How could the Government fund Wellington’s mega tunnel? - A Capital Letter

Inside Wellington's Mt Victoria tunnel. Photo / Mark Mitchell

The Government has made it clear there is not a lot of cash to splash which begs the question: How would we pay for a mega tunnel underneath Wellington? A recent speech by Infrastructure Minister Chris Bishop gives some clues about the three things that could help fund and finance such a project.

OPINION

The Wellington mega tunnel that transport officials are investigating is 4km long, which would make it New Zealand’s largest tunnel. It dwarfs Auckland’s 2.4km Waterview tunnel and the 3.45km City Rail Link project.

While consultants have cautioned a tunnel that’s twice as long is not necessarily twice as expensive, this project would certainly cost several billion dollars.

The cost and time it would take to construct a tunnel bypassing the capital’s inner city is problematic for the Government.

That’s because National blasted the now-cancelled $7.4 billion Let’s Get Wellington Moving transport project on the campaign trail, saying it had achieved little in six years other than a set of traffic lights on State Highway 1.

“It has lost its social licence,” the party’s transport policy manifesto said.

“Wellingtonians are sick of the dithering and just want decisions and progress on better access to the east and better public transport into and through the city.”

National promised to get spades in the ground for a second Mt Victoria tunnel and improvements to the Basin Reserve within its first term. This project was last estimated to cost $2.2b.

It could therefore be seen as hypocritical for the Government to ask officials to investigate the long tunnel rather than just getting on with National’s campaign promise.

If NZ Transport Agency Waka Kotahi (NZTA) officials decide the long tunnel is technically feasible and could be built at a palatable cost, the Government will need to move fast.

Such an ambitious project could become reminiscent of Let’s Get Wellington Moving’s glacial pace or worse, become National’s own Auckland light rail nightmare.

The Government has already moved on a big shake-up of the way consents are granted with the Fast-track Approvals Bill making its way through Parliament. The bill will create a one-stop-shop fast-track consenting regime for regional and national projects of significance.

Prime Minister Christopher Luxon (right) and Infrastructure Minister Chris Bishop want smarter investment to address the country’s infrastructure deficit. Photo / Mark Mitchell

As for what has been described as the “eye-watering” cost of a long tunnel, Infrastructure Minister Chris Bishop gave a recent speech to the Infrastructure Funding and Financing Conference about smarter investment to address the country’s infrastructure deficit.

Bishop said his goals were “getting every dollar of public and private capital to its highest value use, lowering the cost of infrastructure and cutting through the red tape that is holding us back”.

One of Bishop’s six priorities for his portfolio is improving funding and financing, including greater use of public-private partnerships (PPPs), tolls and value capture.

Public-private partnerships

Unfortunately for Bishop, Transmission Gully is the first motorway in this country to be constructed on behalf of the Government under a PPP.

Under the terms of this PPP, the Government has essentially got a group of private investors on board to design, build and pay for the road while also looking after its maintenance for the next 25 years.

The Government maintains ownership of the asset and pays back the money over that time.

This is supposed to transfer more risk to the private sector as the Government pays a fixed price for the project, meaning investors are left to pick up the extra costs should it go over budget.

The long-term maintenance contracts are also supposed to encourage investors to do a good job because the Government can withhold payments should build defects show up later.

Transmission Gully opened two years ago but technically isn't finished. Photo / Mark Mitchell

Despite Transmission Gully opening two years ago, the highway north of Wellington isn’t technically finished.

What was meant to be an $850 million project turned into a $1.25b headache after several cost blowouts paid for by taxpayers.

Court action has now been launched over incomplete works on the road and NZTA’s expectation is that these should be completed to the standard in the project’s contract.

An interim review of the project found there was a lack of transparency as to how key PPP decisions were being made, less-than-ideal consenting risk management, a non-PPP scheme design used in the PPP procurement and the price was set far too low from the beginning.

It was the former National Government that signed up to the Transmission Gully PPP.

Luckily for this Government, it can learn from the review’s findings when embarking on future deals.

In his speech, Bishop said the Government was open to opportunities for the private sector to invest its capital to deliver infrastructure for New Zealanders.

“These projects leveraging private finance obviously need to stack up, based on cost benefit analysis and public good.

“To pave the way for more projects that leverage private finance, I am asking officials to modernise the Crown’s infrastructure governance, procurement, funding and financing, and asset management policies and frameworks.”

Tolling

There are three toll roads in New Zealand- the Northern Gateway north of Auckland, the Tauranga Eastern Link, and Takitimu Drive, which bypasses Tauranga’s city centre.

Cameras capture an image of registration numbers as vehicles pass the toll points and a charge is calculated. The money is automatically deducted if the vehicle is linked to an account.

The price for a car to use the Northern Gateway toll road is $2.60, for example. Of that, $1.46 goes towards debt repayment, $0.80 goes towards operating costs to run the tolling business and $0.34 goes to Inland Revenue as GST.

The Land Transport Management Act allows the use of tolling if there is a feasible and untolled alternative route available, the Ministry of Transport website says.

The revenue from tolling may only be used to pay for costs of a new road and the Minister of Transport has overall discretion about the introduction of any new tolls.

Value capture

Value capture would see property owners bearing the costs of projects that increase the value of their land.

The Property Council New Zealand explained value capture when it was being floated to help pay for Auckland’s now-cancelled light rail scheme.

“When the Government builds new infrastructure that unlocks development opportunities, there is typically an uplift in property value, the benefit of which goes to private landowners,” an article on the Property Council’s website says.

“Value capture is an approach to infrastructure financing where government looks to take a share of, or in essence tax, the private economic benefit that public investment generates to help fund the project.”

The Labour Government was considering a possible Auckland light rail tax of $1000 a year that would have hit working-class families in several Labour seats at that time.

The tax on homes within walking distance of about 18 stations was one of the funding sources being considered by then Finance Minister Grant Robertson.

Senior journalist Georgina Campbell’s A Capital Letter column takes a deeper look at issues in Wellington, where she is based. Georgina has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.