said.

“There are questions around value for money and whether its cost remains proportionate to the outcomes and benefits the project will deliver…

“Cost and contingency have been estimated differently for different projects.”

They said only some projects had undergone “quantitative risk assessments”.

“Overall, confidence in the baselining information is much lower than would be expected from the Crown’s normal capital management process, EG the point at which a typical project proceeds from a detailed business case to pre-implementation,” the Treasury and Ministry of Transport said.

A ‘light touch, high trust’ governance model

Rewind to late-2019, the aim of the NZ Upgrade Programme was to bring forward and fund major infrastructure projects, allowing them to be built sooner than would otherwise be the case.

The fact the Government provided an envelope of funding for the programme was an acknowledgement the New Zealand Transport Agency’s National Land Transport Fund couldn’t cover the cost of necessary infrastructure. The independent user-pays model was insufficient.

But rather than top up the fund, or enable the agency to issue debt or use new avenues to generate revenue, the Government decided to launch a standalone programme, which politicians could put their names to.

The Treasury and Ministry of Transport described the governance model as having a “light touch, high trust approach”.

They said the oversight, which their officials need to provide, relies on information given to them by the delivery agencies - the New Zealand Transport Agency and KiwiRail.

Yet, as they detailed in their letter to Wood and Robertson, the “baselining” work done by that point wasn’t up to scratch.

Wood: 'We took a balanced approach'

Wood responded to interest.co.nz's request for an interview, with a written statement: "We took a balanced approach in response to increased costs and most projects are going ahead as announced last year.

"We had to rescope a handful to keep debt down, but those communities are still getting significant investments from the Programme.

"Two projects are already finished and around a dozen are underway, creating jobs around the country.”

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28 Comments

by Burni | 9th Jul 21, 4:59pm 1625806780

This just sounds like an excuse for doing nothing which seems to be the government modus operandi these days. If Treasury cant sort out this out why would we believe they're even close 40 years out with their assumptions re Superannuation health and education let alone the local economic situation. It's just unhelpful naval gazing designed to generate a specific school if thought that being higher taxation.

by Squishy | 9th Jul 21, 6:24pm 1625811845

Treasury and the Ministry of Transport have shown repeatedly they cannot deliver reporting on projects at the rate that infrastructure is required. They are only highlighting their own ineptitude and should instead be spending time trying to support infrastructure development instead of chiding those in government who want to progress public projects.

by fat pat | 9th Jul 21, 6:45pm 1625813101

Seems kind of crazy to me to waste tens, and maybe hundreds of billions of dollars on quarantine hotels, and keeping the country closed when it doesn't need to be. None of those costs are analysed or questioned. But spending a relatively small amount on hard assets, and infrastructure is somehow frowned upon, or scrutinised at a stringent level.. okay?

by Jenée Tibshraeny | 9th Jul 21, 7:38pm 1625816305

$8.7b is quite a lot for NZ. As at March, the govt had spent about $21b on the covid recovery - the bulk of which went towards the wage subsidy. https://www.treasury.govt.nz/publications/data/quarterly-reporting-covid-19-specific-appropriations

by fat pat | 9th Jul 21, 9:55pm 1625824552

Thank you for the treasury breakdown. What will the total cost to New Zealand be if the current snapshot is 21 billion, and the government isn't even contemplating opening the country this coming summer? I'd guess that there are hidden costs, and negative multipliers lurking which can’t be shown in a balance sheet.

by Squishy | 9th Jul 21, 10:38pm 1625827095

There is a cost to every policy government adopts or avoids. Keeping borders closed has a lost opportunity cost, opening borders too early has a cost...it's a fine balance.

by fat pat | 10th Jul 21, 9:12pm 1625908327

No. The border should never have been closed in the first place. Both John Key and Helen Clark last year articulated the importance of getting the country open ASAP. Unfortunately, the country seems paralyzed by fear, and propaganda. National is conspicuously silent so there's no debate and not surprisingly the majority of people support the continues closure of the country. This doesn’t lead to a good outcome.

by linklater01 | 11th Jul 21, 12:30pm 1625963436

fat pat,
You concede that the majority support the continued closure of the country and presumably the same majority supported closing the borders and i am happy to be counted in that number. I accept the view-expressed by most epidemiologists-that by putting health first, we also protected the economy-with the obvious exceptions. The result is that we experienced a very low death toll and now have a strongly performing economy. Most other countries would be happy to have done half as well.
I do however worry about what will happen when we have a high level of vaccination. As a vaccinated and comfortably off 76 year old, I could live with significant travel restrictions, but I do not think that would be in the best long-term interests of the country. At some point, we will need to take some level of risk, though sadly we must also be prepared for more shutdowns.

by fat pat | 11th Jul 21, 7:57pm 1625990275

Hi Linklater - I'm just saying it how it is. Consider the low European excess death data from the euormomo website, and consider that NZ has a lower population density than many of those European countries. Consider that NZ only needs to vaccinate the covid-vulnerable portion of the population to keep people out of hospitals. Consider that pharmaceutical interventions like ivermectin, vitamin D, fluvoxamine and others (see c19study.com) are able to keep people out of hospital too, and lower deaths from covid by 70-80%. Why is it that the use of those drugs is outside the scope of thinkable thought for the government? Consider that Europe is currently open, and was last summer too! Italy and Germany are countries that I know about, and the bars and tourist hot spots are booming. ONe more thing to consider is that like me, you've probably had over half a million of capital gain in the last year so you're sitting pretty and not experiencing any of the long terms costs. That's great I'm happy for you (and me) but in the context of all that do you think it's a great idea to keep the country closed for another year?

by AndrewRiddell5886 | 10th Jul 21, 6:44am 1625856291

Borders open or not is dictated by the corona virus and by what other countries are doing.

by Nzdan | 10th Jul 21, 9:16am 1625865399

Is it a lot? We went from $13b to $60b government debt because of an "Earthquake", for which in 2015 the RBNZ estimated the total cost to be $40b (including $7b for infrastructure). According to page 5 of the following, insurers had already paid out $26b by September 2015. $60b - $14b = $33b borrowed for what exactly, tax cuts?

https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulleti…

by GV 27 | 10th Jul 21, 3:07pm 1625886463

Our debt position was so low initially because, surprise surprise, Labour had decided to pay down debt instead of building vital infrastructure and expanding state house building programs to take the pressure off house prices from 2000 - 2008, which at that point were rising faster than they would under the next two National governments. So yes, our debt position came off a low ebb but that's only because Cullen and Clark had basically left the country mostly as-is, outside a few big ticket projects like rail intensification and so on. Basically, they did exactly what they spent the next nine years attacking National for doing, and now are incapable of building anything now that they're in power after promising the earth to get in.

by Nzdan | 10th Jul 21, 3:15pm 1625886938

I'm not saying debt is a bad thing. I'm highlighting that $8.7b is not actually that much in the grand scheme of things, given we have had massive growth in public debt over the past 12 years. I expected someone to respond (as they usually do) claiming that we had this big expensive earthquake and that's the reason why the Government borrowed up large hence I included that little fact check.

by powerdownkiwi | 9th Jul 21, 7:05pm 1625814316

Cost/benefits are an obsolete measure.

We're in so much never-to-be-repaid debt, what is a ' cost' anymore?

The yardstick - and it's the only one in town, is:
Will it be future-appropriate?

And to ascertain whether it ticks THAT box, needs a whole understanding of the de-growth path ahead.

by Yankiwi | 9th Jul 21, 7:17pm 1625815046

Rather pleased to see JT focusing on the realities....

by Zack Brando | 9th Jul 21, 7:25pm 1625815546

lol here in Christchurch we're still waiting on 'anchor projects' announced 10 years ago. We still have the unresolved, broken cathedral. Granted the CCC among others have blame to shoulder, not just Central Government.

Now, the idea that even more dysfunctional Councils in partnership with Central Government are going to deliver 'national infrastructure projects' is farcical. They're in LaLa Land.

by JimboJones | 9th Jul 21, 8:26pm 1625819182

Funny how it’s never the road projects that are criticised. Some of them (especially the ones national were promoting) had benefit to cost ratios of 0.4 (40 cent benefit for every dollar spent). And that was before the cost increases. Yet it’s always a picture of a cycle bridge or a train line in question.

by pacifica | 9th Jul 21, 11:59pm 1625831990

Perhaps because the road is vital to actually shipping the materials and resources needed to build things like cycleways, roads, houses, businesses, schools, hospitals etc. Without logistics most of the infrastructure would not exist because even as an island nation not everything can be transported 90% of the way across the country by boat. Without the roads most public transport would not exist, most food supply and medical supply would not exist and emergency services would be non existent. But sure let's see you cycle a dying patient 12km in a storm, or ship 3 tonnes of materials by bike 25km away in under 30min. A transport method that only services 2% of people (who have multitudes of other transport measures to choose from and existing routes by bike from A to B) and literally 0% of logistics and trade is one that is a luxury compared to one that actually saves lives, supplies businesses and builds & services homes. Shaving off a few minutes or reducing the surface problems on roadways actually does affect the lives of the most vulnerable people when they need it the most but you would rather vote for more death and luxuries for the wealthiest people in the country while the poorest suffer without even access to public transport or indeed any form of transport at all. How cruel you must be and how greedy and arrogant to assume only your luxuries are important over the literal basic needs and lives of those poorer than you. By comparison the $13million to support transport for people with disabilities who have literally no other form of transport they can use gets dropped and ignored yet due to this they have to forgo all basic medical, work and education access, and forgo many necessities of living unfortunately dying untimely deaths. How kind of this govt to fund the wealthiest area in the country another luxury white elephant they don't need while denying doctor and hospital access for disabled people. Where do we send the package of appreciation to? What was the PMs address again.

by The Person | 10th Jul 21, 12:26am 1625833606

We already have roads. Who suggested we are going to stop funding them or rip them up?

"the poorest suffer"... 75% of journeys are short enough to cycle. Imagine if the poor felt safe enough to cycle to the doctor and didn't need to run a fleet of cars. Might free up some roadspace for your dying patient to get to the hospital in an ambulance.

by Let me be Frank | 10th Jul 21, 4:59am 1625849945

Who are the greatest users of health services?....and how many of them are capable of cycling anywhere?

by youngdumbandbroke | 10th Jul 21, 8:59am 1625864373

Well the rich feel safe in their Lycra so what’s stopping the poor?

by pacifica | 10th Jul 21, 9:45pm 1625910320

By comparison the $13million to support transport for people with disabilities who have literally no other form of transport they can use gets dropped or did you miss it was dropped because the cycle bridge costs far more. Due to this many families have to forgo all basic medical, work and education access, and forgo many necessities of living unfortunately dying untimely deaths. How kind of this govt to fund the wealthiest area in the country another luxury white elephant they don't need while denying doctor and hospital access for disabled people. Likewise the poorest areas in the city with no public transport and severe road surface issues are denied yet again because the cycle bridge cost more now than before. It is a direct opportunity cost system and to see it wasted on the luxuries for the richest and most able with the most transport options while most the country suffers from damage due to poor maintenance (on even our main highways) or complete loss of access (like that which frequently occurs on our main highways due to damage) is a criminal shame. How kind that due to the loss of access many do not have access to justice or a system of support for basic needs so the ability to protest has been stripped from them.

by kpnuts | 10th Jul 21, 7:25am 1625858740

do you have a cost benefit figure for the $600m ( will end up at $1bill) cycle bridge -- that will be virtually unused except for a very few leisure activities on a Sunday ? Certainly not going to be a massive commuter route , freight or any other commercial benefits from it --

by paashaas | 11th Jul 21, 8:20am 1625948420

Let us be real here - it will not be built .. just another "aspirational" announcement.

by The Person | 10th Jul 21, 12:18am 1625833114

Rather reminds me of the Roads of National Signifcance that National party plucked out of nowhere in John Keys first term.

"However, for around $5.5 billion of projects, a preferred option (which includes the preferred route, alignment, form, function, design and level of resilience) has not yet been selected or a business case completed"

by GV 27 | 10th Jul 21, 7:48am 1625860110

"the aim of the NZ Upgrade Programme was to bring forward and fund major infrastructure projects"

The aim in 2019 was to head off Simon Bridges getting traction with his correct claim that, having cancelled National-led projects on ideological grounds, and being incapable of turning their own policies into actual projects, there was no tangible infrastructure plan.

It was an announcement of an announcement, with more details in the following year i.e. electoral positioning and nothing more. Luckily Covid happened and Bridges got yeeted. But Labour are still pathologically incapable of delivery and will often make announcements just to head off criticism.

by Takere | 10th Jul 21, 12:03pm 1625875384

This is looking like a reason for the government to go cap in hand to the next round of negotiations to the CTPP with a project to table and raise capital for?

The current 'stock take' that the government is in the process of doing looks very much like preparation for a 'Fire Sale' and the perfect place to land investment capital is at the CTPPA hui.

by solardb | 11th Jul 21, 12:34pm 1625963648

Ask anyone building a house, almost impossible to estimate costs to any degree at the moment.