HAWKE’S BAY REGIONAL COUNCIL
Corporate
and Strategic Committee
Wednesday 18 February 2015
Subject: Call for any Minor
Items not on the Agenda
Reason
for Report
1. Under standing orders, SO 3.7.6:
“Where an item is not on the agenda
for a meeting,
(a) That item may be discussed
at that meeting if:
(i) that
item is a minor matter relating to the general business of the local authority;
and
(ii) the
presiding member explains at the beginning of the meeting, at a time when it is
open to the public, that the item will be discussed at the meeting; but
(b) No
resolution, decision, or recommendation may be made in respect of that item
except to refer that item to a subsequent meeting of the local authority for
further discussion.”
2. The Chairman will request any items Councillors
wish to be added for discussion at today’s meeting and these will be duly
noted, if accepted by the Chairman, for discussion as Agenda Item 7.
Recommendations
That
the Corporate and Strategic Committee accepts the following minor items not on
the agenda, for discussion as Item 7
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Leeanne Hooper
GOVERNANCE & CORPORATE
ADMINISTRATION MANAGER
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Liz Lambert
CHIEF EXECUTIVE
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HAWKE’S BAY REGIONAL COUNCIL
Corporate
and Strategic Committee
Wednesday 18 February 2015
Subject: Business Case -
Napier-Gisborne Rail
Reason for Report
1. The purpose of
this report is to receive and consider the business case from the
Napier-Gisborne Rail Establishment Group Council to support a potential
decision by HBRC to lease the Napier-Gisborne section of the Palmerston North -
Gisborne Rail corridor from KiwiRail, and to update Council on the development
of a business case for Council consideration.
Background
2. In its 2014-15
Draft Annual Plan Council consulted upon a proposal initiated by the NGR
Shortline Rail Group (NGR) to become a shareholder in an operating company to
re-establish the Napier-Gisborne rail line for rail freight, following the
mothballing of the line by KiwiRail in 2012. Council’s support is
based upon its recognition of the need for alternative transport routes to the
northern parts of the region for the transport of freight.
3. During the
Draft Annual Plan consultation period it became apparent that the Government
had decided not to fund the repair of the line to a ‘fit for
purpose’ operating condition.
4. Following the
hearing of submissions Council resolved to retain in principle provision to
invest in the proposal and indicated it would consider a revised proposal and
business case from the NGR establishment group.
5. In July 2014
HBRC wrote to KiwiRail seeking a response on its proposal to consider leasing
the rail corridor. A reply was received from KiwiRail on 17 November 2014
offering to HBRC the option of leasing the Napier-Gisborne rail corridor in its
entirety. The offer to HBRC is made on the following conditions:
5.1. KiwiRail will not commit any
funding to support the completion of this proposal, or the reopening, operation
and/or maintenance of the Rail line;’ and
5.2. The business case must allow
for the HBRC assuming full responsibility for the safety obligations and
maintenance of the Rail Line. HBRC and/or the proposed operator must also
assume full responsibility for the acquisition and maintenance of any rolling
stock required.
6. HBRC has until
1 March 2015 to advise KiwiRail of its decision whether or not to take up the
lease. HBRC resolved at its November Council meeting to fund the preparation of
a business case on an investment in the lease of the Napier-Gisborne rail
corridor to be considered by Council prior to 1 March 2015.
7. In order to be
in a position to response to KiwiRail HBRC needs to assess the proposal from
NGR case.
Revised business proposal
8. The NGR
business proposal will be circulated under separate cover.
9. The business
proposal concludes:
9.1. That the
reopening of the line between Napier and Wairoa is feasible
9.2. That the
tracks and bridges are in reasonable to good condition
9.3. That
any rail service on the line should be concentrated on the movement of logs to
Napier Port
9.4. There
is sufficiently large resource of logs to sustain (subject to continuation of
comparative cost advantages of rail over road) the operation of a sustainable
log based rail service for at least thirty years.
9.5. That
the development of a log hub (a type of inland port for logs) at Wairoa, in
conjunction with Napier Port, will produce benefits and costs savings for both
the forestry sector and Napier Port
9.6. A
key factor in the financial viability of a line, where HBRC is leasing the
line, is negotiating appropriate and sustainable arrangements with KiwiRail in
relation to all matters where any proposed Napier Wairoa rail operation will
involve an interaction with KiwiRail (including initial purchase of surplus
KiwiRail locomotives and wagons).
Discussion
Financial Implications
10. While the 2014/15 Annual
Plan consultation sought public input on HBRC becoming a shareholder in an
operating company, Council’s final decision was based on a revised
proposal from NGR which sought the following:
10.1. That
regional interests without central government funding will fund the full cost
of the “fit for purpose” repair of the line and establishment of
the Napier-Gisborne Railway operating company including provision of a $3m
Disaster Contingency Reserve funding facility.
10.2. The
total establishment costs are $ 15m to $ 17m, including “fit for
purpose” repair of the Wairoa to Gisborne section of the line washouts
estimated at $ 3.5m to $ 5m, a $ 3m Disaster Contingency Reserve, purchase of
locomotives and rolling stock, and working capital.
10.3. Private
sector investment of $ 10m to $ 12m will complement the HBRC’s Annual
Plan provision of $ 5.5m to provide the total capital required. The HBRC
investment will focus on infrastructure and the private sector on the operating
company.
11. The NGR business proposal
does not incorporate any non-Council funding. NGR have advised that their
discussions with potential private sector investors have been frustrated by the
lack of certainty in relation to the KiwiRail related costs. Unless these
issues can be finalised at commercially sustainable levels then securing
private investors will remain difficult and any interest in providing
investment is likely to be conditional upon satisfactory resolution of these
matters.
12. The NGR business proposal
recommends that HBRC takes the lead in matters relating to KiwiRail costs. If
the Council cannot finalise an acceptable lease agreement that enables an
operator to be viable financially and operationally, then the matter must be
abandoned.
13. At the time of writing
this agenda paper the amount of money sought from HBRC by the NGR business
proposal and the purpose for that funding is unknown. As a requirement of any
investment in the rail line HBRC requires a return of 6% per annum. It is
unclear whether returns to HBRC have been incorporated in to the operating
accounts.
Council Role
14. The business model that is
expected to be included in the business proposal from NGR raises a fundamental
question for Council. HBRC could be asked through the NGR proposal to take the
fund the acquisition of equipment and rolling stock in addition to the leasing
of the corridor.
15. Does Council envisage that
any investment in the Napier-Gisborne rail corridor would be for the provision
of infrastructure only or would it extend to investing in the operating
capability?
16. The answer to that
question will essentially determine HBRC’s response to the NGR business
proposal. In the event that NGR are not able to be a stand-alone operating
company HBRC may need to explore other possibilities if it wishes to retain its
objective of preserving an alternative freight transport route between Napier
and northern Hawke’s Bay.
Timelines
17. The NGR business proposal
is not a final business case upon which HBRC can base a decision on leasing the
line. If HBRC wishes to allow time for further refinement in to a business case
it has the option of providing a provisional response to KiwiRail that in
principle HBRC agrees to a lease of the line subject to the terms of the lease
and a number of operational matters involving KiwiRail being resolved to the
satisfaction of HBRC.
Recommendations
18. It is important to
acknowledge that any decision made on the NGR proposal is made because it makes
sense as an investment. The importance of the line as an alternative method of
freight transport and the non-rail benefits of the line (such as
improved road safety and lower road maintenance costs) are acknowledged by
Council, irrespective of whether or not HBRC chooses to take up the KiwiRail
offer to lease the line.
19. The final business
proposal has not yet been received, but will be available after the agenda has
been published. Under these circumstances I am unable to make any
recommendations for inclusion with this paper. I will however circulate recommendations
prior to the meeting next Wednesday.
Decision
Making Process
20. Council
is required to make a decision in accordance with the requirements of the Local
Government Act 2002 (the Act). Staff have assessed the requirements contained
in Part 6 Sub Part 1 of the Act in relation to this item and have concluded the
following:
20.1. The decision does not significantly alter the service provision or
affect a strategic asset.
20.2. The use of the special consultative procedure is not prescribed by
legislation.
20.3. The decision does not fall within the definition of Council’s
policy on significance.
20.4. The
persons affected by this decision are ratepayer of the Hawke’s Bay region
and potentially residents of Gisborne district.
20.5. Council has previously consulted upon its proposal to invest in the
Napier –Gisborne line in its 2014-15 Annual Plan. This work will assist
Council to make a final decision on whether or not to proceed with the
investment.
20.6. The decision is not inconsistent with an existing policy or plan.
20.7. Given the nature and significance of the issue to be considered and
decided, and also the persons likely to be affected by, or have an interest in
the decisions made, Council can exercise its discretion and make a decision
without consulting directly with the community or others having an
interest in the decision.
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Recommendations
1. That the Corporate and Strategic Committee receives the
“Business Case – Napier-Gisborne Rail Corridor” staff
report.
The Corporate
and Strategic Committee recommends that Council:
2. Agrees that the decisions to be made are not significant under the
criteria contained in Council’s adopted policy on significance and that
Council can exercise its discretion under Sections 79(1)(a) and 82(3) of the
Local Government Act 2002 and make decisions on this issue without conferring
directly with the community and persons likely to be affected by or to have
an interest in the decision due to the nature and
significance of the issue to be considered and decided.
3. (to be circulated)
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Liz Lambert
Chief Executive
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Attachment/s
NGR Business
Case Attached
Under Separate Cover
