John Roughan: Disaster looms as finance rules go right off the rails

Watching the big railway plan for Auckland coming ever closer is like watching a train wreck. It all seems to be happening in slow motion and there is a terrible inevitability about it. Yet I can't turn away. There is a morbid fascination in watching a disaster unfold which arises, I think, from that awful predictability.

The moment you see a windfall handed to a public body, relieving it of the need to justify its plans to ratepayers, you know good rules of finance are going off the rails.

Right now, for example, the Auckland Regional Council, which is driving the rail scheme, wants the guardians of the Infrastructure Auckland windfall to provide money to buy trains.

The guardians long ago agreed to help to buy the tracks - although the Government subsequently transferred that cost entirely to national taxpayers - and refurbish stations.

But they argue, reasonably, that a fund designated for "infrastructure" should be devoted to economic platforms that are unlikely to be profitable in themselves.

So roads and wharves and railways are a proper use of public money but buses, ferries and trains can be financed by those who will make money operating them.

If Infrastructure Auckland is obliged to pay for trains what, they wonder, are they to say if Stagecoach and Fullers suggest they help to pay for buses and boats too?

Furthermore, they point out, finance can be negotiated with train vendors on better terms than are available for tracks, stations and the like. It makes sense, therefore, to use the infrastructure fund for expenses that carry a higher borrowing cost.

None of this is going to penetrate the skulls of regional politicians who have long ignored the relative costs of capital. That was how the ARC came originally to buy its palatial accommodation and the reason the previous Government eventually stripped it of economic assets, setting up a regional services trust to run them.

Things went off the rails once the trust had erased the region's debt and built up a sizeable nest egg. National, against the better judgment of the Treasury, succumbed to pressure from Auckland local councils for an "infrastructure" fund.

Although the fund is controlled by a board and executives with commercial experience, who try to assess applications against consistent objective criteria, the board can be sacked by an electoral college of the councils. And the councils know it.

The board can quibble, as it did over Britomart, the cost of which it considered to be out of all proportion to its place in the scheme. But the Auckland City Council got its money.

Now by all accounts the ARC is blithely proceeding on the assumption that Infrastructure money will pay for the trains. Even the Chamber of Commerce chief executive, Michael Barnett, now on the regional council, wants the fund used for rolling stock.

Expect it to happen. It is just another slip in the slide to a costly disaster.

The financial train wreck is also apparent in figures distilled from ARC proposals by Infrastructure scrutineers. It seems the improvement of rail, bus and ferry services with nicer terminals, co-ordinated services, easy transfers and so on will cost about $400 million and increase patronage overall by just 6790 journeys a year (from 40,020 to 46,810).

Rail is far and away the most expensive component and, by the ARC's own predictions, 60 per cent of its additional passengers are already using public transport. Trains' gain will be buses' loss.

More to the point, ratepayers and taxpayers stand to lose both ways. Rail is likely to draw passengers from bus routes that are profitable. Rail will not only require heavy subsidies for itself, it appears it will render profitable bus routes unprofitable and in need of subsidy.

The whole scheme will nearly double the total public subsidy of Auckland passenger transport, from $54,542 a year at present to $105,639 from 2007, the year the impact will be first felt.

Infrastructure has asked the ARC for a business plan outlining how any of this makes sense. If the council has made a coherent response we have yet to hear it.

We read instead that it has asked consultants Sir Ron Carter and Bill Grieve to review the entire scheme. That might be a hopeful sign, or merely a search for allies to counter the expertise of Infrastructure.

The Government could save us. Helen Clark has at least observed that not many Aucklanders want to live near a railway station. She also knows that road congestion is an Auckland political time bomb and that it will not be much reduced by this scheme.

She has taken the transport portfolio from the ponderous Mark Gosche and given it to Paul Swain, who proved with commercial regulation that he is a minister who gets things done.

He was in Auckland this week, hearing the disagreements between Infrastructure and the ARC. He says he is an enthusiast for public transport but he is equally keen to get private investment into the roads now that the Greens are out of the way.

He will not stop the rail scheme. For better or worse, as with corporate regulation, he will probably get it done. It may be merely a financial disaster but it will hurt the economy of Auckland and the country badly enough when the costs hit.

So much for morbid fascination. I hope I can turn away now and wait for the crunch.