Just before Easter we learnt that the City Rail Link was to be around $1 billion more expensive than previously thought thanks to higher than expected construction cost inflation, additional contingency funds, future proofing for 9-car trains and some higher non-direct costs. With Auckland Council picking up half of the cost of the project, that means they need to find an extra $500 million to cover their share.

Tomorrow the council will decide on whether they will approve that extra money and the report provided to Councillors along with a presentation they had during a workshop on Monday gives a lot more detail about it all.

The report mentions that City Rail Link undertook three pieces of work to provide assurance around the project. There are four key areas covered off in the details that are of interest. These are:

More details on the new costs

A re-assessment of the benefits

A review of the scope of the project

More detail on how the council could pay their share of the extra $1 billion

Let’s look at each of these

Costs

As we know, the expected cost has increased to $4.4 billion. When this was announced it was noted that this was the P50 cost so they are 50% confident the final cost would not exceed this. The letter to the council informing them of the higher cost a week earlier, it also includes the P90 cost – they are 90% confident the cost will be lower than this.

Let’s hope it doesn’t push higher towards the P90 number.

Re-Assessment of the Benefits

After the cost announcement, one thing I was surprised we didn’t hear more about was a questioning of the benefits of the project. This is helpfully addressed in this slide to the Councillors workshop.

The scope change to include 9-car trains which was not included in the benefits includes the Beresford Entrance at the Karangahape Station and that alone is likely to see that station become much more useful and means that this assessment remains conservative.

The report also notes that PWC considered the assessment to be conservative because the benefits of the project will continue to accrue long after the 40-year assessment period. They say that if the assessment period was extended to 60 years, the gross benefits would increase by a further 24%

In short, the project still makes sense.

A further slide shows how the project has benefits for the entire region, not just those on rail lines.

Project Scope Review

The CRL project has already been subjected to three “comprehensive value engineering reviews”, in 2013, 2014 and 2015. However, given the cost increases, this was again looked at. They say

A significant effort has been undertaken to identify the widest possible range of options to find savings, while considering the impact on operations, network resilience, safety and benefits.

Three options were considered for this – although the third one contained a number of sub-options. The station considered for removal was Karangahape.

It’s good to see all of these options were rejected. The report further says

Crown and council staff consider that these options are not practical or desirable as they would severely limit functionality, operability, rail network resilience and passenger experience. Ultimately, doing this would severely inhibit the ability to deliver the benefits of the project. These options would also be impossible to change in the future unless the network were to be shut down for an extended period. Reducing the scope would also impact on the wider transport system, and increase longer term operating and capital costs of the system. KiwiRail and AT, as major stakeholders in the Auckland rail network, do not support the reduced scoping options identified.

Funding

The council need to find an extra $500 million for their share of the additional costs. This graph shows that without any changes, it would push council over their debt limit

As they said at the time, they think through a package of initiatives they can find the extra $500 million and bring that back down below the internal ceiling. These are:

Interest cost savings due to lower market interest rates – saving $120 million

A reduction in cash holdings from improved cash management – saving $100 million

Re-assessment of the valuation of operating commitments which impact on council’s debt policy limits, basically a better understanding of future commitments – saving $130 million

Flexibility around the timing of the council’s CRL contributions, allowing them to pay some of the costs later – saving $100 million

Progression of the off-street parking strategy – saving $50 million

The first four all just seem like good housekeeping and we can probably assume had the CRL cost not increased, would have gone towards bringing forward other projects. The last one is perhaps the most interesting though as it involves the potential sale of some of ATs carparks. AT this stage it seems to involve AT creating an off-street parking strategy that aligns with their overall parking strategy and “support a mode shift away from singleoccupant vehicles towards public transport“.

The report says the future off-street parking requirements are expected to include:

a significant increase in investment in new or expanded park and ride facilities to meet more of the projected demand and support increased public transport usage.

releasing value from some carpark buildings in areas such as the city centre, where the provision of public transport is increasing (particularly through CRL) and where the site may have a more productive alternative use. This could be via outright sale, partnership with a developer, or a long-term concession arrangement.

additional investment capacity that could be used to support the additional CRL funding commitment required.

AT say they expect to get about $100 million by 2023/24 from this of which it is assumed $50 million would go towards Park and Ride facilities. Based on recent developments, that might provide somewhere between 1000 and $2,500 carparks.

AT has four carparks in the city that will be part of this, Downtown, Civic, Victoria and Fanshawe St. As part of the strategy work they will also decide if the carprks will be sold outright, partnered with a developer or leased on a long term concession to a parking operator. If they do decide to sell, $100 million seems a very low return for the as a quick calculation based on neighbouring properties suggests the land under the Downtown carpark alone is worth close to $100 million.

I assume the council will approve the funding but with elections later this year, it also wouldn’t surprise me if we see some Councillors try to use this as an opportunity for some point scoring.

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