Rail is experiencing a renaissance around the world, with commuter journeys increasing exponentially in our biggest cities
Rail’s hidden value revealed by EY report – By Dave MacIntyre
Rail is delivering about $1.5 billion each year to New Zealand in hidden economic benefits, far outweighing the amount of government funding which has been put into the mode since it was renationalised in 2008.
A study carried out by professional services firm EY as part of a joint KiwiRail/NZ Transport Agency team looking at integrated transport planning was produced in 2016, but was only released in December last year after the new coalition government assumed power.
Its scope was to investigate the value of rail, encompassing the Auckland and Wellington passenger services and KiwiRail’s national freight service. It did not include any analysis of KiwiRail’s non-rail assets, such as the Interislander ferry and property portfolio.
The approach taken by EY was to model what it would mean for the roading network if there was no rail network. By putting an economic value on various benefits of rail, the report was able to reveal in financial terms an ongoing value that does not show up on a normal balance sheet.
It quantifies the $1.5 billion annual savings as coming primarily from the cars and trucks it takes off our roads. That value is put at $1.3 billion a year because it cuts congestion for all road users, including freight movers.
Without rail, there would be the equivalent of an additional 100,000 daily car trips on our roads each year – 76 million light vehicle hours. Rail also means heavy vehicles are on the roads for 11 million fewer hours each year – the equivalent of 30,000 trucks driving for an hour every day.
On top of that $1.3 billion figure come wider economic benefits, such as reducing greenhouse gas emissions, reducing the number of road accidents, and lower spending on road maintenance and upgrades.
Using rail cuts New Zealand’s carbon emissions by 488,000 tonnes a year – the equivalent of taking 87,000 cars off the road. Rail freight has 66% fewer carbon emissions than heavy road freight, leading to an economic value of $8.5 million annually.
Taking trucks and cars off the road leads to fewer accidents, with EY estimating that because of the rail network, there would be 271 fewer fatalities and injuries. In considering the economic cost of road accidents it took the same approach as the Ministry of Transport. In economic terms, it means $60 million annually in savings.
Had the report calculated the cost of road crashes the same way as ACC does, the savings from road accidents would have been higher, at more than $100 million. Finally, reducing road maintenance saves $63 million.
The bigger picture
The bigger picture of what this all means is that the value delivered by rail far exceeds the government contribution towards it. To the end of the last financial year, KiwiRail had received $2.1 billion in Crown investment since 2008, when the-then Labour government spent $690 million to buy back KiwiRail. Over the same period, KiwiRail also received $1.4 billion in additional revenue grants for metro public transport infrastructure upgrades in Auckland and Wellington.
In that time the government also paid $650 million directly to councils to subsidise metro passenger services.
However, those figures are dwarfed if the EY assessment is right, and New Zealand Inc has been getting in return around $1.5 billion each year of economic benefits. It turns on its head the argument that maintaining a rail network is a drain on government funds.
Only a few years ago, Treasury advised the National government the country would be up to $232 million better off if it shut the rail network down. In 2015 it suggested the government only guarantee funding to KiwiRail for one year. In the end, then Finance Minister Bill English rejected the advice and instead committed to $210 million that financial year and $190 million in the next.
Even so, that only guaranteed rail a future for two years.
Transport investment options
The report appears to create a new environment for integrated transport investment decisions – one of the strategies being favoured by the new government. If rail is seen as being a provider of economic benefits instead of a financial millstone, its case for further investment is strengthened.
KiwiRail chairman Trevor Janes quickly picks up on this line, saying rail’s benefits “need to be considered when choices are made about the transport options available, and how to allocate resources.”
FTD sought further information from KiwiRail chief executive Peter Reidy, who says KiwiRail has long argued that traditional financial reporting does not reflect the true contribution that rail makes to New Zealand, through failing to quantify externalities such as reducing road traffic congestion and road maintenance, lowering carbon emissions and creating safer roads.
“The cost of rail and its value to the nation are two quite different arguments. KiwiRail is a sustainable economic contributor to New Zealand over time. This report … tells the ‘value of rail story’ at a point in time and, we think, very conservatively. Nevertheless, it values rail’s contribution at $1.5 billion each year,” Mr Reidy says.
“It is not definitive, but is very much the start of the conversation, and we look forward to refreshing the data with our transport stakeholders.”
A rail renaissance
Mr Reidy says rail is experiencing a renaissance around the world, including in New Zealand. “Commuter journeys are increasing exponentially in our biggest cities. KiwiRail now enables more than 32 million commuter journeys each year, and our contribution to freight in and out of ports is also growing,” he notes.
“Rail is increasingly seen as the most sustainable and reliable way to move large volumes of freight and numbers of people in New Zealand. We would expect that as time passes, the data will show the value of the contribution made by rail to New Zealand is growing.”
Asked if the EY report will prompt KiwiRail to fine-tune its investment propositions, or to consider putting more resources into new areas, Mr Reidy says it will help make informed choices about the allocation of resources across the transport system.
“It underlines that while government investment is required for items such as tracks, bridges and tunnels, this investment is providing a solid return for the country, albeit one that is not reflected in traditional financial reporting,” he explains.
“The EY report highlights that the country receives a good return for investment in rail, its value far exceeding the government’s contribution. However, it looks at the overall value of rail rather than at specific investment propositions. These will always require separate business cases.”
Capital expenditure programme
On that score, Mr Reidy says KiwiRail has a long-term capital expenditure programme which has some specific target areas over the next few years.
“As well as working with the government to drive regional growth, we need to renew a lot of our old rolling stock and invest in the network to ensure we are servicing growing volumes at ports. We also have a programme to look at our overall ship configuration for Interislander, and at how to accommodate the huge growth in commuter services in Auckland and Wellington, which will continue to require ongoing investment in our network.”
Significant investment in regional rail is expected to come from the new government’s Regional Development Fund, as set out in the Labour-New Zealand First coalition agreement.
Dave MacIntyre is an award-winning journalist who specialises in transport issues within New Zealand; he can be contacted at email@example.com