Part 1: Introduction

Governance of the City Rail Link project.

1.1
In this Part, we discuss:

1.2
Auckland Council (the Council) considers that the City Rail Link will help transform Auckland and support its vision of Auckland as the world's most liveable city.

1.3
The City Rail Link is a 3.45km twin-tunnel underground rail link that will be up to 42m below the city centre. The City Rail Link is expected to improve journey times for road and public transport users. It is also expected to double the number of Aucklanders living within 30 minutes' travel time of the central city.

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Figure 1 shows how the City Rail Link transforms Britomart station into a two-way through station that better connects the rail network and provides improved travel choices. The City Rail Link will expand the existing rail network's capacity and make it possible to add new lines in the future.

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The City Rail Link project (the CRL project) involves building the City Rail Link and other works, such as building new stations and redeveloping existing stations.

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The CRL project is part of the Auckland Transport Alignment Project. Set up in 2015,1 the Auckland Transport Alignment Project represents the Council and the Government's joint plan to maximise opportunities from Auckland's population growth.2

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In 2015, Auckland Transport began early works in preparation for the City Rail Link, such as moving a major stormwater line in Albert Street and lifting the Chief Post Office building on to new foundations.

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In 2016 and 2017, the Crown and the Council agreed to fund the CRL project equally. They set up City Rail Link Limited (CRL Ltd) as a time-limited special purpose Crown company to deliver the CRL project.3 The Crown and the Council are shareholders in CRL Ltd and are also the CRL project's joint Sponsors.

Figure 1
How the City Rail Link connects the Auckland rail passenger network more effectively

The City Rail Link connects the stations at Britomart and Mount Eden through new stations at Aotea and Karangahape.

Figure 1 is a route map that shows how the new City Rail Link stations connects the Auckland rail passenger network more effectively.

Source: City Rail Link Limited.

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CRL Ltd's Board (the CRL Ltd Board) is responsible for the CRL project and CRL Ltd's day-to-day governance. The CRL Ltd Board has all the powers it needs to manage, direct, and supervise CRL Ltd. It must ensure that CRL Ltd acts consistently with its objectives, functions, Statement of Intent, and Statement of Performance Expectations.

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As well as the CRL project, Auckland Transport and KiwiRail Holdings Group (KiwiRail) are responsible for the wider network improvements that are needed to integrate the City Rail Link into the existing transport network in Auckland.

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CRL Ltd, Auckland Transport, and KiwiRail are separately responsible for their respective works. However, CRL Ltd's Board is accountable for successfully completing the CRL project.4 This involves delivering a railway capable of commercial operation for immediate public use.

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The works that CRL Ltd, Auckland Transport, and KiwiRail need to deliver must be built and working together properly to successfully complete the CRL project. The City Rail Link's opening day (known as Day 1) was originally planned for December 2024. Day 1 is when the first paying passengers are expected to use the City Rail Link. Because of project delays caused by the Covid-19 pandemic, CRL Ltd now expects to announce a new date for opening the City Rail Link by the end of 2022.

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CRL Ltd will stop operating when it successfully delivers the CRL project unless its shareholders decide otherwise. CRL Ltd is expected to progressively hand over the assets that it has built to new owners – chiefly Auckland Transport and KiwiRail. They will be the owners and operators of the expanded railway system. The Council will also take over some assets. Some assets have already been transferred.

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So far, the Crown and the Council have jointly committed to invest about $4.42 billion in CRL Ltd to fund the CRL project.

How CRL Ltd’s shares are split
The Crown is the majority shareholder in CRL Ltd, holding 20 more shares than the Council. Cabinet authorised the Ministers of Transport and Finance to represent the Crown. The Ministers hold the Crown’s shares in CRL Ltd equally between them.

The people who act for the Sponsors
Cabinet authorised the Ministers of Transport and Finance to perform the Crown’s duties as Sponsors of the CRL project. The Ministers can delegate authority to perform those duties.

The Council’s governing body is the other Sponsor. The governing body has authorised the Mayor and Deputy Mayor of Auckland to sign documents on its behalf.

Why we did our audit

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The CRL project is New Zealand's largest and costliest transport infrastructure project.

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The CRL project is complex and challenging. The construction phase involves digging under central Auckland, moving existing underground stormwater piping and other utilities, and disruptive above-ground activity. Multiple agencies are involved in integrating the new infrastructure with the existing rail system and the wider transport network in Auckland.

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The CRL project relies heavily on expertise that does not normally exist in New Zealand, and there are not enough people with the appropriate skills in the country to support the works.

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Internationally, these kinds of projects are difficult to complete on time and within budget. Delays, cost over-runs, and failure to realise all intended benefits are common. As well as being the first of its type in New Zealand, the CRL project has been managed during the Covid-19 pandemic.

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The CRL project is also the first time that joint Sponsors from central and local government have created a special purpose Crown company to support a complex transport infrastructure project involving three "delivery partners" – CRL Ltd, Auckland Transport, and KiwiRail.

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The significant challenge that CRL Ltd faces in delivering the CRL project reinforces the need for effective governance by the CRL Ltd Board. CRL Ltd also needs to manage interdependencies with other delivery partners responsible for the wider network improvements.

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In our other work, we often find that poor governance is the cause of many problems with major projects. Therefore, we wanted to find out whether the CRL project's governance was effective and likely to support successful completion of the CRL project.

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We also wanted to provide observations about how central and local government work together to deliver significant infrastructure projects. These observations could be useful for public organisations considering setting up similar projects in the future.

What we looked at

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We focused on the CRL project's governance and oversight arrangements and practices from mid-2019 on. We looked at:

  • the CRL Ltd Board's governance of CRL Ltd and the CRL project, including the steps to deliver the CRL project as planned, on time, and within budget;
  • the Crown and the Council's oversight of the CRL project as joint shareholders in CRL Ltd and as the project's Sponsors, including the Crown's monitoring of CRL Ltd that the Ministry of Transport is responsible for leading;
  • the extent to which the delivery partners' governing Boards are involved in resolving issues with dependencies between the CRL project and the wider network improvements; and
  • whether it is clear who is responsible for realising and reporting on the long-term benefits of the investment in the City Rail Link.

What we did not look at

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We did not look at:

  • the Government's decision to set up CRL Ltd to deliver the CRL project;
  • whether CRL Ltd, Auckland Transport, and KiwiRail have properly scoped, designed, built, or procured their elements of the CRL project and the wider network improvements;
  • whether the costs and benefits set out in the business case for the City Rail Link were appropriate or accurately estimated, or whether the CRL project represents value for money;5
  • the Project Alliance Board's governance (because the Link Alliance is not a public entity);
  • the Project Control Group (because it is a technical working group); or
  • the governance by the Boards of Auckland Transport and KiwiRail of the:
    • wider network improvements; or
    • other works needed to realise the benefits of the investment in the City Rail Link over the longer term.

How we carried out our audit

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We used a framework for effective governance to guide our fieldwork and analysis. The framework has eight elements, which we identified in our 2016 publication Reflections from our audits: Governance and accountability. The Appendix describes the framework's eight elements of good governance.

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We applied the elements of good governance to the governance arrangements for the CRL project, adapting them to accommodate each party's roles and responsibilities as defined in formal terms of reference or agreements. We discuss the governance arrangements in Part 2.

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The Covid-19 pandemic began while we were in the early stages of our audit. The Government's actions to manage the spread of the virus affected the CRL project and had implications for our audit.

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We carried out most of our fieldwork in 2020. We carried out more fieldwork in 2021 and 2022 to make sure that our understanding of the impacts of the Covid-19 pandemic and of the context for our audit findings were up to date.

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We reviewed more than 1000 documents. We also interviewed 60 people to confirm or clarify our understanding of the documents and add to the evidence. The Appendix lists the sorts of documents we looked at.

Structure of this report

1.30
In Part 2, we discuss why the City Rail Link and the wider network improvements are being built and give details about the CRL project and its governance arrangements.

1.31
In Part 3, we discuss the CRL Ltd Board's governance of the CRL project and of CRL Ltd.

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In Part 4, we discuss the Sponsors' oversight of the CRL project. We also discuss the governance of the CRL project's dependencies.

1: The signatories to the Auckland Transport Alignment Project are the Ministers of Transport and Finance, the Mayor and Deputy Mayor of Auckland, the Council's Planning Committee chairperson, and the Council's Independent Māori Statutory Board chairperson. More information about the Auckland Transport Alignment Project is on the Ministry of Transport's website at transport.govt.nz.

2: New Zealand Government (8 September 2015), Business Growth Agenda: Towards 2025, www.beehive.govt.nz.

3: Other examples of special purpose infrastructure companies are Crown Infrastructure Partners Limited and Ōtākaro Limited (both wholly owned by the Crown) and Tāmaki Redevelopment Company Limited (jointly owned by the Crown and the Council). These companies and CRL Ltd were established under Schedule 4A of the Public Finance Act 1989.

4: Schedule 8 of the Project Delivery Agreement sets out and describes what constitutes project completion. Schedule 8 can be read in full at issuu.com/cityraillinkltd/docs/pda.

5: The 2015 business case is available on CRL Ltd's website at cityraillink.co.nz and Auckland Transport's website at at.govt.nz.