Mayor Len Brown Auckland Council Private Bag 92516 Wellesley Street AUCKLAND 1141

Dear Len

Thank you for taking the time to meet with me on Thursday 14 October 2010 to discuss Auckland transport issues. It was helpful to share our respective views on transport and funding priorities.

I thought it would be useful to summarise the main points of our meeting as they rel'ate to the provision of metro rail services, particularly to help shape your immediate work priorities for the new Auckland Council.

You will now be aware that Auckland's current metro rail programme is not fully funded. Modelling, undertaken jointly by my officials and officers from the Auckland Regional Transport Authority (ARTA) and Auckland Regional Council (ARC), has identified an annual operating funding shortfall of around $30 million per year from as early as the next financial year. The funding shortfall is a result of the signifi,cant increase in metro rail services, the opening of new lines and stations, meeting revised track access charges (TAC), and the cost of introoducing new rolling stock without a corresponding increase in revenue to cover these costs. The funding shortfalls occur both before and after electrification in 2013.

In May 2010, I agreed with the respective Chairs of ARTA and ARC to work towards an enduring and sustainable metro rail funding framework. This is needed to overcome persistent periods of under-funding that have resulted in the degradation of infrastructure and the need for large scale remedial investments. The funding framework will require a partnersllip between the region and the government, and a commitment to address difficult issues.

Firstly, I think it is important to address the under funding of TAC. This is the amount paid to cover the costs of accessing and receiving services from KiwiRail for the metro rail network infrastructure. Funding of Auckland's TAC is currently unresolved. For 2010/11, KiwiRail sought a $21 m~lion support payment to meet increased TAC costs in both Auckland and Wellington. The government agreed to fund $7 million for the 2010/11 shortfall, and may

consider more if substantial progress is made to resolving TAC funding shortfalls with the regions.

A working group, comprising of officials from the Ministry of Transport and the NZ Transport Agency (NZTA), together with officers from the ARC, ARTA, Greater Wellington Regional Council and KiwiRail, have reviewed the TAC process. Whilst further work is required to fully develop an appropriate performance based contract between the regions and KiwiRail, I believe we have made substantial progress in identifying a reasonable basis for allocating TAC costs. It is now appropriate for the regions to address the TAC funding shortfall.

To assist the regions, I intend to seek additional fundin9 from Cabinet for the remaining 2010/11 TAC, but only if the Auckland and Wellington regions meet TAC from 2011/12. Auckland's TAC funding will need to increase from $5 million to around $15 mill,ion. As an operating cost, TAC will be eligible for the relevant sixty percent NZTA subsidy. Failure to resolve the TAC funding shortfall will over time lead to a reduction in the metro rail network's resilience and will impact on the quality of rail services. Therefore, it is in our joint interest to address this issue now.

Secondly, the increase in metro rail services introduced this year by ARTA will lead to a funding shortfall from 2011/12. This is mainly driven by additional costs for fuel, driver hire, maintenance and the Veolia operator contract. The combination of providing diesel services concurrent with the commissioning of the new EMU fleet produces a particularity large cost spike in 2013/14 with no obvious funding source. The NZTA has done its best to provide additional funding where possible, but ultimately it is up to the Auckland region to assess opportunities to cover the funding shortfalls. These costs are driven by Auckland's metro rail programme, and so the region is best placed to address these funding pressures.

Thirdly, the government is still forming a view on the funding and ownership arrangements for the Auckland EMUs. However, you should expect that the servicing of the EMU loan will need to be met from a combination of farebox revenue, regional revenue and NZTA sUbsidies. The degree of scope for additional funding from these sources will need to be thoroughly explored by your council.

Finally, it is my understanding that Auckland Transport and KiwiRail will formally present the Auckland CBO rail tunnel business case to us before the end of the year. However, it is imperative that we resolve the current metro rail funding shortfalls before we consider broader capital programmes to expand the network. I have made this a priority and I will provide access to my officials to assist you address these issues.

I look forward to your comments.

Yours sincerely

Steven Joyce Minister of Transport