BERL recently completed a report for Dunedin City Council and the Rail and Maritime Transport Union that considered the economic benefits to New Zealand of building the proposed new rolling stock for Auckland (38 three-car electric multiple units (EMUs) and 13 locomotives) at Dunedin and/or Lower Hutt.  The report has been widely covered in the media including the Herald, Stuff and Otago Daily Times.

We believe the call for new trains for Auckland is an excellent opportunity for the Government (and Kiwirail) to make a sound business and political decision to, at the very least, give New Zealand companies (led by Kiwirail) an equal chance to bid for the work.  We urge the Government to consider what is best for New Zealand in the long-run, and not to focus single-mindedly on the ticket price.

Having said that, our research suggests that the price at which Kiwirail could produce the rolling stock is very competitive internationally, meaning we needn’t sacrifice quality for a good price.

In essence, those opposed to having Kiwirail put in a tender for the project have two main reasons for their viewpoint:

Price

Many assume that building the trains in China or some other country with cheaper labour will cost a lot less than the $6.9 million to build the EMUs here.  This viewpoint is ill-informed, as we actually compete exceptionally well against both European and Asian producers.  Train manufacturing is relatively capital intensive, meaning labour costs play a smaller role in the total price of the project.  There is a mountain of evidence supporting this:

A fixation with the ticket price also ignores the differences in whole-of-life costs including scheduled repair costs; lags in getting unscheduled mechanical issues resolved; spare parts delivery; or lack of priority from supplier.

Skills and Capacity

Some argue that New Zealand lacks the skills, experience, and work force to build the trains here.  This is a somewhat stronger case, but it also includes straw man arguments that must be highlighted.

One analogy used has been that New Zealand building the rolling stock would be like Air New Zealand deciding to build its own planes.  This is a poor analogy.  The report clearly takes into account that around 31% of the work will be done overseas, including the transformer; propulsion equipment; auxiliary power; and train control system.  But we can undertake the other 69%, including manufacturing the body shell; assembly; brake equipment; interior fittings and glazing; and doors.

We acknowledge that it may not be possible to build the rolling stock within the 45-month timeframe proposed.  For this reason, our report suggests two scenarios – 45 months, and 69 months.  Even under the 69-month scenario, the commercial and economic benefits of building in New Zealand are undeniable.  The key question is whether a shorter wait for the trains to be built justifies missing out on 770 six-year jobs; $232 million more in GDP; $65 million more in Crown revenue; poorer maintenance and development of skills; and loss of innovation and spin-offs to other industries.

We would argue strongly that it doesn’t.

Download the full report.