Stagecoach (NZ)

Further details of transport smartcard project revealed

Auckland’s smartcard-based integrated ticketing project is shaping up to cost over $100 million, including operating costs for the first ten years.

Computerworld understands a decision on a contract for Auckland is due in September. The short-list is thought to comprise Infratil (with Unisys); based on its Snapper smartcard launched recently in Wellington; Downer EDI, with Wayfarer; and Thales, with Transfield.

The programme director for the Auckland integrated ticketing smartcard project, Greg Ellis, last week wrote to short-listed vendors assuring them that the tender process is still open, after Computerworld Australia (see here) reported Ellis saying at a conference that West Australia’s SmartRider system is one of the world’s best.

The reporter suggested the Auckland system would be modelled on SmartRider, provided by Downer EDI. Ellis clarified to Computerworld last week that SmartRider is one of the models Auckland will follow. He also mentions the Brisbane system as one that has “influenced thoughts”.

Ellis would not be drawn on the cost of the project because of tender negotiations, but referred Computerworld to the publicly available cost of the Brisbane project, at $142 million, as an example.

That, he says, is a whole-of-life cost. The project is in two parts: installation and implementation; then 10 years operational running. The successful bidder would probably set up a separate company to handle operations.

However, a range of industry sources in New Zealand estimated the cost of the project is between $100 million and $250 million.

Downer EDI, which implemented of the Perth system, on behalf of Wayfarer, already has technology in place in Auckland’s transport system. Ellis confirms that Downer EDI has “expressed interest” in the Auckland project.

Computerworld understands that while the Auckland Regional Transport Authority gets to sign off on the contract, the funding will be provided by the Auckland Regional Authority and by Land Transport NZ.

Integrated ticketing systems have become a feature of public transport in cities in the developed world. Some countries, such as the Netherlands and Switzerland have national integrated ticket systems. In the UK and Australia, such systems have been or are being launched in major cities. London is a case in point with its Oyster system

But these projects have also been complex and high-risk. The New South Wales government has taken legal action against its supplier ERG, seeking to regain losses of around A$90 million. ERG has counter-sued for A$250 million in compensation for termination of the contract.

In Melbourne, the overdue A$500 million myki smartcard ticketing system has had its completion date extended. It was originally due to be completed in 2007; that’s spun out to 2012 with another likely cost over-run of A$212 million. This month, South Australia announced it would seek to automate ticketing for public transport by 2009/10.

It has budgeted A$29 million to kick-start the system.

There are political dimensions to the Auckland project. The government wants more people to use public transport: there is the 2011 Rugby World Cup to consider; the Kyoto Protocol is to be revisited soon, with the associated carbon costs of private transport to the fore.

If the Auckland project is successful, it will almost certainly be rolled out further.

Wellington, for one, has indicated it has a watching brief on the project.

Infratil says it has no plans to sell its minority stake in Wellington bus operator Mana Coach, even though the High Court has ruled out a planned merger with its Wellington bus business.

Infratil subsidiary New Zealand Bus runs the scheduled bus services in Wellington and the Hutt Valley. Mana Coach operates mainly north of Johnsonville and has limited runs into Wellington. Infratil acquired its 26 per cent holding in Mana Coach through the purchase of Stagecoach New Zealand in 2000.

New Zealand Bus was fined $500,000 and costs of about $600,000 by the High Court in 2006 after it tried to buy the rest of Mana Coach without Commerce Commission approval. The Mana Coach vendors at the time, Kerry and Ian Waddell, were found guilty of being accessories to the transaction, but not fined. Their conviction was subsequently overturned on appeal.

The Waddell family sold its 74 per cent stake in Mana Coach to merchant bank Bancorp, which in turn sold it to British transport entrepreneur Brian Souter last December.

Infratil executive Paul Ridley-Smith said yesterday that he expected the ownership structure of Mana Coach to continue in its current form.

Mr Souter was an experienced bus operator as a founder and major shareholder of Stagecoach, he said.

Last week the Court of Appeal turned down an appeal by the Commerce Commission against the High Court's decision not to convict Infratil for its role in the transaction. But the judgment upheld the $1.1 million fines and costs for New Zealand Bus, which were paid in 2006.

British transport entrepreneur Brian Souter has re-entered the Wellington bus business, with Souter Holdings buying Mana Coach Services from merchant bank Bancorp.

The price has not been revealed. Mr Souter founded multinational transport firm Stagecoach and is still a major shareholder.

Mana Coach runs 120 buses in the Wellington region, including Newlands Coach Services.

Stagecoach New Zealand was sold to Wellington investment firm Infratil two years ago for $250 million. Stagecoach New Zealand runs scheduled bus services in Wellington and the Hutt Valley as well as Auckland.

Bancorp bought its stake in Mana Coach from the Waddell family in July last year for an estimated $24 million - a day after Infratil said it would appeal against a High Court decision preventing it from buying all of the company. Infratil already owns the remaining 26 per cent of Mana Coach through the purchase of Stagecoach. Bancorp described its purchase of Mana Coach at the time as a "long-term strategic investment in infrastructure". Infratil finally lost its appeal against the High Court decision last month.

Bancorp managing director Craig Brownie said Mr Souter made an approach to buy Mana Coach "three or four weeks" ago. Mr Brownie denied that Bancorp had been warehousing the shares on behalf of Infratil while it awaited the outcome of its appeal.

Infratil has consistently refused to say whether it had done a deal with Bancorp to buy the shares if the High Court appeal had succeeded.

Mr Brownie said Bancorp always had Infratil in mind as a potential buyer of the Mana Coach shares if it had been allowed to bid for them. "But it would be fair to say that New Zealand Bus would see Souter Holdings as a good co-investor long-term. "As a 26 per cent shareholder they had to be happy with the Souter company coming in. Even though they lost the court case, they are very happy about the outcome."

Returning the company to the control of a highly experienced operator was the best outcome for the business, he said.

Former Stagecoach New Zealand managing director Bill Rae has been appointed chairman of Mana Coach, replacing Mr Brownie, and Geoff Norman will continue as chief executive. Kerry Waddell has left the board, as a Bancorp appointment.

Infrastructure investor Infratil has reported a 49 per cent fall in first half net profit to $12.5 million.

The reduction in the six months to September 30 compared to $24.6 million in the corresponding period a year earlier.

It followed a rise in interest costs to $68.9m from $31m, with Infratil saying today that $20m of the interest increase reflected the consolidation of TrustPower. Depreciation and amortisation was $35.9m, up from $19.8m.

Earnings for the six months before interest, tax, depreciation, amortisation, realisations and impairments, and fair value movements of financial instruments (ebitdaf), was $165m, from $69m a year earlier, Infratil said.

The operating surplus was $82.2m from $29.3m.

Infratil has a majority stake in power company TrustPower, owns Glasgow Prestwick, Kent International and Lubeck airports, two-thirds of Wellington International Airport and a small share in Auckland International Airport. It also has investments in NZ Bus and stakes in Australian power generators and retailers.

The company is to pay a fully imputed interim dividend of 2.5 cents per share.
Infratil said that as a long-term investor, it considered each of its core investment sectors would deliver attractive returns.

The global trend to renewable energy and public transport was only starting, air travel was increasingly within reach of the world's growing middle classes, and restructuring of the Australian energy sector continued, the company said. "Infratil's businesses are continuing to build long term value through efficient operations and providing excellent services in a manner which ensures widespread community support."

Developments during the half-year illustrated the disparate nature of its businesses and the relative complexity in measuring their performance, Infratil said.

As at September 30 debt comprised 42 per cent of Infratil's capitalisation. That reduced to 39 per cent if the proceeds of the October issue of partly paid shares was included.

The issue of new shares was undertaken to ensure Infratil was well placed to be able to take advantage of opportunities should current financial market volatility result in further deterioration. With that possibility in mind, the company had started to purchase hedges against equity market risk, with $1.5m of those hedges expensed during the half year, Infratil said.

Infratil shares closed at $2.93 on Friday, having ranged between $2.26 and $3.25 in the past year.

The company said today that from next June it would stop issuing quarterly reports and work to upgrade the quality and materiality of its monthly reports. Reporting had been done quarterly since 2004, but that frequency had attracted some negative feedback from share analysts and institutional investors. Investors and financial analysts interviewed said the two quarterly reports were not of particular benefit, given the ongoing information Infratil provided about its operations, Infratil said.

Auckland’s quest for an integrated public transport ticketing system — one that will allow passengers to travel on any form of public transport on a single ticket — is about to take another step forward.

The Auckland Regional Transport Authority (ARTA) is expected to go to market for a smartcard-based integrated ticketing system before the end of the year. ARTA, which reports to the Auckland Regional Council, held briefings for potential suppliers last week, after requesting information about the technology in June.

A system is scheduled to be in place by 2010. ARTA’s communications manager Sharon Hunter confirms the tender will be released as expected.

In June, ARTA asked for “registrations of interest” from “experienced fare-collection system suppliers who may have an interest in responding to a tender for the provision of a smartcard based integrated ticketing system for public transport for the Auckland region.

“The work will involve the design, development, manufacture, installation and testing of a system, and the provision of ongoing operational services,” said the document.

According to an Auckland Regional Land Transport Strategy annual report, dated September 2007, the introduction of integrated ticketing is considered critical to the development of effective, efficient and reliable public transport system.

“The proposed integrated ticketing system will encompass all transport modes and operators within the region, and will support the Integrated Fares Policy currently being finalised by ARTA,” the report says.

The delivery of the system is closely linked to the controversial changes in passenger-transport procurement that have been made, and which have given ARTA more control over operators. The report notes ARTA is “working with transport operators to ensure that the integrated ticketing system will be sympathetic to their business operations.”

Last year, ARTA bought Auckland City’s transport information system and took over supplier contracts with Vodafone and systems integrator Technisyst. Officials also visited other cities, including Melbourne and Brisbane, to study similar transport projects. The “Transit Tracker” system in Portland, Oregon, attracted their attention as well.

As in Auckland, the Portland system is based on GPS systems installed on buses and other vehicles, combined with real-time information delivery.

Integrated ticketing projects are notoriously difficult to deliver successfully. A Sydney project was supposed to deliver such a system in time for the Olympics, in 2000, but legal disputes, technical and bureaucratic problems mean commuters there are still waiting. According to a report last month in the Sydney Morning Herald, the “integrated ticket” is now not expected to arrive until 2010.

ARTA is also in the market for a passenger transport-reporting system. It currently operates a system based on SAP’s Business Warehouse, which extracts data from SAP R/3 financial and HR systems for analysis.

ARTA also operates a real-time passenger information system (RTPIS), which provides data on bus service punctuality and performance, as well as fare and boarding data. As part of the integration project, additional data-sets, for ferries, trains and other travel activities, will be added to this system.

ARTA is trialling WhereScape Red as the extraction, load and transformation tool for acquiring data from RTPIS, and for creating SQL tables for loading into Business Warehouse. It is currently looking for vendors to provide a system that enables data to be acquired from the WhereScape Red generated tables, so it can be used as a reporting tool by ARTA and the transport operators’ staff.

So, what will they decide? Will they decide? The people at the Commerce Commission have till tomorrow to make or defer a decision on whether either Foodstuffs or Woolworths can bid to take over The Warehouse. The commission has been considering the issue for more than four months and has extended its deadline twice.

There are three potential outcomes this week: The commission says yes. It says no. It further delays a decision.

A "yes" will see both of the supermarket operators separately trying to cut a deal with The Warehouse's founder Stephen Tindall over the 52 per cent of the company he controls. The biggest cheque could win.  A "no" will see both Foodstuffs and Woolworths immediately appeal against the decision and the matter will head off to court – which could take months.

A further delay by the commission in making a decision will probably be construed by both Foodstuffs and Woolworths as a bad sign. What another deadline extension might indicate is that the commission has decided it will turn the applications down, but it wants to give itself the extra time to gather its evidence well to fight the inevitable appeal.

This decision is important for consumers, and while the delays may be frustrating in some regards, it is only right that the commission takes the time it needs to reach the right decision.  In essence, the commission has to decide if a purchase of The Warehouse by either of the companies will result in increased dominance and less competition in the marketplace.

The Warehouse has begun moves into supermarket retailing. The key question is the extent to which the commission believes that The Warehouse – if left independent – could provide more competition in future in that sector.  Legal experts have always been confident the commission will give both supermarket companies the green light.

I'm not so sure. I have had a gut feeling from the outset that the commission might say no. There are recent, very similar, cases in which the commission turned down applications. Last year Infratil subsidiary NZ Bus, which runs Wellington city's bus services, was declined permission to buy suburban bus operator Mana. In 2005 Fletcher Building was turned down when it attempted to buy W Stephenson & Sons. Essentially, both applications were refused because the commission thought that in the hands of another buyer those businesses would compete in the relevant sector. So there are precedents.

Whatever the commission's final decision, both of the supermarket companies will remain determined to snare The Warehouse.  Nobody is sure where this will end up, but it certainly won't be dull.

The public transport reforms revealed today are hardly the revolutionary changes the Auckland Regional Transport Authority (Arta) has been pushing for. Indeed the proposed new purchaser-provider mode doesn't even restore the status quo, replaced in 1991 by the disastrous Thatcherite model that has subsequently dogged Auckland's bus system for 15 years.

But at least it's a start, and a sign that our latest Transport Minister, Annette King, means business. Also, the word from within Arta is that it can live with this watered-down version of its proposal.

The good news is that once the legislation is in place, Arta - and the other public transport authorities around the country - will again be able to impose some basic conditions of service on all their operators. Insisting that buses and trains and ferries keep to their timetables, for instance. And that rival operators join together to provide an integrated ticketing service that enables passengers to mix and match modes of travel using the same ticket. Transport operators will also have to open their books so the public authority can inspect just how much they need the subsidies they request.

The downside is that there'll be a time lag while old contracts run out, before the new controls can fully kick in. That's unless the private bus companies have a sudden rush of public spiritedness to the head, and voluntarily sign up before they are forced to. But given recent histrionics, it's hard to contemplate that happening.

In the speculative fever that built up before today's announcement, major operator Infratil indulged in some spectacular public foot-stamping and dummy-spitting, threatening to quit the industry at the thought that Arta's desired reform package might win the day. What Arta wanted was a simple contracting model, where it, the public purchaser of the service, on behalf of you and me, designed the most suitable integrated public transport network for the region and then called for tenders from operators to provide the service.

To Infratil, this proposition was "extremely unattractive".

Of course, to Arta and other local authorities it was the existing model that was extremely unattractive. They pointed to the fact that Britain was the only other country in the world employing such a system. That most civilised cities used the simple contracting model they were proposing.

The worst aspect of the existing system is that an operator can identify a certain popular route - or more often, the most profitable rush-hour timeslots on that route - trot off to the relevant authority and register it as a "commercial" service. Once done, this becomes the operator's own personal fiefdom. Unless the back wheels of a bus regularly fall off, or the driver does unspeakable things to his passengers, there's very little the authorities can do. They can't for instance, insist on buses keeping to a timetable. In Auckland, 26 per cent of bus services, carrying around 46 per cent of all passengers, are in these unpoliceable commercial wildlands.

Annette King's proposed reforms do bring these 46 per cent of Auckland passengers back under regulatory protection. Even though operators will still be able to register "commercial" routes, they will be forced to agree to and abide by the regulatory conditions imposed by Arta. Requirements, for instance, that they have to turn up on time every day. And that they agree to honour a valid ticket sold by a rival operator at an earlier stage of the passenger's journey.

In the interests of the network at large, "commercial" operators will no longer be allowed to cherry-pick the most profitable rush-hour slots. They will have to service the slower middle-of-the-day and evening runs as well.

Given how slow transport reform can be - even under a Government which trumpets its commitment to the cause - the vagueness of the timetable for the changeover to the new regime is worrying. A briefing paper says "commercial operators will still be able to operate existing commercial services, but will, over time, have to comply with any regional passenger transport plan controls".

Given the ability of both local authorities and commercial firms under threat to prolong the inevitable, let's hope a more prescriptive deadline for the reforms kicking in is part of the final legislation.

Bus passengers are being promised sweeping law changes offering them better odds of getting picked up on time, and by clean and safe vehicles. 

 The Government intends giving the Auckland Regional Transport Authority, and councils elsewhere in New Zealand, wide powers to set standards for all urban bus and ferry services.  The tough new measures will be imposed regardless of whether the services are run commercially or with subsidies from the public purse.

Regional councils will be able to deregister commercial services which fail to keep to their timetables. Ministry of Transport officials are working on an incentive and penalty regime to apply before that happens. At present, councils can set standards only for subsidised services, and operators do not even have to provide them with patronage information for planning purposes.

Operators face no sanction other than passengers voting with their feet if buses or ferries fail to turn up.  Transport Minister Annette King plans to introduce the legislation within six months to encourage more New Zealanders to leave their cars at home.

Her mission has been given added urgency by the Government's new goal of making New Zealand a world leader in energy sustainability, and the fact that only 3 per cent of people caught buses to work on Census Day last March.  Ms King said boosting public transport was a major part of the push towards sustainability, and her aim was to remove disincentives for people to travel on buses and ferries.

"For example, there would be the ability to require integrated ticketing or to set standards for ease of access for passengers into vehicles."

The lack of tickets for passengers to use interchangeably when transferring between rival transport fleets is a particular bug-bear in Auckland.  Having to pay separate fares is seen as a major road-block to more people using public transport.

Ms King acknowledged the legislation would not go as far as the Auckland authority wanted, which was to give it power to pocket all bus and ferry fares, from which it would pay transport operators fees based on passenger numbers.  That is how the authority runs urban rail services, which will not be affected directly by the new legislation.

The Bus and Coach Association had warned of a dramatic rise in subsidy costs for ratepayers and the Government, and the minister accepted there might have been "some problems" from a potential withdrawal of investment by commercial operators.

But she said the new rules would enable transport authorities to obtain commercial information from operators for network planning, and to set minimum standards over all urban services to increase passenger confidence.

Association executive director John Collyns accepted last night that regional councils expected some influence over commercial operations, as well as those they subsidised, but he feared the legislation would tip the balance too far.  "What the Government is handing Arta is the ability to create a sort of master-servant relationship - and if we are not going to be equal partners taking equal risks, public transport is not going to be well-served in Auckland."

A particular fear was the potential for the transport authority to stop commercial bus services competing against subsidised trains, meaning passengers would have to transfer at railways stations rather than continue along more direct routes.  Mr Collyns denied there were any quality differences between commercial and subsidised services in Auckland, which were all run by the same fleets, and said performance standards in New Zealand were markedly better than in Australia and North America.

Infratil director Tim Brown, whose company owns the Stagecoach fleet, said it was encouraging that the minister was leaning to much more of a consultative model than feared and he was optimistic his team could keep working with councils to provide greater service frequencies.  Regional transport authority chief executive Fergus Gammie said the proposal would let his agency work collaboratively with operators to achieve an integrated public transport system with integrated fares.

Auckland Regional Council chairman Mike Lee said it was a step in the right direction.

Infratil's move to increase its stake in Trustpower and the sale of its holding in Port of Tauranga helped power a more than 200 per cent increase in the investment company's net profit during the nine months to December.

Infratil's net profit of $55.98 million for that period was 215 per cent ahead of the same period a year ago.

Though the company's operating surplus before tax was little changed at $17.76 million, it received a substantial boost from investment realisations and revaluations of $38.45 million against $239,000 a year ago.

The company said its financial and operational results for the third quarter were in line with expectations but were "upstaged" by a series of transactions concluded toward the end of the period.

They included its acquisition of Alliant Energy's shares in Trustpower at a bargain price and a subsequent sell down on market, and to the Tauranga Energy Consumer Trust leaving it a 50.5 per cent controlling stake. Its sale of 5 per cent of Port of Tauranga also netted a gain of $38 million.

Over the third quarter Infratil secured its 48.5 million additional shares in Trustpower for $286 million - a net cost $5.90 a share.

Trustpower shares were trading at about $7 each at the time.  Meanwhile, Trustpower contributed $29 million to Infratil's earnings over the nine months against $24.2 million a year ago.  "The 20 per cent increase reflected higher than average generation output and excellent management of electricity price risk," the company said.

Chief executive Lloyd Morrison said Trustpower's "excellent result" surprised a few people "considering the difficult conditions" where a dry hydro year meant high prices on the wholesale electricity market.

Wellington Airport, in which Infratil holds a 66 per cent stake, lifted operating earnings by $2.2 million to $37.2 million despite relatively flat passenger numbers.  Infratil Airports Europe contributed a loss of $800,000 as against a $5.6 million profit a year ago.  Infratil Energy Australia contributed earnings of $7.3 million compared to a loss of $2.1 million last year.

During the third quarter its Victoria Electricity retail division had 147,200 customers against 77,000 at the end of March.

NZ Bus which Infratil purchased from Scottish company Stagecoach almost two years ago contributed $11.5 million to group earnings, a result Morrison described as "adequate".  Potential changes to the public transport sector by policy makers meant there was "uncertainty as to the future of that business".

Morrison said the recent disruption to Wellington bus services caused by a new computerised rostering service and driver shortages would cost the company hundreds of thousands of dollars, he said.  The "embarrassing" disruption last week saw rush hour services cut and drivers unfamiliar with routes literally lose their way.

Infratil shares closed a cent lower at $5.79 yesterday.

Buried deep in Helen Clark's speech from the throne earlier this week was a hint that Auckland's long fight to persuade the Government to electrify the suburban rail network could be won. Referring to the "increasingly important" need "to align central and regional strategies for Auckland transport", the Prime Minister added that "timelines around rail electrification will need to be agreed on ... "

This is the first time the Government has conceded electrification will take place. There have been hints, but never anything as definite as this.

The last came almost a year ago, in a letter from Finance Minister Michael Cullen to regional council chairman Mike Lee, where he effectively flushed the dream of electrification down the drain. Dr Cullen said, "The clear implication of this is that electrification would not be in place for, at the very least, the next eight years".

But even this was not a clear commitment to electrify, only notice that the issue could be relitigated sometime in the future. Presumably well after replacement diesel trains had been ordered.

Since then, the lobbying from Auckland only intensified. The Treasury responded with its favourite delaying tactic - consultation. This only increased Auckland's determination. Last November a report from the Auckland Transport Strategic Alignment Project informed the Government that every stakeholder and territorial authority in Auckland were united behind electrification.

The message seems to have got through with Helen Clark referring to it as a done deal, the only debating point being "timelines".

Perhaps a grateful Auckland could name the first electric locomotive in honour of defrocked minister Taito Phillip Field. For if there's anything likely to give the electrification programme a nudge, it's Labour having to rely on Green Party support to see legislation passed. And the Greens are great supporters of electrifying rail in Auckland. Indeed they're happy for motorway funds to be used.

The Government having to cosy-up to the Greens might also embolden proposed reforms to public transport procurement legislation which the Prime Minister also foreshadowed in her speech. The planned reforms, she said, had "the objective of enabling regional councils to get better value for money in their public transport". The Auckland Regional Transport Authority wants a reform of the contracting system between itself and private operators so it can design an integrated transport network that works best for the customer rather than at present, the operators.

Currently private operators can cherry-pick the most profitable routes, declaring them "commercial" services. ARTA is then left to call for tenders for subsidised services to fill the gaps. ARTA cannot impose or enforce performance standards on the commercial routes. Nor can it introduce integrated ticketing.

ARTA wants a new contracting model, in which it sets up an integrated transport network and contracts an operator or operators to provide the service.

The outburst from Tim Brown, a director of Auckland's main bus operator, Infratil, over the weekend, suggests ARTA's submission may have fallen on receptive ears in Wellington. Mr Brown threatened Infratil would exit the industry if ARTA's proposals were adopted. Hopefully with the Greens now there to buttress Government resolve, Mr Brown's scaremongering will have no impact on the proposed legislation. We should know soon. Details are expected to be announced any day.

While the Greens' new influence in Wellington can only be helpful as far as Auckland public transport reforms are concerned, the same can't be said for those hoping for revolutionary changes to local government.

Helen Clark noted that "the Government is currently considering its response to the region's proposals for strengthening its governance". The word from Wellington is that the consensus agreed to by Auckland's local authorities last December was so bland that Government doesn't see the point of legislating. Instead of reducing the number of bodies running Auckland, the consensus model adds an advisory Regional Sustainable Development Forum to the mix. The regional council would gain a little more power.

Into the mix now come the Greens who regard calls by reformers for a supercity "an affront to democracy". They want more power for community boards. My guess is there'll be no governance reform this year.