Part 2: Overview of the transport sector

Transport sector: Results of the 2011/12 audits.

2.1
In this Part, we list the main central government transport-related entities and discuss the role of local government in the transport sector, the transport operating environment, how public transport is funded, and risks and challenges (including emerging risks) in the transport sector.

The main transport entities

2.2
This report focuses on eight central government transport entities:

  • Airways Corporation of New Zealand Limited;
  • the CAA, including the Aviation Security Service;
  • Maritime New Zealand;
  • the Ministry of Transport;
  • KiwiRail;
  • NZTA;
  • the Road Safety Trust; and
  • the Transport Accident Investigation Commission.

2.3
Other central government entities that play an important role in transport are:

  • New Zealand Police, which provides road policing services;
  • Meteorological Service of New Zealand Limited, which provides public weather forecasting services and information for international air navigation; and
  • the Treasury's National Infrastructure Unit, which analyses Vote Transport and reviews business cases for major investments in transport infrastructure that are outside the National Land Transport Fund (NLTF), and the Crown Owned Monitoring Unit (COMU), which monitors the transport State-owned enterprises.

2.4
This report also focuses on local authorities' important role in the transport sector. Local authorities own, maintain, and build the local roading network and carry out regulatory transport functions. Local authorities fund land transport infrastructure alongside central government and are also responsible for regional and local transport planning and land use planning.

2.5
Private and public (both central and local government) interests own and invest in aviation infrastructure and air services. Local authorities own most of the country's ports and airports.

The transport operating environment

2.6
The transport operating environment is characterised by:

  • transport being a vital enabler in supporting New Zealand's economic growth and a crucial component of the domestic and international supply chain;
  • strategically important and high-value infrastructure assets;
  • complex and high-value funding arrangements within and between central and local government and the private sector;
  • a mix of public and private ownership of transport infrastructure, with (financially significant) land transport infrastructure being largely in public ownership and most maritime and aviation services being provided commercially;
  • multiple and complex relationships that include bilateral and multilateral agreements, often between parties with different priorities and agendas;
  • a highly regulated international environment with respect to maritime and aviation, which means New Zealand needs to make significant efforts to maintain alignment with international standards;
  • challenging, sensitive, and high-profile public/social policy matters, such as blood alcohol limits and the minimum driving age;
  • influential and active sector interest and user groups; and
  • some out-dated regulations.

2.7
In common with other public entities, transport entities face fiscal constraints and many are reviewing business models to ensure that they work in the most effective and efficient way.

2.8
During 2011/12, many transport entities took steps to save costs, such as by sharing corporate functions through shared services arrangements.

Funding the transport sector

Central government

2.9
Land transport projects and activities in the National Land Transport Programme are funded through the NLTF. Fuel excise duties, road user charges, and motor vehicle registration fees fund the NLTF.

2.10
NZTA assigns NLTF money, which is used only for land transport investments and services. The NLTF funds:

  • the full cost of state highways;
  • New Zealand Police's road safety work;
  • about half the cost of local roads;
  • transport planning and public transport services; and
  • walking, cycling, and safety initiatives.

2.11
Four key themes underpin National Land Transport Programme (NLTP) activities in 2012-15:4

  • ensuring value for money;
  • supporting economic growth and productivity;
  • improving safety; and
  • providing travel choices.

2.12
NZTA uses the NLTF to allocate funds to local roads and public transport work and services. The amount is based on its NLTP.

The role of local government

2.13
Local authorities are responsible for local roads and public transport services. Local roads make up about 80,000 kilometres (or 88%) of all New Zealand roads. The funding for work on local roads and public transport comes from several sources, including:

  • local rates;
  • other local sources, such as development contributions;
  • fares; and
  • government funding through the NLTF the central government funding that a local authority receives from the NLTF is based on the funding assistance rate (FAR).

2.14
NZTA is currently reviewing the FAR.

2.15
The NLTF provides subsidies for public transport, mainly to local authorities for planning and providing public passenger transport services.

2.16
The Government directly funds certain work, such as providing capital investment to support KiwiRail's Turnaround Plan. Other transport agencies receive revenue from service fees and charges. For example, the CAA collects passenger security levies.

Ports and airports

2.17
Port and airport companies are mostly funded through user charges.

Sector risks and challenges

2.18
Our audit work identified a number of risks and challenges to the transport sector, including:

  • funding challenges;
  • a high risk of natural disasters and significant costs involved in the response to them;
  • significant oil price spikes affecting the cost of building assets and providing services;
  • challenges of regulatory reform; and
  • alignment of central and regional policies and planning.

2.19
In addition, we note that transport entities have an ongoing focus on delivering greater value for money, improving transport safety, and strengthening network resilience.

2.20
Our preliminary risk assessment identified that the transport sector is more exposed to global events than other sectors. This is partly because of the interconnectedness of the global transport supply chain.

2.21
In paragraphs 2.22-2.43, we comment on these challenges and risks.

Funding challenges

2.22
Making the best use of the funding available to the sector remains an ongoing challenge for transport entities. In the current fiscal environment, all transport entities need to ensure that they get the most value from the funding available to them.

2.23
There have been efforts to address the medium- and longer-term funding challenges. For example, in October 2012, NZTA introduced new charges for some road users and for registering and licensing motor vehicles. Also, the Government recently announced that it intended to increase petrol excise duties in each of the three years 2012/13 to 2014/15. By increasing revenue, these changes will help to fund the Roads of National Significance and other transport work set out in the Government Policy Statement on Land Transport Funding 2012.

2.24
KiwiRail's 10-year Turnaround Plan is aimed at making KiwiRail a sustainable rail business by 2020. The Turnaround Plan envisages KiwiRail receiving government funding of $1.1 billion during the 10 years to 2020 to support its $3.1 billion (excluding metropolitan projects and renewals) capital work programme. Budget 2012 included an appropriation of $250 million for KiwiRail, the final part of a three-year funding package in support of the Turnaround Plan. On 16 July 2012, the Government also agreed to convert $322.5 million of historic debt to equity. KiwiRail has begun talks with the Government about funding beyond 2013, particularly about the remaining government funding signalled in the original plan.

2.25
Having identified significant funding pressure on their maintenance of local roads, local authorities have reprioritised and, in some cases, reduced their investment and services. To do this, local authorities will need to consider how they renew and maintain roads. This is likely to affect the road condition and levels of service roads provide. Part 5 contains more commentary on transport funding and capital expenditure in local authorities' long-term plans.

Natural disasters

2.26
The New Zealand Survey of Risk 2012 (The fifth Marsh biennial report) rates risks to New Zealand from natural disasters as "high".5

2.27
There are many examples of natural disasters affecting operational ability and transport infrastructure. The most notable example is the Canterbury earthquakes. Flooding in Nelson and the Manawatu, and Waioeki Gorge slips, have also had significant effects on regional transport movements.

2.28
The direct costs of recovery from these events are significant. However, the indirect costs of being unable to respond or of recovering slowly can significantly affect the economy for a long time.

2.29
Public entities should have strong asset management plans and practices including how they intend to address the risks of, and to respond to, natural disasters. They should invest appropriately in maintaining their assets in case of uncertain events or circumstances. Also, strategic asset management plans may include cost-effective actions for responding to risks related to climate change.

Oil price volatility

2.30
Volatile oil prices are a significant risk to the transport sector. Higher oil prices will increasingly affect services to communities and businesses.

2.31
High oil prices put pressure on consumers to use less oil. Reduced car use and more-efficient vehicles lower the tax revenue from fuel excise and reduce funding for transport solutions. At the same time, reduced car use leads to increased demand for passenger transport services and therefore, an increase in the volume of subsidies paid to regional councils who provide those services.

2.32
High oil prices increase the cost of maintaining and building transport infrastructure. For example, the main cost in building roads is the price of oil and bitumen used in road materials. Local authorities are turning to alternative ways to build and replace road assets while seeking to provide the same service (see paragraph 5.25).

2.33
Airlines are investing in more fuel-efficient aircraft that are more environmentally friendly.

Transport regulation reform

2.34
The Government has a focus on improving the quality of regulation and removing unnecessary regulation. The Ministry of Transport has a role in promoting transport regulations and frameworks that reflect good practice.

2.35
Lifting the quality of transport regulation will help markets to function well by ensuring that regulatory costs and charges are minimised, so businesses and others are not burdened by unnecessary compliance costs or outdated regulation, and that transport regulation is well understood and compliance is maximised.6

2.36
The National Infrastructure Unit considers transport regulation to be effective but has identified that "it is not clear that the current regulatory settings facilitate the investment needed to meet long-term infrastructure needs".7 The Ministry of Transport is carrying out regulatory reform. In its view, "Improving the quality of regulation and removing any unnecessary regulation is an important part of the Government's economic programme."8

2.37
In collaboration with the Ministry of Transport, NZTA has responded to the Government's expectation of better regulation by changing the warrant and certificate of fitness regimes. The changes are designed to save motorists and businesses money when they register and license a vehicle. NZTA has increased other fees and charges to reflect the costs of delivering the service.

Alignment of central and regional policies and planning

2.38
There is a risk that funding decisions made nationally do not consider the competing needs of all regions.

2.39
The Government is prioritising Roads of National Significance and the Canterbury rebuild. This creates funding pressures in other aspects of the NLTP. Local authorities rely heavily on central government subsidies for work on roads. Some local authorities have ageing roading networks and have to decide how best to maintain those assets (see paragraphs 5.16-5.26).

2.40
The cross-sector Road Maintenance Task Force in October 2012 identified four areas for improving value for money and opportunities to reduce costs for roading authorities in the road maintenance, operations, and renewals areas. The four recommendations were about collaboration between roading authorities, procurement, prioritisation of decision-making, and asset management planning.9

2.41
After the Task Force report, a Roading Efficiency Group was established to continue the work of the Task Force. This Group expects to complete most of its work by the end of 2013.

2.42
The Treasury's National State of Infrastructure Report 2012 highlights increasing co-ordination between local and central government, especially in Auckland and Christchurch, and continued development of the upper North Island freight network.10 This report builds on work to identify the main strategic freight routes and reclassify the roading network to better understand the core functions of each road and target planning and investment most effectively.

2.43
Work is ongoing to agree the long-term funding model for the Canterbury rebuild. There is also work being done to identify an agreed and affordable way forward to improve Auckland's transport infrastructure and services.11 Both of these major challenges increase pressure on available funding and require good quality information on which to prioritise infrastructure investment decisions.

4: See the National Land Transport Programme 2012-2015, available at www.nzta.govt.nz.

5: Available at the Marsh website, www.marsh.co.nz.

6: Ministry of Transport, Statement of Intent 2012-2015.

7: National Infrastructure Plan 2011, page 13. The National Infrastructure Unit is a Unit within the Treasury to help it to permanently lift the sustainable growth rate of the economy.

8: See the Ministry of Transport website, www.transport.govt.nz.

9: The report of the Road Maintenance Task Force is available on NZTA's website: www.nzta.govt.nz.

10: National State of Infrastructure Report 2012, page 22.

11: The Government spends about $1 billion a year on Auckland's transport needs.

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