Have your say: Should KiwiRail be forced to make sure 38 trains earmarked for Auckland are built in New Zealand?

Have your say: Should KiwiRail be forced to make sure 38 trains earmarked for Auckland are built in New Zealand?

State-owned KiwiRail is being urged to enforce local content provisions in a contract for building 38 trains for Auckland which is being contested by two foreign companies.

The Rail and Maritime Transport Union (RMTU) pointed to work by economic researcher BERL on the benefits of building the 38 trains in New Zealand, saying the State Owned Enterprise must rigourously enforce provisions for the winning bidder to look at using local facilities or expertise when building the trains.

KiwiRail told interest.co.nz bidders were encouraged to explore local content options for building the trains and that further discussions would be held with the two parties on opportunities for the involvement of New Zealand skills and resources.

KiwiRail announced yesterday two bidders had been shortlisted for the contract - Hyundai Rotem Company; and Construcciones y Auxiliar de Ferrocarriles S.A/Mitsubishi Corporation. KiwiRail has set aside NZ$500 million for the contract to build the 38 trains.

Long-term economic benefits

The BERL report (see below) suggested the price of building the trains in New Zealand would be internationally competitive as train manufacturing was largely capital intensive. This meant labour costs, which are cheaper in countries like China, played a smaller role in the overall cost of the project.

Building the trains in New Zealand would also bring other benefits to the country in areas like employment, GDP growth, and increased government revenue.

Read the full BERL report here

Your view?

BERL's 'business case' for building the trains in New Zealand is below. Should KiwiRail be forced to force the two foreign bidders that the trains be built here?

Is this an area where government should be intervening?

We welcome your views and insights in the comments space below

Here is the BERL 'Business case' for building the trains in New Zealand from the report:

This project was commissioned by the Rail and Maritime Transport Union (RMTU) and Dunedin City Council (DCC). The purpose of the project was to estimate the likely economic benefit of New Zealand building new rolling stock for the Auckland rail network. Kiwirail has plans to purchase 38 three-car Electric Multiple Units (114 cars), and 13 electric locomotives. This new rolling stock is likely to cost NZ$375 million to produce in New Zealand.

Some stakeholders question whether New Zealand has the capacity to build the rolling stock in the timeframe suggested in Kiwirail‟s Industry Engagement Document. We have therefore estimated impacts for two scenarios: a “mandated” scenario and a “constrained” scenario.

The key benefits of producing the rolling stock in New Zealand, at a national level, include:

  • an average of 1,270 full-time equivalents (FTEs) employed across New Zealand over a period of 45 months (mandated scenario) or 770 FTEs across New Zealand over a period of 69 months (constrained)
  • NZ$250 million (mandated) or NZ$232 million (constrained) added to total GDP, including NZ$117 million (mandated) or NZ$108 million (constrained) in direct GDP.

Our research suggests that overseas manufacturers would need to produce the rolling stock at between 29 percent and 62 percent less than the price of manufacture in New Zealand to offset the benefits to New Zealand GDP of producing the trains here. The range is dependent on whether we consider only the direct benefits (29 percent) or total benefits (62 percent) to New Zealand GDP of building the rolling stock here.

Our research suggests that at these prices, the rolling stock is unlikely to be sourced from quality western suppliers. It may be possible for Asian sources to supply at prices close to these. However, the quality and expected life could be less than those from Europe and North America, and we suspect from New Zealand. It is possible also that total operating costs could thus be higher. It therefore makes business sense to produce the trains here, not only from a national perspective, but also from a commercial (Kiwirail) perspective.

There are a number of further economic benefits of building the rolling stock in New Zealand that are discussed in this report. These include developing and maintaining skills in New Zealand; the opportunity to capture part of a NZ$15 billion rolling stock industry; opportunities for innovation and technology spill-overs to other industries; ongoing maintenance contracts with associated jobs and contribution to GDP; reduced exchange rate risk or risk-minimisation costs; and Crown revenue and trade balance benefits.

Here is the release today from the Rail and Maritime Transport Union.

Rail workers are today calling for a firm commitment from KiwiRail that it will rigorously enforce local content provisions it placed in tender documents for the construction of Auckland’s new trains.

Late yesterday KiwiRail announced the two shortlisted firms for the $500 million job to build 38 three-car electric multiple units and 13 locomotives for the Auckland rail network.

Last May, Chambers of Commerce, local government and unions commissioned a report setting out the economic benefits of building the trains in the Dunedin and Lower Hutt workshops.  BERL’s report estimated a local build would have added between 770 to 1270 additional jobs, $232 to $250 million to GDP and an increase in crown revenue by a net $65 million to $70 million.

Rail and Maritime Transport Union General Secretary Wayne Butson said that while KiwiRail and Transport Minister Steven Joyce had turned their nose up at local build, it was vital that clauses in the tender document supporting local firms were enforced.

“Rail workers’ preference has of course always been that these trains are built locally, and the economic case has backed them up,” Wayne Butson said.

“But the next logical step is to ensure that the successful contractor involves local firms in as much of the construction as possible.”

“From Day 1 it has seemed that there were only two people in New Zealand who thought that the Hillside and Woburn workshops couldn’t build these trains – KiwiRail’s Jim Quinn and Minister Steven Joyce.” 

“Everyone else believed that the economic benefit of more work for local manufacturers, and the retention of a skilled rail workforce, was too important to let the job go overseas.”

“We are now calling today for a firm commitment from KiwiRail that the local content provisions in tender documents will be enforced,” Wayne Butson said.

KiwiRail’s May 2010 tender document encouraged firms to ally themselves with New Zealand subcontractors or suppliers and “include as much New Zealand content and resources in the design, construction, delivery, testing, maintenance and support of the EMUs as is appropriate.”

Here is the KiwiRail announcement yesterday on the two shortlisted bidders for the contract:

A further milestone has been reached in the procurement of new electric trains for the Auckland network with KiwiRail today announcing the short list of two bidders to advance to the final stage of contract negotiations.

Chief executive Jim Quinn says the two remaining bidders for the EMU procurement and maintenance contract are Hyundai Rotem Company; and Construcciones y Auxiliar de Ferrocarriles S.A./ Mitsubishi Corporation.

It is expected the selection of the preferred bidder would be completed by the end of the third quarter 2011, Mr Quinn said.

"Over the next few months we will continue to work with these bidders to develop the proposals leading to their best and final offers. As part of that process we will discuss opportunities relating to the degree of local content in each proposal."

Mr Quinn said there had been a significant level of industry involvement in the procurement process to date which had led to robust and competitive proposals.

"We are very pleased with the quality of the responses and the positive input of all suppliers to date, which gives us great confidence as we head into this vital last stage of contract negotiations and move into the construction phase of the project."

A total of $500 million has been allocated for the purchase of new trains, maintenance and storage depots.

Here is KiwiRail's response to questions from interest.co.nz on the local content provisions:

All bidders have been encouraged to explore local content options, and provided with information on the skills and resources KiwiRail could provide to add local content, and connected with the Industry Capability Network, which connects local businesses with major projects.

As we proceed through this final stage of contract negotiations, we will be holding further discussions with the two parties, addressing a wide range of issues including the opportunities for involvement of NZ skiils and resources.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

32 Comments

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If you subscribe to peak oil then investing capital into rail makes even more sense. The equation would pay off even better than BERL are saying as the machinery used for manufacturing would continue to be used.

Just a shame that we went for narrow gauge.

We have no choice, the narrow gauge suits bends...

regards

Well for the cost of laying the tracks, but not for speed but I think speed might become less important going forward. Topography does challenge rail in general though.  A shame because we don't really have the sleeping option for overnight rides.  Can't remember the reason, but I did the overnighter from Auckland to Wellington when in my teens and can't say I enjoyed it.

A narrower gauge means tighter bends....very important for our topology. However a wider gauge means faster.  We used to have sleepers but they cost, so I dont think they have been done for years, but I expect cattle class will be gone in a few years and such things will come back.  Ive done 2 or 3 over-landers during the day....glad I did them....

What we desperately need is the main trunk electrified...

regards

Steven

But why stop with trains?

Surely, building cars is a capital intensive industry too! I think we should require every driver to buy a car that is built in NZ.

Think about the boon to our economy!

And why stop with trains and cars? Think about planes and ships!! The possibilities are endless. In no time we will have solved all NZ's economic ills.

I think the comment is, its economic to do so.....so how about we see why it isnt economic to make trains from you?

regards

Cars and trains are very different, so shouldn't be compared. A comparism would be buses, and we do build buses in NZ, and I beleive we also export them. 

If there is no demand, then yes, why not.  We wont see it like we did in the 80's as that was a result of [Saudi] Arabia having alot of spare prodcution capacity.  The main reason was Pres Reagan wanting to destroy the Soviet economy, as they only 1 real export they could demand USD for...  oil.

Ha ha... just imagine if we did all that plus raise the min wage to $100p/hr.. we'd all be loaded!!!!!

Isn't that how it works?

"All of the old-timers knew that subprime mortgages were what we called neutron loans -- they killed the people and left the houses."

Love that saying..........

and the extend and pretend carries on.........

http://www.minyanville.com/businessmarkets/articles/extend-and-pretent-recovery-commericial-lending/3/31/2011/id/33692?page=full

 Previous and current government let us down.

 I’m a strong believer our economy needs to be redesigned. In the current and upcoming worldwide environment we need structural planning (not government intervention) involving the private sectors, strongly supported by government is essential.

Minister Joyce infrastructure needs in sectors like Transport, Energy and Telecommunication need to be allocated to NZcompanies - the NZworkforce,

Obviously NZ has a reasonable good education system to provide the necessary potential for our workforce. Unfortunately talented and skilful young people are forced to export themselves to other countries, because of lack of decent jobs here or more interesting and better paid job in others. Entrepreneurial skilled people setting up their businesses are often struggling to get access to resources – materials/ technology etc. in this country. As a nation this factors are economically suicidal.

As a nation we cannot afford the volume of imports. We must reduce our massive account deficit and change from consumption to a manufacturing culture  - with all the advantages.

 Building a few national “Eco Economic Parks” http://www.highbrook.co.nz

 in strategic favorable locations could manufacture widgets/ products needed by all sorts of industries. It could be developed as the centre of niche market products and specialist equipment – especially supporting infrastructure demands here in New Zealand. The park could also be used for research, technical developments and engineering schools. Attempt for a “National Light Industrial Park” would open the door for a balanced and prosper economy. Diversity and branding “ NZ100% Pure” and sustainable business practices all around NZ are certainly successful long-term.

"Our research suggests that at these prices, the rolling stock is unlikely to be sourced from quality western suppliers. It may be possible for Asian sources to supply at prices close to these. However, the quality and expected life could be less than those from Europe and North America, and we suspect from New Zealand."

I'm sorry but this is nothing but a slur against asian manufacturers. When they are sophisticated enough to build and operate KTX or CRH380A or Shanghai MagLev, how can you possibly justify this claim given the high-speed tolerances these railroads need compared to what our system operates under. As the buyer Kiwirail would have influence on the design specifications anyhow.

I'm for building these things in NZ, but Kiwirail needs to just get on and show it can build something that resembles a modern surburban rail or metro-style trainset on budget, period. There is no point in trying to finger the competition when those nations involved have systems far superior to ours in service, with a known maintenance history.

Well put...however if you have you ever seen cheap chinese (say) crap up close you can appreciate the comment...

regards

Their " crap " as you put it steven , is capable of travelling at speeds in excess of 400 kmh , and with astonishing energy efficiency ............ The Chinese are quickly becoming masters at producing bullet trains that link far flung cities and the great interior of the country .

Can you see it Gummy..well can you...we'll name it the 'Gummy Run' in your honour...the high speed made in China maglev doing the Auckland to what remains of wgtn post the 8.5 at 400kph.....circa AD 2250. Big splash if it don't slow down at the end of the run.

I've got a feeling that there'll be some consumer resistance to a high speed rail system called " the Gummy Run " ........

........... My blog was more of a rebuttal of steven's racist comment about the quality of Chinese manufacturing .

80 km/hour is good enough for Michael Cullen's train-set , the premium asset he bought for us .

My wife and my 1/2 chinese children think you are soo funny GBH....they want to know if you can be a clown at the next birthday......stick the donkey tail on the dumb white guy seems a favourite....

80kmh because of the narrow gauge because of all the tight bends....its an engineering problem/limitation....

regards

 

On behalf of the  1.3 billion Chinese people , and one half of your children , I accept your apology .

........ Konichi wha , steven san .

Gummy, iphones for one are made in china, they are pretty good quality, but they also make real crap.....

I seem to recall the last rail minister? in china resigning under a cloud over something or other.....corruption? in-competance?....what you see with chinese isnt necessarily what you get up close when you inspect it.

regards

I'm sorry but this is nothing but a slur against asian manufacturers. When they are sophisticated enough to build and operate KTX or CRH380A or Shanghai MagLev, how can you possibly justify this claim given the high-speed tolerances these railroads need compared to what our system operates under. As the buyer Kiwirail would have influence on the design specifications anyhow.

With respect, robby217, but I don’t think that is entirely correct. Yes the Maglev was physically built by the Chinese in Shanghai, but it’s a German train. German design, German technology, lots of German manufactured components and German oversight of the build. It’s a similar story with the CRH380A, Siemens paw print's are all over that as well.

But maybe that’s the lesson we should be learning from China here. Yes, let’s build our own trains but in a deal/partnership with a major international train manufacturer so that we get the best design and technology available from them.

Forced, no.....if it makes economic sense, yes or is at a small additional cost maybe....Sometimes its catch22 if this then gives us the capability to sell trians abroad as we sell buses it should be considered.

regards

$ 500 million for  NZcompanies – the NZworkforce – YES !

 New Zealand with a respected good education system, creating skilful/ knowledgeable and talented youngsters is the major asset for our nation. Now in difficult times a government not providing strong incentives for decent jobs for it’s population, but forcing their citizen out of the country is a clear sign of mismanagement of the government.

Minister Joyce/ Brownlee are regularly underperforming and should be replaced.

 A government, which imports (Infrastructure) most everything in today’s difficult economic environment commits first economic, then financial and later social suicide.

 http://www.stuff.co.nz/the-press/business/4915094/Overseas-bidders-vie-for-Auckland-trains

One of the unspoken reasons why the govt will not back building them here is the union problem. Were we still suffering under Clark...jeez what a sick thought....the local build would be snapped up not because they would be less expensive and of equal quality built here, but because Labour would be backing the unions and the unions back Labour...for them both, a win win.

National can see the threat posed by a union able to close down or delay any building programme with strikes and 'trouble at mill' activity aimed at making political life for the govt a bloody nightmare come election time. A similar problem is posed by the main trunk line being electrified...National know dam well that an incoming Labour mob would bring back freight regulations aimed at beefing up Rail's balance sheet at the expence of the trucking firms. That is not how it would be spun of course...we would get crap about road costs accidents and savings to be had. In the end the unions would again have a power over a govt.

So expect the 'local content' experience to be indicative of what a local build would have brought when it comes to 'trouble at mill'. I seriously expect trouble to be in the planning stage. Steven Joyce would be wise to make dam sure he doesn't poke his head into this hole. If I am wrong, let us see the union bosses enter a contract to do the local content free of all disruptions for any reason. Fat chance.

I have enjoyed travelling in trains for many decades, and it would make financial sense to build them here.  However we must avoid the union issues.

Absolutely - setting priorities for positive changes – real production - manufacturing as much as it make sense in support of NZcompanies and the well- being of the nation.

Crude now US$ 112.29 !!!!

I'd rather stick to Brent as its the problem price I suspect....$124....$147 broke us last time.....

regards

Steven

Interesting also, despite worldwide problems most countries, which maintained their manufacturing culture are actually economically, financially and socially doing quite well. The ones, which don’t experienced some massive set backs.

I agree with you David.

 Siemens – rail - hmm ??

ABB Railway is a world leading independent supplier of rolling stock equipment to the rail vehicle industry and fixed installations to rail network operators. ABB Railway has a global approach and manufactures locally in most markets.

Interesting link:

http://www.europeanrailwayreview.com/events/past-events/iberian-rail-dev...

No, No, No. It would be nice to think that the jobs went to Kiwi workers whom I am sure would do a great job but the thought of Andrew Little and Helen Kelly etc grandstanding and holding the country to ransom as in the old days does not bear thinking about. Sorry but thats the way it is. Cheers

No need for sorry Bobby...we all know what the union bosses with Labour's help would do.