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New transport funding tools needed to boost development

Media release
30 March 2012

New transport funding tools needed to boost economic development

"Weaknesses in our transport network demonstrated by road and rail closures around Gisborne and the Manawatu Gorge coupled with a multi-billion funding gap in Auckland and an unidentified capital need Canterbury all expose the huge challenge facing transport authorities nationwide. Transport investment remains insufficient to meet New Zealand's growth needs and will continue to constrain economic development aspirations unless we change our approach to funding major projects," says Stephen Selwood chief executive of the New Zealand Council for Infrastructure Development.

"The Government's roads of national significance represent a long overdue investment in critical transport infrastructure. With a payback of around $2 for every dollar invested, incorporating a discount rate of 8 per cent, the RONS projects are critical to removing barriers to business and improving safety on our state highway network.

"But it is not possible through conventional means to find the approximate $9 billion needed to construct the RONS when annual roading investment equates to little more than $3 billion per annum. And it certainly isn't possible to add demands from Auckland and Christchurch into that equation.

"Unless the outdated "pay-as-you-go" method of allocating funds when they become available is revisited, either local road and other state highway projects, like an upgrade to the now partially closed SH2 out of Gisborne, have to be deferred or the RONS have to be pushed out towards 2030. Current policy is directed towards the former with almost no new expenditure on maintenance and renewal of local roads and state highways planned until at least 2020.

"An alternative is to use either public or private sector debt to cover the large upfront costs of the RONS and then to repay the debt over a longer period, thereby freeing up funding for other improvements. Private funding makes sense when risk transfer and innovative whole of life delivery methods provide value in excess of the higher cost of funds. Such an approach to just the Wellington and Waikato RONS, for example, would release up to $4 billion over the next decade to spend on other critical transport projects, while delivering the benefits of these two major projects well ahead of current funding-constrained schedules.

"Delivering the RONS sooner allows benefits to be conferred sooner, while deferral carries an equivalent cost. We need to ask ourselves whether a pay-off of $2 for every dollar invested, plus an 8 per cent return per annum is something we should have now, or in another ten or twenty years. Deferral of economic transport investment is costing this country its competitiveness. It's time to look at alternative means to fund the much needed investment in our transport infrastructure," Selwood says.


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