Six and a half years ago, the then National Government agreed with the Auckland Council to fund Auckland’s Central Rail Link, which they expected to open in 2024.
Its original budget was $2.2 billion, but the Auditor General reported yesterday that its current cost was $4.92 billion with another associated $1.1 billion in costs and that he expected those costs to rise before the project was completed.
But when that might be, he could not say.
The project is the country’s most expensive infrastructure project ever, and its cost is now over two and half times its original budget and continuing to rise.
But when Ministers Stephen Joyce and Simon Bridges signed the funding agreement with the Auckland Council, they did not publicly say that the cost estimate had a 50 per cent chance of being wrong and that they might miss the opening date.
In last year’s Budget Economic and Fiscal Update, the Treasury, in its list of fiscal risks facing the Government, estimated the cost had doubled to $4.4 billion.
“The Government has committed to funding 50% of the costs associated with the City Rail Link project, estimated to cost $4.4 billion,” it said.
“Based on this estimate, the Crown contribution to the project will be around $2.2 billion.
“There is a risk that the timing, scope and amount of the Crown contribution to the project could be different from what is included in the fiscal forecasts, in particular, because of additional costs arising from the COVID-19 lockdowns, as well as the costs associated with the delays in obtaining key skilled workers from outside New Zealand’s border.”
That warning proved to be prescient.
Yesterday the Auditor General, John Ryan, reported that the project is now expected to cost $4.92 billion, 51 per cent more than the original estimate, and its opening date is uncertain and will not be announced until later this year.
Nevertheless, the Auditor General’s report finds that, by and large, the governance of the project, under the City Rail Link Ltd (CRL) board chaired by Sir Brian Roche, has been satisfactory.
The report says that in 2015 the project had a cost/benefit ratio of 1.6; for every dollar spent, it would theoretically produce $1.60 of benefits.
“Although we have not audited the business case, we note that the costs of the wider network improvements were not included,” the report says.
“However, we also understand that at least some of these works are required to realise the intended monetary and other benefits described in the business case.”
The report lists a further total of $1.1 billion of funding from the Government, Council and the National Land Transport Fund for a variety of additional projects, including new trains and upgrades to existing rail lines.
All up then, the current total cost estimate for the project is $6.02 billion, over two and a half times its 2016 estimate.
But Ryan says that may not be the final figure.
“However, even with effective governance and best efforts from all parties to deliver the CRL project as planned, it is likely that this project will exceed its current budget and take longer than originally planned,” the report says.
“CRL Ltd has publicly advised that it has a pending claim for additional costs from the Link Alliance, which is responsible for delivering the main works, for matters related to the Covid-19 pandemic.
“When I finalised my report, the CRL Board considered that it could not reliably estimate what the agreed amount of the claim would be.
“However, the CRL Board has acknowledged that the agreed claim could be significant.
“I understand that the claim is expected to be resolved by the end of 2022.
“When the claim has been settled, I expect CRL Ltd to provide the Sponsors advice on options for addressing the challenges to cost and time frames, and on the potential effects on the CRL project’s intended benefits.”
But it will not be until the claim is settled “and construction of the main stations and tunnels is largely completed” that there will be greater clarity “on when and at what cost the CRL project can be delivered.”
However, the report says that Central Rail Link Ltd said it would have more clarity on the project’s completion date and costs by the end of 2022.
Waiting in the wings, however, is another possible huge bill to double the capacity from 27,000 passengers an hour to 54,000.
“Separate from the CRL project and the associated wider network improvements, Auckland Transport and KiwiRail have also signalled that, between now and 2036, an additional investment of about $7.5 billion in the Auckland Rail Network Development Programme could enable up to 54,000 passengers to travel through the City Rail Link each hour during peak times,” the report says.
What is clear from the report is that Covid and the 100-day Auckland lockdown last year have adversely impacted the project.
The report says that, as with other major infrastructure and construction projects, CRL Ltd is having to manage rising costs of construction and supply chain issues (particularly shipping).
And from August 2021 to April 2022, Auckland was in various levels of lockdown, which with accompanying changes in health and safety procedures affected the project.
“For example, social distancing affected how work could be done,” it said.
And the restrictions on immigration were also a problem.
“The CRL project’s specialist nature, complexity, and scale mean that CRL Ltd relies heavily on skills that not many people in New Zealand have.
“The Covid-19 pandemic has significantly affected the ability of CRL Ltd to recruit skilled international workers for the CRL project.
The Link Alliance has been training New Zealand-based workers on-site to help make up for the skills shortages.
In other instances, CRL Ltd staff with relevant expertise have helped the Link Alliance with certain tasks.
“However, international workers are still needed to build up the existing workforce.”
For all that, Ryan found that the CRL board had managed the project competently.
“The governance arrangements have changed during the CRL project’s different stages,” he said.
“Although these governance arrangements are complex, many aspects appear to be working well.
“CRL Ltd’s Board has a clear understanding of its mandate and authority.
“It has an appropriate mix of skills and operates well.
“The CRL Ltd Board has shown that it can handle significant challenges, such as overseeing the establishment of an alliance to deliver the CRL project’s main works.
“The CRL Ltd Board and management have also been agile in responding to challenges arising from the Covid-19 pandemic, which are expected to continue for some time.
“However, even with effective governance and best efforts from all parties to deliver the CRL project as planned, it is likely that this project will exceed its current budget and take longer than originally planned.”