Tank the tunnel

Opinion: Is it heresy to suggest mothballing Auckland's biggest infrastructure project? Professor Tim Hazledine takes his chances.

A photo shows CRL construction at the corner of Albert Street and Wyndham Street in Auckland CBD. Photo: City Rail Link Ltd (cityraillink.co.nz)
CRL construction at the corner of Albert Street and Wyndham Street in Auckland CBD. Photo: City Rail Link Ltd (cityraillink.co.nz)

A few years ago, a major international airport – which shall not be named – embarked on a top-secret project. This was to develop an app which would be able to identify with certainty a fairly small number of incoming passengers who could be safely allowed to go directly to the Exit without queuing for immigration and customs.

The engineer who had come up the idea had done some sums: the value of the App in terms of time and labour savings would be $2 million. And the cost? The engineer was a bit vague here, but estimated that it would cost $2 million to get the thing operational.

So it wasn’t going to be particularly profitable, but the engineer was very keen, and senior management gave it the go-ahead. Then, in April 2019, a progress review was called for. Bad news. Although the App would eventually deliver the goods as promised, progress had been much slower than expected – with $700,000 already spent it was now estimated that full costs would be around $4.4 million, and no firm finish date could be promised.

It didn’t take management long to make a decision. Benefits = $2 million; costs going forward = $3.7 million at least: they mothballed the project, with a note to review the situation in one year.

That second review took place last week. Management called for an update. They were told that costs would indeed be even higher – perhaps as much as $5 million, and that the benefits were now in doubt: who could predict what the processing requirements for incoming overseas passengers would be in the Covid-19 era? Management congratulated themselves on having acted decisively a year before.

Now, I expect that most readers would be with management on this issue. It was a pity that it took $700,000 to find out the real costs of the project, but, hey, don’t throw good money after bad, eh!

So why I am fairly sure that if I just add three zeroes to all the numbers – turning millions into billions, and hundreds of thousands into hundreds of millions – many, perhaps most, of you will reverse your judgement?

Because I have already seen you do this. Those numbers, multiplied by one thousand, are in fact the cost and benefit numbers of Auckland’s railway tunnel project – the City Rail Link (CRL) – which will give ten thousand commuters to the city’s central business district a somewhat faster journey to work.

Those faster journeys were estimated to be worth (on a present value basis) about $2 billion, and the construction cost was originally estimated (guessed, really) to be about $2 billion. Then, last April, with $700 million spent and not a lot to show for it, the cost envelope was revised to $4.4 billion, with no guaranteed finish date. And there was no outcry. People, especially politicians, seem to suffer from what I call ‘Big Number Blankness’: they lose their critical facilities when confronted with figures so far from their personal experience.

Last week, CRL management warned us that, because of Covid-19, costs would indeed rise, with no numbers given, but the promise – or threat – that a “red pencil” will be drawn around the budget at the end of this year. No mention of the possibility that Covid-19 will reduce the benefits of the rail link, through more people continuing to work at home rather than commute.

Adding in some substantial costs missing from the official calculations, the costs of disruption to business and citizens during the build, and the cost of the huge subsidy on the price of rail tickets, it seems sadly reasonable to predict that we now have a $5 billion+ monster on our hands. Even with more sunk costs incurred since last year, we are looking, in the best scenario, at having to fork out another $4 billion to finish a possibly $2 billion value project. How dumb is that!

The CRL should be mothballed, right now. Indeed, I thought it had been in effect mothballed during the lockdown, but I was wrong. Four hundred hard-hats were sent home, but, we are now told, 850 white collar workers have been beavering on from their home offices on procurement, consents and engineering. I may be wrong, but I do get a sniff of a rather well-upholstered work site here.

But surely we shouldn’t be mothballing ‘shovel-ready’ projects? Isn’t huge expense what we are looking for to kick-start the economy? No it isn’t. There are plenty of ‘projects’ with much better benefit-cost ratios, including the most effective of all at kick-starting commerce: a GST holiday. We are a poorer country than we were two months ago, and we should more than ever not be saddling ourselves with an economic hangover from huge prestige mega-projects.

The costs of the rail tunnel are supposed to be shared 50:50 between Auckland ratepayers and NZ taxpayers. I have calculated that a person in my financial situation – for example, me – will have to cough up much more than $10,000 in rates and taxes to meet my share of the bill. I can think of heaps of better uses for my money.

Tim Hazledine is a Professor of Economics at the Business School.

This article reflects the opinion of the author and not necessarily the views of the University of Auckland.

Used with permission from Newsroom Tank the tunnel 11 May 2020.

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