KiwiRail has altered the design of a controversial transport project in Dunedin over concerns of rising costs, but it comes with less benefit - leading to accusations of taxpayer money being wasted.
Changes to Hillside Workshops, a railway wagon maintenance and assembly redevelopment project planned for Dunedin, were prompted earlier this year by increasing cost pressures.
However, a new document obtained by Newshub shows the Benefit Cost Ratio (BCR) of the proposed assembly facility was reduced from an already low 0.22 to 0.2 when the new design was taken into account. A BCR below 1.0 means the costs outweigh the benefits.
"Taxpayers want to see their money invested wisely and getting a high return for investment," said National's transport spokesperson Simeon Brown. "This is a project which is not doing that and in fact, is going to lead to most of that money being effectively wasted."
But Transport Minister Michael Wood said the programme "will still deliver on its intended outcomes", including allowing for locomotive maintenance and creating new jobs.
The Government has earmarked nearly $105 million for the Hillside workshop redevelopment programme. About $20 million of that comes from the Provincial Growth Fund to construct a mechanical workshop and $85 million is from Budget 2021 to establish and operate a wagon assembly facility for three years.
The project wasn't recommended by the Ministry of Transport or Treasury due to concerns over budget constraints, though revitalising the site was part of Labour's 2020 election manifesto.
But according to a March briefing from KiwiRail to shareholding ministers, the programme was experiencing "increasing cost pressures due to rising commodity prices and the cost of labour".
The briefing said Finance Minister Grant Robertson, who is a shareholding minister, wanted to ensure projects were being "scoped at the minimum level needed for a successful outcome".
The cost escalation led KiwiRail to devise a new design for the project that would see the mechanical workshop increase in size to include assembly operations and include more workstations.
"This negates the need to construct a separate assembly building and provides sufficient cost savings to allow for a workshop and associated infrastructure which meets KiwiRail's long-term requirements," the March briefing said.
Both the possible cost escalations and the saving the new design would allow for are redacted in the briefing.
When the changes are taken into account, the assembly BCR was reduced from 0.22, where it was previously pegged, to 0.2.
For comparison, the initial BCR for the standalone cycle and walking bridge beside the Auckland Harbour Bridge was reported to be 0.4 to 0.6. Wood said last June that would likely be reassessed and was expected to improve, but the project was later scrapped due to public opposition.
Brown told Newshub the low Hillside BCR meant it was just a "vanity project" for the Government.
"We're spending $85 million of taxpayer money on a project which is only going to return back one in five of the dollars actually spent on it, all because [the Government] wants to look like they're doing something to re-establish the rail yards in Dunedin."
The previous assembly BCR came with direct and indirect benefits totalling $18.5 million. The new option saw indirect benefits jump by $1 million due to a 10 percent increase in assembly job numbers, but direct benefits fall by $2.6 million "due to reduced future rental income from the assembly facility".
"The preferred option still delivers all other benefits, including youth training opportunities, boosting the regional economy and improving New Zealand's heavy engineering capability," the briefing says.
Vacant land is planned to be redeveloped in another way that "optimises the benefits to the Dunedin community and local heavy engineering industry".
The briefing said the new design is "the only realistic and practical option available that achieves the employment outcomes within the available funding envelope, meets timelines and avoids KiwiRail being forced to purchase some pre-assembled wagons overseas".
"There are key optional risks of this Hillside Redevelopment Programme if the wagons do not get assembled on time, as the assets are acutely needed to support the supply chain".
In a statement to Newshub, Wood said Hillside was a "key component" of the Government's $8.6 billion investment since 2017 to "build a resilient and reliable network after decades of neglect and decline".
"However, like the rest of New Zealand and other parts of the world, KiwiRail is facing challenges related to the impacts of COVID-19, supply chain issues and cost escalations," he said.
"I therefore support KiwiRail taking the prudent step to review this project to ensure it can be rescoped so it can be delivered in a way which reflects these current challenges."
He acknowledged the "minor change in benefit analysis", but said the programme will still have deliver its intended outcomes.
That includes "continuing to carry out locomotive maintenance work at the site, the creation of new maintenance jobs, and an estimated 50 new wagon assembly jobs".
"KiwiRail will still be able to move their track teams from around Dunedin to Hillside, as well."
Wood said Labour's promise to reopen the workshops, which were effectively closed in 2012, "recognised the wider benefits the workshops bring to Dunedin and the region".
Brown, however, remains opposed to the project.
"It will also mean that once set up, taxpayers will pay approximately 30 percent more for wagons which are being assembled here than what we currently pay by simply importing them," he said.
"The Government is not considering value for money for taxpayers at a time when there's a cost of living crisis, when New Zealanders are being very careful about every single dollar they spend."
KiwiRail construction delivery chief operation officer Robert Gibbes told Newshub the project will allow 1500 wagons to be assembled in New Zealand, creating around 45 new jobs at the site.
About 10 percent of new workers will be apprentices and trainees, while more than 200 people will be involved in constructing the facility.
"The mechanical and wagon assembly work will now be carried out in a single building. This is a design efficiency and Ministers were advised of this decision. No additional Government funding is required," he said.
Gibbes said the impact of COVID-19 on supply chains and other disruptions had caused "inflationary pressures across the construction sector" and building just the one structure "does help manage these costs".
"We can still carry out the necessary maintenance and assembly work in that building. It’s about improving efficiency," he said.
The construction contract for the workshop was awarded to Otago-based company Calder Stewart in June. Construction is expected to start later this year with the workshop operating from late in 2023 or early 2024. Unfit buildings have been demolished in recent months.
Hillside was first opened in the 1920s and by 1946 there were 1200 people working on the site, building locomotives, carriages and wagons. But by 2012, buildings and equipment had become unfit for use and just 10 workers remained.
