Chapter F6 Rail and sea freight

F6.4 Funding for rail and sea freight

Introduction

This section describes the NZTA's funding assistance policy for work categories in activity class 6: rail and sea freight.

Policy being developed

The funding assistance policy is still being developed for rail and sea freight work categories. Applicants should discuss proposed activities for these work categories with the NZTA's regional staff as early as possible.

The NZTA's interim policy for funding assistance for rail freight and sea freight activities is set out below, pending further development of the government's rail and coastal shipping policies.

Funding mechanism for rail and sea freight operations

The following funding mechanism will apply to the NZTA's funding assistance for rail freight and sea freight operations:

• funding will be provided up to a funding period of three years
• funding will be based on a validated business case that demonstrates
  • there is a funding gap
  • the freight proposal has merit
  • the freight service will be self-sustaining by the end of the funding period (maximum of three years)
• the funding gap will be determined by the business case's estimate of freight transported and the actual costs faced by the business
• the subsidy payable would be the minimum of this funding gap, or the road user benefits derived from removing this freight from the road network
• the actual subsidy paid in a year would be based on the subsidy rate (eg dollar per tonne) multiplied by the outputs actually achieved (eg tonnes carried by the alternative mode) up to an agreed dollar maximum
• the funding assistance will depend on the circumstances of the proposal, including the type of road from which the freight is removed
• the applicant will acknowledge, as part of the written agreement with the parties involved, that the subsidy will cease at the end of the funding period (for detail, see Chapter F15 Funding assistance for multi-party projects)
• there will be full public disclosure of the basis of payments and the maximum amount of subsidy agreed by the NZTA and the applicant, as well as the subsidy amounts actually paid by the NZTA.

Funding mechanism for rail and sea freight facilities

The following funding mechanism will apply to the NZTA's funding assistance for rail freight and sea freight facilities:

• funding will be based on a validated business case that demonstrates:
  • there is a funding gap
  • the freight proposal has merit
  • the sea freight or rail freight mode will be self-sustaining by the end of a trial period agreed with the NZTA (maximum of three years)
• the funding gap will be determined by the business case's estimate of freight transported and the actual costs faced by the business
• the subsidy payable would be the minimum of this funding gap, or the road user benefits derived from removing this freight from the road
• funding assistance will depend on the circumstances of the proposal, including the type of road from which the freight is removed
• there will be full public disclosure of the basis of payments and the maximum amount of subsidy agreed by the NZTA and the applicant, as well as the subsidy amounts actually paid by the NZTA.

Funding conditions

The requirements for multi-party projects apply where more than one party is involved with rail and sea freight proposals.

A regional council may choose to fund a territorial authority's share of the total cost.

Reference: For detail on multi-party projects, see Chapter F15 Funding assistance for multi-party projects.

Apportionment of benefits

Funding assistance for new rail and sea freight activities will be based on an assessment of expected benefits and cost savings identified in the evaluation. These benefits and cost savings will be allocated to the parties receiving them.

Each party will be expected to contribute towards the total funding of the activity in proportion to their share of the total benefits and cost savings.

The NZTA's funding assistance will be based on the proportion that the following benefits and cost savings compose of the total benefits and cost savings:

• road cost savings (less lost road user payments)
• road user benefits (reduced congestion and accidents)
• environmental benefits.

Payment of funding assistance for rail and sea freight operations

Payment of funding assistance for rail and sea freight operations will be made on the realisation of the identified benefits. This may be indicated by the amount of freight being carried.

An allowance will be made initially for the usage of the new service. Where a service does not meet the projected freight levels, then the level of funding assistance may be renegotiated.

Rail and sea freight proposals with small funding requirements

The cost of a full assessment in accordance with the assessment procedures may not be justified for operations/proposals that require $5000 or less per year of funding assistance. The NZTA will consider simplified assessments in such cases.

Future changes in funding assistance policy

Rail freight and sea freight activities are primarily funded on an output basis, which means that other parties must take the risk on capital investment. The rail and sea freight funding assistance policy is relatively new, so has not been tested on many projects. It is likely to be refined as the NZTA gains experience with applying the policy.

Rules:

• For rail and sea freight capital projects, the NZTA will fix the funding assistance when the project is approved, for the duration of the project.
• For rail freight and sea freight operations, the NZTA will fix the funding assistance for the duration of the contract with the operator.
• If an approved organisation is a party to the activity and the funding assistance rate (FAR) policy changes to the approved organisation's advantage, the NZTA may, at its discretion, offer the increased FAR to the approved organisation.

Additional guidelines for rail and sea freight operations

In addition to the funding mechanism conditions, the following guidelines apply to proposals for funding assistance for rail freight and sea freight. The NZTA anticipates that:

• freight operations would be relatively small-scale (eg annual subsidy less than $1 million per year)
• the subsidy would be a relatively small proportion of the total cost of freight (otherwise it is unlikely the activity will become self-sustaining)
• the subsidy rate would reduce over the trial period as the activity moves towards becoming self-sustaining
• it would be preferable to establish a funding partnership with one or more local government entities
• the subsidy should not confer any obvious advantage to one supplier (of the product being freighted) compared with another in the same product market.