CRL a step closer but more expensive

The City Rail Link, the country’s biggest transport project, just got $1 billion bigger but also few steps closer to reality as part of three “significant announcements” made yesterday.

Revised Costs

The biggest news is that the project is now expected to cost $4.419 billion, up from the $3.4 billion figure that they say was last estimated in 2014. CRL’s Chief Executive, Dr Sean Sweeney said yesterday the cost increase has come about as a result of more detailed investigations and peer reviews of the costs. One billion is a huge increase but it also needs to be put in perspective and CRL gave a breakdown of what has driven those higher costs.

• Future proofing – $250m – Last year it was announced that the CRL would be future proofed for 9-car trains and that at K Rd the second, and in my view more important, entrance at Beresford Square would be built. In our view this spend is a bargain as it  gives a 50% increase to the capacity of the CRL – meaning the project will ultimately give the rail network four times the capacity we have today.
• Contingency costs – $310m- Contingency costs have been increased which Sweeny said was to bring the project into line with other large international projects.
• Construction costs – $327m – This is the single biggest of the increases and is representative of how much construction is going on right now, both here and Australia. It’s an issue that many other projects are struggling with and has been responsible for the collapse of a number of construction companies already. Sweeny said that when the 2014 project estimate assumed cost escalation of 2% however New Zealand has been experiencing increases of 6% and is likely to continue to do so. He also noted:

Less than two years ago, the infrastructure pipeline in Australasia valued approximately $80 billion, whereas it is now valued at approximately $230 billion.

I think this also highlights that some of these extra costs should also be laid at the door of the previous government who delayed the project for years. Had they got on with the project when the initial business case came out in 2010 instead of rubbishing it and saying that no one would catch trains, perhaps at least some of this could have been avoided.

• Non-direct costs – $152m – Other costs not directly associated with construction have also increased and have added $152 million. This includes things like property purchases, service relocations etc.

The good news is that despite the billion dollar increase, both the council and government appear committed to getting the project built. Both parties share costs 50/50 so will need to find an extra $500 million. Mayor Phil Goff is clearly not happy with the 50/50 arrangement, and understandably so, saying this in a press release yesterday.

Mayor Phil Goff says, “It is unfair for Aucklanders to meet half the cost of the CRL when no other part of the country has to do so and I’ve argued that case to Government. The Government has refused to revisit the deal saying that was what was agreed between the previous Auckland Council and National Government.

“However, Government has agreed to phase the timing of Council’s contribution to enable it to work within the constraints of its budget.

“Council will make changes in financial management that will enable it to keep under its debt to revenue ratio. It will benefit from current lower market interest rates. Council will also dispose of some non-strategic assets including some parking buildings.

It will be interesting to see what they ultimately decide to sell to pay for their half share of the increase but the fact parking buildings are included is good and a little poetic. It also would hopefully increase the chances of those sites, particularly the downtown carpark, being redeveloped to a more productive use. The herald notes the councils four parking buildings in the city centre, (Downtown, Civic, Victoria St and Fanshawe St) have a book value in 2016 of $224 million. They also noted that Skycity recently sold a 30-year concession to its carparks for $220 million, and it has fewer of them than council does. However, they also report Goff as saying that about $50 million from the sale would go to building more park and rides at stations.

Overall the cost changes are disappointing but not surprising given some of the changes, both to the project and market in recent years. Sweeny seemed confident this was a more accurate price so let’s hope it doesn’t go up again.

Preferred bidder

CRL also announced the preferred bidder for main works package which will see the main tunnels and stations built along with fitting it all out and connecting it to the western line – previously those last two were their own separate contracts. Ther preferred bidder is now known as the Link Alliance, which is made up of Vinci Construction Grands Projets S.A.S., Downer NZ Ltd, Soletanche Bachy International NZ Limited, WSP Opus (NZ) Limited, AECOM New Zealand Limited and Tonkin + Taylor Limited.

The tendering process has certainly seen a lot of twists and turns over the last few years and so this represents a significant milestone.

Early Works

While the Link Alliance are the preferred bidder, they haven’t yet been awarded the contract for the project as there still a lot to do before getting to that stage. In the meantime, CRL are working with them to create a $75 million early works contract so that things can get started. This will include works such as design, consents, permitting, utilities and mobilisation.

CRL are still saying that they hope to have the overall project delivered by the end of 2024, although yesterday they were definitely hesitant to guarantee that date.

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