Budget 2013 - Vote Transport

In total Vote Transport received $15.4 million gross new funding over the next four years and $101 million in new capital funding from the Future Investment Fund.

This was comprised of:

$94 million for the 2013/14 financial year to continue government investment in the KiwiRail Turnaround Plan.
Additional funding of $14 million over 2013/14 and 2014/15 for the SuperGold Card off-peak public transport concession scheme.
$7.1 million of new funding across 2013/14 – 2015/16, for the construction of a new search and rescue satellite ground station
$1.4 million of additional funding for the MetService during the 2013/14 financial year, to continue delivery of forecasting services.

Read Transport Minister Gerry Brownlee's media release on the beehive website.

Read the questions and answers on the funding for:

KiwiRail Turnaround Plan

Overview

The original Turnaround Plan, which was put to government in 2010, identified the need for a total Crown investment of $1.1 billion over the 10 year life of the plan. The first $750 million has now been fully appropriated. The $94 million for the 2013/14 financial year is a new commitment by the Crown to the Turnaround Plan.

What has the $750 million towards the KiwiRail Turnaround Plan from Budgets 2010, 2011 and 2012 been spent on?

KiwiRail has successfully undertaken a significant investment programme over the 2010/11 to 2012/13 years including:

new locomotives and refurbishment of current fleet (20 new DL locomotives with a further 20 locomotives on order)
increasing and improving wagon fleet - delivery of 535 new wagons with a further 300 on order
Aratere Cook Strait ferry extension – creating 30 percent more capacity for rail and trucks and improving passenger facilities
renewals and upgrades of the rail network to improve transit times, remove capacity constraints, improve reliability and continue to bring the national network to a sustainable level - particularly on the main trunk route between Auckland, Hamilton and Tauranga.

What will this $94 million be spent on?

The $94 million will be put towards buying new wagons and locomotives, and track and infrastructure renewals.

What progress has KiwiRail made in implementing its Turnaround Plan since the first round of government funding was provided in 2010/11?

A review of the economic benefits of the Turnaround Plan was commissioned by the Ministry of Transport. The review concluded that:

rail has achieved good freight volume growth under the Turnaround Plan. Over the first two years it has achieved a 16 percent increase in freight volumes (measured in net tonne kilometres). This compares to growth in Gross Domestic Product of less than 5 percent
core freight revenues have increased by 25 percent
On Time Performance for both the Premium freight services and TranzMetro operation have both improved. In the 2011 financial year the Premium freight service achieved just 79% on time performance, but it is now achieving 92%. The Tranzmetro services are now running 95% on time within five minutes, compared to 90% in 2011. These results are underpinned by the new investment made in new assets and improved infrastructure
rail has enabled port aggregation by carrying cargoes over longer distances to larger ports. It will be even more important if larger ships call at only a limited number of ports
rail is enabling a more efficient domestic freight market. Some of the major freight forwarders have invested in rail-served depots. Fonterra has continued to build its cargo consolidation model on rail
rail has contributed to the resilience of the transport system during the Auckland Port strike and the Christchurch earthquake.

What is the forecast out-turn for 2012/13?

In the first six months of 2012/13 core freight volumes have increased by almost eight percent from the previous half year. The second half of the financial year to June 2013 is forecast to be affected by the difficulties facing Solid Energy, with a reduction in the volume of coal moved by rail, and the impact of the drought which is likely to reduce the volume of primary product for export.

What is the outlook for 2013/14?

KiwiRail is looking for significant increases in freight volumes in 2013/14 and anticipates this increase will be in the four to six percent range for the year.

What is the KiwiRail Turnaround Plan?

The KiwiRail Turnaround Plan is designed to preserve and enhance New Zealand’s national rail freight network and move KiwiRail towards full financial self-sufficiency within 10 years, meaning that it will be able to fund its ongoing operating and capital costs from customer revenue.

It is expected that earnings will grow as a result of the strategic initiatives KiwiRail has recently implemented, and as a result of service level improvements that should be forthcoming following further investment.

Why is there a need for a Turnaround Plan and the government’s investment in it?

Predictions for freight growth in the National Freight Demands Study indicate an approximate doubling of the current freight task by 2040.

All transport modes will need to operate more efficiently in order to meet this growing demand. It is imperative that we provide New Zealand industry the opportunity to ensure their supply chains run as efficiently as possible, and that customers value rail as a vital part of the freight network.

The rail freight business as it stands is not able to fund all of its capital needs. While there has been some recent investment in rail, large parts of the network have been neglected. Decades of limited investment have led to reduced customer service performance and rolling stock and infrastructure failures.

Through the Turnaround Plan funding, the government is providing KiwiRail the opportunity to make the business commercially viable. This means getting the business to a point where it can fund all of its own operating costs and capital expenses through customer revenue.

How will KiwiRail turn its business around?

KiwiRail is focusing on improving reliability and timeliness performance in order to establish itself as a viable alternative for freight movers.

This covers areas of its freight business where it can grow revenues, improve its return from customers and carry more bulk and long distance freight.

Transporting freight between major ports and production areas is also a key focus of the KiwiRail Turnaround Plan.

Discussions with KiwiRail’s key customers have indicated a commitment to continue to more closely align their businesses with rail, if further investments in infrastructure and rolling stock are made. The key customers have seen tangible improvements in service and reliability since 2010 and have grown their business with KiwiRail as a result.

What are the benefits of this investment?

Rail forms a major part of New Zealand’s transport network and improving the efficiency of the supply chain will benefit all users.

The overall freight task has doubled in the last 15 years. Typically the freight task tracks GDP and is therefore forecast to grow at a rate of around 2.2 percent per annum over the next 25 years. Predictions for freight growth in the National Freight Demands Study are of the same order of magnitude, and together both forecasts indicate an approximate doubling of the current freight task by 2040.

This investment in rail will be a major factor in increasing New Zealand’s ability to reduce transport costs, and the overall cost of producing and delivering goods to market.

A well managed national rail network between Auckland and Christchurch offers another freight option for businesses.

There is also the potential to reduce road congestion by moving a greater proportion of freight by rail.

How does rail add to New Zealand’s export competitiveness?

Rail can contribute to New Zealand’s export competitiveness by supporting opportunities to reduce domestic freight transport and international shipping costs.

Rail has a comparative advantage in the carriage of bulk freight and containerised export/imports from point to point (such as from an inland port to a port, or from a production facility to a port – eg Wiri inland port to Ports of Auckland or metro port to Port of Tauranga). In this way, it complements road and sea freight.

SuperGold card – public transport travel concession for cardholders

Is the budget funding for the SuperGold card travel concession additional to existing funding?

Yes the funding of $6 million in 2013/14 and $8 million in 2014/15 is on top of the existing funding of $18 million a year. This is a total of $24 million in 2013/14 and $26 million in 2014/15.

Why is the extra funding needed?

An increasing number of people are turning 65, which is the age of eligibility for the SuperGold card. As well, patronage by cardholders of the public transport concession is increasing. Over the past three years, patronage has increased by 17.9% from nearly 9,000,000 trips taken in 2009/10 to over 10,000,000 in 2011/12. Transport fares have also increased, meaning that the amount reimbursed to operators has grown.

(The fare reimbursement recompenses operators for the loss of revenue because the off-peak service is free to SuperGold card holders).

Why don’t you just grant an ongoing overall increase in funding for SuperGold card?

The Government wants more information on the use of the travel concession scheme and how it operates. The short time that the scheme has been operating means there has been limited data to accurately project future patronage. This needs to be balanced with the funding constraints, i.e. minimising costs to tax payers.

What will be covered under the review of operating mechanisms of SuperGold card?

A targeted review of some aspects of the travel concession scheme will be undertaken.

The targeted review will look at how the scheme is operating under its current guidelines and how the guidelines might change going forward.

Particular areas of focus will be:

reviewing whether the temporary moratorium on new transport services entering the concession scheme could be lifted
if the moratorium was lifted, what criteria would be used to determine entry into the scheme
considering a national policy for the use of smartcards under the SuperGold card travel concession scheme
considering reimbursement calculation methods including average fare calculations.

Why is the targeted review needed?

The travel concession scheme has been in operation since October 2008, and is valued by cardholders. This is shown by the increasing and more frequent use of the off-peak travel concession by SuperGold cardholders. Transport costs and fares have also increased, making the scheme more expensive to the taxpayer.

Will the moratorium on new transport services entering the concession scheme be lifted?

The temporary moratorium was imposed in 2010 because the scheme’s popularity was placing pressure on its budget and it was necessary to minimise the potential costs that could be imposed by new services entering the scheme.

The government needs to identify the potential costs of lifting the temporary moratorium and consider criteria to ensure the SuperGold card travel concession scheme remains financially sustainable.

The government will decide in the 2013/14 financial year if the temporary moratorium should be lifted. The Minister of Transport will report back on the outcomes of the targeted review in 2014/15.

The government is committed to retaining the scheme but needs to find a sustainable and efficient way of funding the scheme over the long term. Information gathered by the review will ensure future decisions by Government are well informed on how to ensure the scheme is viable in the long term.

Will current services’ eligibility for the SuperGold concession be affected?

No. The Government is not looking at eligibility of current services for the SuperGold card public transport concession.

Eligibility relates to any services that are part of the SuperGold travel concession scheme and receive government subsidies as a consequence.

Will SuperGold cardholders’ entitlement to the concession be affected?

No. The Government is not looking at entitlement to the SuperGold card public transport concession.

Entitlement refers to the benefits available for SuperGold cardholders under the travel concession scheme.

Will the 65% reimbursement rate to operators be affected?

No. However, the NZ Transport Agency will be checking on the methodology used to calculate reimbursements to regional councils and operators under the scheme.

Will I be consulted if there are any changes that might affect me?

The Ministry of Transport plans to undertake targeted consultation.

Replacement Search and Rescue Ground Station

What will the new $7.2 million funding be used for?

This new funding will allow the existing satellite ground station to be replaced with a station which secures New Zealand’s ongoing ability to receive signals from emergency distress beacons via satellite.

What does New Zealand’s ground station for the international search and rescue satellite system do, and why is the new station necessary?

The ground station receives emergency distress signals relayed from search and rescue satellites and transmits the signals for processing to a regional mission control centre in Australia. From there, alert and location data is forwarded to New Zealand’s rescue coordination centre which can mobilise a search and rescue effort.

The existing low earth orbit global search and rescue satellite system is being progressively retired, and will eventually cease to operate. The replacement medium earth orbit satellite system requires the new MEOLUT (Medium Earth Orbit Local User Terminal) ground stations.

Are there any international requirements that New Zealand maintain its ability to receive emergency distress beacon signals?

New Zealand is obliged to be able to receive emergency distress beacon signals under the International Convention on Search and Rescue 1979, International Convention for the Safety of Life at Sea 1974/78 and the Convention on International Civil Aviation 1944.

Replacing the ground station ensures that New Zealand can continue to meet these requirements after the existing global satellite system is phased out.

What advantages will the new satellite system and ground station bring?

In addition to maintaining New Zealand’s ability to receive signals from emergency distress beacons, the new satellite system extends New Zealand’s ability to receive distress signals from 5,000kms to 8,500kms.

When an emergency signal is received, the ground station will also be able to pinpoint the signal’s origin much faster, enabling rescue efforts to begin more rapidly.

Will existing distress beacons be compatible with the new satellite system?

Yes, all of the distress beacons which are able to be used now will also be able to be used with the new system.

Why does New Zealand need its own satellite ground station when it shares Australia’s mission control?

The area of coverage represents a radius around the ground station. To ensure the best coverage over New Zealand and our coastal waters, the ground station needs to be located here.

Why does funding start in this financial year, when replacement isn’t necessary until 2017?

A significant period of overlap between the existing and new systems is required, to ensure that adequate testing and an orderly transition can be undertaken.

Additionally, New Zealand is working with Australia to ensure consistent regional coverage. Funding approval in this financial year will reinforce trans-Tasman cooperation on the project by ensuring that our ground station replacement programme is fully coordinated with Australia’s.

When is it likely to next need replacement?

The satellite system and ground stations are designed for a long life, ensuring New Zealand’s capability to receive emergency distress beacon signals for the next 15 years.

MetService Funding

What will the additional $1.4 million funding be used for?

The additional funding will allow the MetService to continue offering a range of forecasting services which New Zealanders rely on.

What is the MetService’s role in the transport sector?

The Ministry of Transport contracts the MetService to provide weather forecasting services for public safety and to meet New Zealand’s international obligations.

Why is this additional funding required?

There has been no increase in funding for the MetService since 2008, and additional funding reflects the increase in costs to deliver the contracted services.

This additional funding is only being provided for one year, while a full review of future funding and services is being undertaken.