1. Passenger transport demand and the funding challenges Nick Allison New Zealand Rail Conference 2014 8 June 2014 NZ Rail 2014 conference

2. Passenger transport funding and demand 1. Investment successes and challenges 2. What factors supported our success? 3. The future demand outlook? 2 3. 3 INVESTMENT SUCCESSES AND CHALLENGES 4. Big government investment 4 Passenger transport subsidies have grown 4 fold - $130 M 2003 - $514 M 2013 Road investment 1.5% GDP since 2009 (compared to OECD average 1%) Plus Kiwi turnaround plan - $844 million of capital over 2010/11 to 2013/14 Sources: NZTA, Ministry of Transport, Statistics NZ, 2014 budget announcement 5. Auckland patronage success 5 Source: Ministry of Transport, NZIER Million passenger boarding 13 Year growth of 4% per annum bus and 30% for rail: total patronage grew 68% (5% per annum) 30 35 40 45 50 55 60 0 2 4 6 8 10 12 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Auckland Rail (LHS) Auckland Bus (RHS) Britomart 2003 Northern Busway 2008 6. Auckland versus Wellington rail 6 Million passenger boarding's And more growth potential with investment in electrification and park and ride.. 0 2 4 6 8 10 12 14 Auckland Rail (LHS) Wellington Source: NZ Transport Agency, NZIER 7. Then the challenge...$ 7 Source: NZIER & NZ Transport Agency 10 year patronage + 30% 10 year expenditure + 470% Time for cost benefits analysis? Last 4 years Bus Rail Subsidy cost per boarding ~$3.5 ~$8.4 Fare recovery ~40% ~30% 0 1 2 3 4 5 6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total PT boardings for Auckland Total expenditue on Auckland PT Index change patronage & expenditure 8. 8 FACTORS SUPPORTING OUR SUCCESS 9. The curse of geography and congestion helps 9 Source: TomTom, NZIER Rail can support highway capacity But can it support local arterial road capacity? 10. The economyhelped 10 22,000 24,000 26,000 28,000 30,000 32,000 34,000 36,000 38,000 40,000 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 AnnualisedrealGDP/capita Real GDP per Capita Real GDP per capita 1992-2008 trend Source: Statistics NZ, NZIER Forecasts Source: Statistics NZ NZIER People without jobs or enrolled in education more likely to opt not use a car 11. Job losses reduced demand for vehicle travel 11 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% -3.0% -1.0% 1.0% 3.0% 5.0% Annual%changeinVKT Annual % change in jobs Source: Statistics NZ NZIER 12. 12 Auckland vehicle kilometres travelled without the recession? Source: Ministry of Transport NZIER 13. Pump price increases made passenger transport more competitive 13 0 50 100 150 200 250 300 Real Maximum (Dec 1984) Cents per litre Source: Ministry of Business Innovation and Employment, NZIER 14. 14 THE OUTLOOK A SUPPORTIVE ENVIRONMENT? 15. Oil price outlook so much for peak oil 15 Source: US Energy Administration Annual Energy Outlook 2014 (AEO2014) NZIER Index of projected price change of Brent spot crude oil price 2012 dollar base 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2012 2015 2020 2025 2030 Reference High case Low case 16. 600 650 700 750 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Light fleet ownership per 1000 population The economy is now recovering new car purchases now lifting 17. 17 Technology will have role in adding to road capacity Great idea.but internet ride-share seems easier and has arrived 18. 18 Technology will continue to bring down the cost car trips Outlander Cents per km Hybrid 0.03 Petrol 0.17 Annual operating saving 84% But then the battery $12,000 in year 10, 11 or maybe later Annual km Net present value saving Average 14,000 -$3,857 Extra 25% +$2,994 Twice average traveller +$11,457 Source: Mitsubishi published fuel economy and EECA, assumes 85% efficiency and minimum battery state of 3kwh, and replacement of battery in year 11 19. 19 Adaptive cruise control what is the potential impact on road capacity? Possible impact TrafficFlow Traffic Density Buying a new car may be investing in future road capacity? 20. Private investment? Growth outlook uncertain = private investor risk Private public partnership? - expensive funding source - risk transfer and innovation? - may compromise operating flexibility? Fare increases offer private funding, but come with risks Will central government maintain large funding increases? 20 21. Concluding comments Passenger transport patronage successes - enabled by new investment - supported by strong economic tail-winds Need to demonstrate social benefits of rail May be strong head-winds for patronage growth - strong economy - fuel prices stable - new technology adding to road capacity Fare increases may provide an option for private funding 21 22. A great thanks for your time Nick Allison, Principal Economist Nick.allison@nzier.org.nz 021 48 58 96 22