Climate change, COVID-19, house values blamed for infrastructure cost blowout, some planned projects downgraded

Most of the Government's big-spending infrastructure projects announced last year will go ahead as planned, despite rising costs due to COVID-19, it has been revealed.

Some have been "re-scoped" however, Finance Minister Grant Robertson and Transport Minister Michael Wood said on Friday, in some cases to reduce costs and others to reduce carbon emissions. 

"COVID-19 has increased construction costs around the world, and we've done the work upfront to understand the impact on NZUP projects which were announced pre-pandemic," Robertson said, adding that the Climate Change Commission's draft report recommending transport emissions need to be halved by 2035 also had an influence. 

"Fully funding the new estimated costs for every project would have cost up to $6 billion extra on top of the original $6.8 billion, so instead we've taken a balanced approach with a mix of additional investment and a handful of projects being re-scoped while also keeping a lid on debt.

"We are using an additional $1.9 billion set aside in the multi-year capital allowance to support our targeted investments - this is being used so we can keep delivering projects and creating jobs across the country to support our recovery."

At a press conference on Friday morning, Wood added that the rising value of property, which may need to be purchased to make way for projects, had also increased some costs. 

The initial $12 billion NZ Upgrade Programme was announced in January 2020, just as the pandemic was getting underway. Asked about the cost blowouts, Robertson and Wood said it wasn't unique to New Zealand. 

"With big projects, we will sometimes face these challenges," said Wood, noting National's Roads of National Significance programme also overran by billions.

Robertson said contingencies have been built into the new costings to account for further potential cost increases.

One big project that's undergone a rethink is Mill Rd, a connection between Manukau and Drury that would complement State Highway 1. 

"If we had proceeded with Mill Rd as originally scoped, it would have cost up to $3.5 billion and at peak produced six tonnes of CO2 emissions a day," said Wood, making it the most expensive road in the country. 

"Instead, we've focused on delivering important safety improvements to Mill Rd, upgrades to SH1 and rail, and new rail stations connected to public transport, walking and cycling infrastructure. This rebalanced package helps manage debt, reduces emissions and supports housing growth."

Wood said the new investment in the area would see rail, walking, cycling and public transport improved.

Other changes are being made to the Whangārei to Port Marsden Highway project.

"The Marsden Point rail spur will be a strategic investment in Northland's future prosperity, getting heavy trucks off the road to make the highway safer, and reduce emissions," said Wood. "We know safety on SH1 is a concern for locals, so there will be targeted safety upgrades, including median barriers, along the route."

Projects going ahead unchanged include improvements to SH58, the SH1/29 roundabout, Takitimu North Link Stage 1, the Canterbury Package, the Queenstown Package, Wiri to Quay Park (third main rail line), Papakura to Pukekohe rail electrification, Wellington Railway Station safety improvements, Wairarapa Rail Upgrades, Capital Connection Interim replacement rolling stock, Melling, Penlink, Ōtaki to North of Levin, SH6 Tatare Bridge Franz Josef safety improvements (West Coast), SH12 and Rawene Road intersectionimprovements (Northland), SH1/11 Kawakawa roundabout and resilience project (Northland), SH11/10 intersection Puketona Junction roundabout (Northland), SH2 Tahaenui Bridge (Hawke's Bay), SH5 Tarukenga to Ngongotahā safety and SH5/36 roundabout improvements (Bay of Plenty) and SH2 College Road to Silverstream (Hawke's Bay).

Wood also spoke about the walking and cycling rail crossing that was revealed earlier on Friday. He said with the new vehicle crossing likely to be a tunnel, it would be inappropriate for it to include walking and cycling options. The existing bridge can't hold any more weight, so a separate bridge for people on foot and bikes would be needed.