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Contract awarded for Transmission Gully

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Initial work will begin over the next few months on the Transmission Gully motorway north of Wellington. This follows today’s announcement by the NZ Transport Agency that the contract has been signed for this project to be delivered as New Zealand’s first Public Private Partnership (PPP) for a state highway.

NZ Transport Agency Chief Executive Geoff Dangerfield says the signing of a PPP contract between the NZ Transport Agency and the Wellington Gateway Partnership for the 27km Transmission Gully project marks a major step forward for the Wellington region.

“Today’s announcement means that Wellington can have certainty that Transmission Gully will be a reality. By progressing the project as a PPP we have achieved a good value result and work will get underway on the project in the coming months”.

Today’s contract signing marks the completion of a contract negotiation process which began in December last year when the Transport Agency announced the Wellington Gateway Partnership as the preferred bidder for the project after a competitive tender process.

Mr Dangerfield said under the terms of the PPP contract the Wellington Gateway Partnership will design, construct, finance, operate and maintain the new Transmission Gully highway for the 25 years that will follow the expected five-year construction period. It is aimed to have Transmission Gully open for traffic by 2020.

“People in Wellington have waited for decades to see real action on the building of a safer, efficient and more resilient highway route north of the city, and today we can say with certainty that construction will soon begin on a vital link in that route.”

“Not only do we have certainty that the project will be built to a strict deadline that will see it opening in 2020, but the PPP contract also requires that the project is designed, constructed, operated and maintained to achieve a high standard of performance in the areas of safety, journey times, reliability, and customer satisfaction.”

Transmission Gully will be a key component of the 110km Wellington Northern Corridor Road of National Significance, which when fully completed will provide a safer, more reliable and more efficient highway connection from Levin to Wellington, connecting the city to the growing economic centres of Kapiti and the Manawatu and subsequently the wider North Island.

Importantly for the Wellington region, in the event of a major earthquake, it will be quicker to reinstate the Transmission Gully motorway than the existing State Highway 1.

The Transmission Gully motorway will also reduce traffic on the existing State Highway 1 which will provide a safer environment for communities along this route.

Mr Dangerfield said Transmission Gully has consistently enjoyed strong support from residents and businesses in the Wellington region, who recognise the project’s significant benefits to journey times, economic productivity, resilience to major disruption, and safety.

“This project will save lives, shorten journeys, make Wellington’s economy more competitive, and help keep us connected in a natural disaster. It will also remove heavy quantities of highway traffic from communities like Mana, Plimmerton and Pukerua Bay.”

Mr Dangerfield says two major public consultations (2005 and 2008) were undertaken to ascertain the views of residents of the greater Wellington region on whether a route through Transmission Gully should be progressed with. Both public consultations showed large support (over 80%) for a highway through the Gully.

Mr Dangerfield says providing best value for money for the public has always been an important consideration.

“A PPP will deliver value in several ways.

“It will deliver the project at a lower ‘whole of life’ cost than the public sector could expect to through conventional procurement. The incentives built into the PPP contract will ensure the completed highway will be flatter, wider, and straighter with enhanced safety features making it safer and more resilient to natural disasters and closures.

“The PPP model also encourages the most advanced technology and innovative approaches from overseas to be brought to the project.  We can then apply these innovations on other roads right across New Zealand to make travel safer for everyone. That means that as well as delivering safer journeys along the Transmission Gully route itself, the PPP will also release flow-on benefits onto the whole New Zealand transport network by introducing new, innovative road safety approaches which can be applied to save more lives in other parts of the country.”

Fran Wilde, Chair of the Regional Council and the Regional Transport Committee, welcomed the announcement as great news for Wellington.

“The current two lane SH1 is totally unacceptable in terms of capacity, exposure to high tides in storms and seismic risk. As well as servicing the capital and being a critical commuter road for the region, it carries national freight destined for the South Island - yet it still functions as it did a century ago. Transmission Gully will provide a huge degree of resilience for Wellington and for New Zealand on this important route”.

Porirua Deputy Mayor Ana Coffey says Porirua has been unwavering in its support for Transmission Gully Motorway.

"We’ve been waiting a long time for this day. It’s very exciting to finally know that Transmission Gully is now an absolute certainty. This road is crucial – not just locally – but as a regional roading network that will provide greater route security and ease congestion for everyone in the Wellington region.

“It also helps secure the future economic vitality of the Wellington region by providing a sustainable transport infrastructure that will support economic growth for many decades.”

Vicky Robertson, Deputy Chief Executive of The Treasury said The Treasury was pleased to have partnered with the Transport Agency in the delivery of Transmission Gully as a Public Private Partnership which represents another significant milestone in the development of the PPP programme.

“Procuring Transmission Gully as a PPP incentivises improved road safety, travel time reliability and resilience – outcomes that will have a meaningful impact for New Zealanders for years to come,” Ms Robertson said.

The Wellington Gateway Partnership consists of

Leighton Contractors Pty Ltd
HEB Construction Ltd
Accident Compensation Corporation (ACC)
InfraRed Infrastructure General Partner Ltd
Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU)

About the PPP

This is the first Public Private Partnership (PPP) for a state highway project in New Zealand.

The Wellington Gateway Partnership will finance, design, construct, operate and maintain the Transmission Gully motorway for the 25 years that will follow the expected five-year period to build the highway. It aims to have the Transmission Gully highway open for traffic by 2020.

The Wellington Gateway Partnership is made up of firms with considerable experience in the design, construction, financing, maintenance and operation of key Public Private infrastructure projects overseas.

The 'availability’ PPP model adopted for the Transmission Gully project means that the Wellington Gateway Partnership will be paid for making a safe road open and available to traffic, and after achieving specified performance levels such as customer satisfaction, reliability and travel times.

Mr Dangerfield says for the project to proceed as a PPP, WGP’s bid needed to guarantee a high quality highway for less than it would cost the public sector to build using any other procurement approach.

“PPPs allow large and complex projects to benefit from private sector innovation and additional scrutiny of risk from the financiers. This increases certainty of delivery and drives better value for money, as well as effectively identifying and reducing risks and where appropriate transferring these to the private sector. This innovation can also be applied across the wider New Zealand transport network because we don’t just get the road, we also retain the intellectual property.

“The contract guarantees unprecedented certainty for a highway project, as Transmission Gully must be delivered for a set price, and must perform to measurable performance standards for the full 25 years.”

Mr Dangerfield says that the lower cost of the PPP is determined from a straight comparison between the contract price and the cost of doing it through traditional methods. The total payments over 25 years are equivalent to today's contract price, as expressed in future dollars.

"In economic terms, the total cost spread over 25 years is lower than the alternative of paying it all up-front now. This will also free up the Transport Agency's funds so that it can deliver additional transport investments throughout the nation."

Mr Dangerfield says payments are not linked to the volume of traffic using the road, however contractual incentives are provided to ensure long term performance.

Many of the high profile failures of PPP highway projects in other parts of the world have resulted from traffic demand risk being passed to the private sector.  This PPP uses a different model based on the road being open and performing strongly.

Mr Dangerfield says the NZ Transport Agency will consider PPPs for other projects that have the scale and complexity that will permit superior value for money to be achieved by using a PPP approach. Projects will be evaluated on a case-by-case basis to determine if they meet the criteria for a PPP.

For more information, please visit www.nzta.govt.nz/projects/transmission-gully(external link), or click here to read the FAQ's.

Transmission Gully will…

  • save lives and prevent serious injuries
  • shorten peak journeys by 7-15 minutes and provide two lanes in each direction
  • bring the Wellington region closer together as a key part of the Wellington Northern Corridor
  • remove heavy highway traffic from local communities such as Mana and Plimmerton
  • provide a more resilient route that will reopen more quickly in the event of a natural disaster
  • make Wellington more economically competitive by improving efficiency of moving people & freight

How are we paying for it?

The Transmission Gully project’s net present cost is $850 million. This is the “whole of life” cost, for WGP to build and then operate the road for 25 years.  Because the costs are spread over time, they are expressed in today’s terms.

This is $25m less than what the contract would be expected to cost through conventional procurement, and hence meets The Treasury’s value for money test for PPPs.

The cash payments will be around $125 million per year, starting only when the project is finished and open for use, and lasting for 25 years.  This stream of cash payments brought back to today’s dollars is $850 million and is the “net present cost”.

A PPP will…

  • provide better value for money
  • provide strong incentives for the project to be designed, built, operated and maintained to achieve high and sustained performance including advanced safety features to be built into the highway, saving lives and preventing serious injuries
  • cover the management and upkeep of the road for quarter of a century, not just its construction
  • guarantee project completion in 2020 at a set price
  • incentivise innovative approaches that can be rolled out across the whole state highway network
  • keep the road in public ownership.
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