Regional Council 24 March 2015

Report No. 15-46 Decision Required

CAPITAL CONNECTION RAIL SERVICE

1. PURPOSE 1.1. The purpose of this report is to update Council on recent developments concerning the Capital Connection rail service and to seek funding from reserves to subsidise the continued operation of the service for the next five years.

2. RECOMMENDATION It is recommended that Council: a. receives the information contained in Report No. 15-46. b. agrees to subsidise the Capital Connection service for five years starting 2015-16, either via reserves or targeted rates, or a combination of both, up to the amount referred to in the 2012 Business Case (Horizons Share of Opex); and c. acknowledges that Horizons funding is contingent on securing funding from Greater Regional Council and the Ministry of Transport.

3. FINANCIAL IMPACT 3.1. The impact of this decision will be the allocation of $550,000 of Transport reserves spread over five years commencing in the 2015-16 financial year.

4. COMMUNITY ENGAGEMENT 4.1. No community engagement is required.

5. BACKGROUND 5.1. The Capital Connection (the CC) is a commuter train service operating between and Wellington. This service operates at peak times, leaving Palmerston North at 6.20 am and arriving in Wellington at 8.20 am. The train departs Wellington at 5.15 pm, arriving in Palmerston North at 7.15 pm. 5.2. The CC commenced service in 1991, and operates Monday to Friday, primarily focusing on commuters travelling to work in Wellington. Stops are made at Shannon, Levin, Otaki, , and , before it arrives in Wellington. 5.3. The service is operated by KiwiRail. The service operates commercially, receiving no local or central government subsidy. 5.4. Due to the service running at an operational loss for a number of years, and because of significant heavy maintenance expenditure required to maintain the asset, KiwiRail has determined to cancel the service from 30 June 2015. 5.5. Three years ago the service was to be cancelled. This was a result of electrification of the Wellington trains up to Waikanae and the heavy maintenance costs impacting on its financial performance. Council, in conjunction with Greater Wellington Regional Council (GWRC), submitted a business case to the New Zealand Transport Authority (NZTA) requesting continuation of the service. The business case included a funding proposal

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Regional Council 24 March 2015 where the operational deficit (then approximately $500,000) would be funded by Horizons, GWRC and NZTA. NZTA’s share would be based on the Funding Assistance Rate (then 59%), and the remainder would be split evenly by Horizons and GWRC. Horizons proportion amounted to approximately $110,000 per year. 5.6. On the back of submitting the business case, the then Minster of Transport made the decision to continue operation of the service for an additional two years thereby negating the need for a Horizons and GWRC subsidy.

6. LATEST DEVELOPMENTS 6.1. Horizons’ Chair and Chief Executive Officer met with the Honorable Simon Bridges (Minister of Transport) and the Honorable Nathan Guy (MP for Otaki) in December last year to discuss retention of the service beyond the 30 June 2015 cut-off date. At the meeting the Minister of Transport requested a copy of the 2012 business case with updated financial information. 6.2. Staff obtained updated patronage numbers, fare and financial information from KiwiRail. This information along with the 2012 business case was sent to the Minister of Transport on 30 January 2015 with the request that the service is retained for at least the next five years until the Road of National Significance from Levin to Wellington Airport is completed. The information stated that the forecast operational deficit for the 15-16 financial year is $700,000.00. The information also showed that $1.3 million of heavy maintenance is scheduled during the 14-15 and 15-16 financial years. KiwiRail confirmed that this work has not yet taken place. 6.3. Information then surfaced from an OIA request to the Ministry which questions the true cost of the operational subsidy required. The Chair quickly requested a follow-up meeting with the Minister to further discuss the issue, to ensure the correct information is being considered in making his decision. That meeting was held on 11 March. At the meeting the Minister invited both Horizons and GWRC to look at what funding they could provide to assist with retention of the service.

7. DISCUSSION 7.1. The Regional Transport Committee (RTC) views the CC as fundamental to maintaining connectivity between both regions for our commuting public, especially for the next five years while the Roads of National Significance project is completed. It sees the economic and social connections between the two regions increasing in importance over the next 10-20 years and beyond, as more people take up residence in the and Horowhenua Districts. The service provides improved mobility and transport choices between the two regions, and is well utilised by passengers from both regions. The RTC considers that loss of the service would be a significant blow, and would jeopardise the aforementioned linkages. 7.2. Additionally, a number of recent submissions to the draft Regional Land Transport Plan supported existing rail connections with the Wellington region. There is strong support in the community for the retention of the service. 7.3. If Horizons and GWRC subsidise the service it would continue to be operated by KiwiRail. The subsidy would assist with offsetting the operational loss the service is making. If the loss was greater than forecasted, there would be no commitment to contribute additional funding. 7.4. It is submitted that if Council agrees to contribute funding, it should be as per the 2012 business case. Funding could be sourced from Transport reserves, from the communities which benefit from the service being Palmerston North, Horowhenua and Manawatu, or via targeted rates. Currently Transport scheme reserves for the three districts amount to $1.26 million. Of this, $589,000 is proposed to be used over the next three years on

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Regional Council 24 March 2015 additional service trials in those districts, leaving a balance of $671,000. This shows there are sufficient transport reserves to subsidise the service up to the amount consistent with the 2012 business case.

8. TIMELINE / NEXT STEPS 8.1. The service is due to cease operation in less than four months time. 8.2. If the decision is to approve the funding, the Chair will write to the Minister and GWRC confirming the proposed contribution, and to seek a meeting to discuss funding and retention of the service.

9. SIGNIFICANCE 9.1. This is not a significant decision according to the Council’s Policy on Significance and Engagement.

Phillip Hindrup Ged Shirley MANAGER TRANSPORT SERVICES MANAGER REGIONAL SERVICES

ANNEXES There are no attachments for this report.

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