Auckland City Centre Rail Link - Business Case Review - Ministry of ...

Auckland City Centre Rail Link Business Case Review | May 2011
structure. This results in faster economic growth, increasing the size of the regional
economy. This effect is discussed in regards to projects of comparable size and
significance in the report Roads of National Significance Economic Assessments
Review prepared by SAHA for the NZTA noting that roads contribute directly to
economic growth. The Additional Waitemata Harbour Crossing Preliminary Business
Case shows that even small increases in the size of the regional economy from
transport infrastructure can have significant effects in relation to the benefits of a
project. Importantly, the calculation of all other benefits would be applied across a
larger base with respect to both the agglomeration and increased productivity effects.
Conventional market analysis does not capture these effects and an increase in the
size of the regional economy, in our view, has not been captured in the rail loop
business case. We agree with the statements made by several leading economic
consultancies (including Infometrics, NZIER 24 and Market Economics) that economic
assessment of major transport or other infrastructure need to take into account the
likely effects on the size and growth rate of the economy. Otherwise, the effects are
likely to be under-stated, because direct transport effects, agglomeration effects and
productivity gains will be calculated using estimates of the business sector, labour
force and population, which underestimate the likely outcomes.
This is important for major projects such as the CCRL with region-wide benefits,
because a significant share of the economic benefit is likely to arise because the
economy as a whole benefits (grows faster) from efficiency gains. Conversely,
excluding the economy-wide effects will almost certainly act to understate effects
(benefits and costs) for the economic evaluation. Where a project is being evaluated
using a standard BCR approach, then the BCR is likely to be correspondingly understated.
There has been no allowance for the additional benefits and costs associated with
the larger economy in the economic assessments for the CCRL, which would appear
a significant omission. Therefore, Auckland Council officers believe the BCR is
understated.
The following points help to set this in context for the CCRL.
i. The Business Case identified transport benefits of $1.319 billion over 30 years
(at an eight percent discount rate), and wider benefits (mainly agglomeration) of
$0.184 billion, totalling $1.503 billion.
ii.
iii.
By 2021 (first year of rail operation) the Auckland economy would be around
$71 billion (VA). If the project generated an increase of 0.36 percent in the
Auckland economy 25 , this would amount to around $1.3 billion in NPV terms
(same period, same discount rate, excluding the direct construction impact).
If a component 26 of this economy-wide effect were acknowledged, then it would
materially alter the BCR calculation. This is not to equate value added and
benefit, but to recognise that relatively small percentage effects across a large
economy for an extended time period may be significant in relation to the
project, and that some share of such effects does constitute a ‗benefit‘.
24 NZIER, 2011: Reprioritising infrastructure projects, NZIER Insight 26, 8 March 2011.
25
Based on the indicative figure in the AWHC study.
26 Value added does not equate to benefit, though benefit is a component of value added.
The prospect of effects across the economy appears to be one key reason for distinguishing
and prioritizing RoNS relative to other projects.
42