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Council
23 November 2021
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Reports
Future of Dunedin Railways
Department: Enterprise Dunedin
EXECUTIVE SUMMARY
1 This
report updates Council on continued financial and strategic analysis for
Dunedin Railways Limited (DRL) in advance of the 2022/23 Annual Plan.
2 The
report recommends Dunedin City Holdings Limited (DCHL) continue funding and
operating DRL using the KiwiRail line and Taieri Gorge line to Hindon until 30
June 2024. This will enable the service to continue while a number of
concurrent pieces of related work are concluded. The report recommends that the
interim arrangements with DCHL continue until 30 June 2024 to allow for the
various investigations to be completed and a strategic analysis undertaken.
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RECOMMENDATIONS
That the Council:
a) Directs Dunedin City Holdings Limited to
continue to fund up to $2.4M per annum for maintaining and operating Dunedin
Railways Limited using the KiwiRail line and Taieri Gorge line to Hindon
until 30 June 2024.
b) Approves Dunedin City Holdings Limited incurring a
one-off cost of $400k in 2022/23 for developing an alternative storage and
workshop facility for Dunedin Railways Limited.
c) Notes staff will continue supporting the Otago Central Rail
Trail Trust to develop a feasibility study on the possible options for the
Otago Central Rail Trail between Middlemarch and Wingatui.
d) Notes staff will report back to Council on options for the
long-term operations and governance of Dunedin Railways Limited as part of
the 10 year plan 2024-34.
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BACKGROUND
3 In
April 2020 DRL was put into hibernation. Assets were retained while future
options for DRL were explored by DCHL through a reference group of industry
leaders and specialist external advisors. DCHL short-listed four options which
were presented to Council on 13 April 2021.
4 On
13 April 2021 Council agreed staff should analyse the financial and strategic
implications of two options to retain a train operation in city ownership using
either the national rail network only, or the national rail network and the
Taieri Gorge line.
Moved
(Mayor Aaron Hawkins/Cr Chris Staynes):
That the
Council:
a) Requests
a report for the Ten Year Plan deliberation meeting that includes:
i) Staff
analysis of the financial and strategic implications of retaining a train operation
in city ownership using either:
- The
national rail network only (Option 3) or
- The
national rail network and the Taieri Gorge line (Option 4).
ii) the
implications of maintaining the existing arrangements until June 30 2022,
allowing for formal public consultation on future options through the Annual
Plan 2022/23 process.
b) Supports
the Otago Central Rail Trust to seek funding for feasibility work on
possible extensions to the Otago Central Rail trail between Middlemarch and
Wingatui in collaboration with mana whenua and other interested parties.
Division
The
Council voted by division:
For: Crs
Sophie Barker, David Benson-Pope, Rachel Elder, Christine Garey, Doug Hall,
Carmen Houlahan, Marie Laufiso, Mike Lord, Jim O'Malley, Jules Radich, Chris
Staynes, Steve Walker, Andrew Whiley and Mayor Aaron Hawkins (14).
Against: Cr
Lee Vandervis (1).
Abstained:
Nil
The
division was declared CARRIED by 14 votes to 1
Motion carried (CNL/2021/062)
5 On
31 May 2021 Council further resolved:
Moved (Cr Chris Staynes/Cr Rachel Elder):
That the Council:
a) Notes the initial staff feedback on strategic
and financial implications of retaining Dunedin Railways Ltd services in city
ownership as requested by Council on 13 April 2021.
b) Confirms that the Dunedin Railways Ltd operational services to
include the KiwiRail national rail network and the Taieri Gorge service to
Hindon for 2021/22.
c) Directs DCHL fund the 2021/22 Dunedin Railways Ltd
service based on the recommended option of providing a service using the
national rail network and the Taieri Gorge line to Hindon.
d) Notes
that Council would support the Otago
Central Rail Trust to seek funding for feasibility work on possible extensions
to the Otago Central Rail trail between Middlemarch and Wingatui in
collaboration with mana whenua and other interested parties.
Division
The Council voted by division:
For:
Crs
Sophie Barker, David Benson-Pope, Christine Garey, Doug Hall, Carmen Houlahan,
Marie Laufiso, Mike Lord, Jim O'Malley, Jules Radich, Chris Staynes, Steve
Walker, Andrew Whiley and Mayor Aaron Hawkins (13).
Against:
Crs Rachel Elder and Lee Vandervis (2).
Abstained:
Nil
The
division was declared CARRIED by 13 votes to 2
Motion carried (CNL/2021/101)
6 In
the next steps of the 31 May 2021 report, staff advised that they would
continue to progress the strategic and financial analysis of retaining DRL in
Council ownership. The analysis would focus on using the national rail network
only or using both the national rail network and the Taieri Gorge line. Staff
also advised they would continue to support OCRT Trust with the development
with a feasibility report on possible extension of the OCRT in consultation
with mana whenua and other interested parties.
7 This
report provides an update on this work and discusses a variety of factors that
all play a part in the future options for DRL.
DISCUSSION
8 Since
the May 2021 decision by Council there have been a number of related but
independent pieces of work that have begun. In addition, there have been
various changes to the economic outlook because of the emergence of the Delta
variant of COVID-19 in the community. There is still a degree of uncertainty
when considering strategic and financial options for DRL. This is due to the
continuing impact of COVID-19 on domestic and
international visitors including cruise visitors.
9 On
13 October 2021 The New Zealand Cruise Association noted the uncertainty of
when cruise ships will return, with their best estimate being that the New
Zealand cruise industry will not begin until the last quarter of 2022.
10 The
Deputy Prime Minister Grant Robertson noted later in October 2021 that
vaccination rates would be crucial when the trans-Tasman bubble was next
reviewed in late November, and there was no guarantee it would resume before
Christmas (2021).
11 Tourism
Export Council New Zealand (TECNZ), an organisation which represents the
interests of New Zealand’s inbound tourism industry, notes that
Australia, our largest visitor market, is not expected to reach pre-pandemic
levels until at least May 2024. No other markets, including China and the
United States, are expected to exceed 90% of pre-COVID-19 levels by this date.
12 Enterprise
Dunedin commissioned a report in September 2021 with consultant Benje Patterson
People and Places titled “Dunedin Railways – the economic impacts
of future options” (the report) which is included as attachment A.
13 The
report outlines the economic benefits generated by DRL using a baseline
pre-COVID-19. It also outlines future scenarios based on a recovering tourism
market, noting the difficulty of assessing when there will be a re-opening of
borders, and highlighting that it is likely to take longer than previously
expected.
14 The
report summarises the impact on DRL passenger numbers pre-COVID-19 and the
summer period 20 December 2020 to 28 March 2021 as follows:
a) In
2019 there were 76,120 visitors who took a rail journey made up of 35,459 domestic,
21,167 international, and 19,503 cruise visitors, generating a $23,960,755
spend on rail and other activities in the city, and resulting in $9,968,860 of
direct economic value add;
b) In
2021 there were 5,831 rail passengers made up of 1,944 visitors from outside
Dunedin generating a $553,555 spend on rail and other activities in the city
(20 December 2020 – 28 March 2021) resulting in $200,000 of direct
economic value add.
15 Two
possible future economic scenarios based on a returning visitor market were
presented in the report for indicative purposes. Actual visitor numbers are
assumed to be well below pre-COVID-19 figures.
Scenario 1: Operations with minimal
international visitors
16 Under
this scenario the report assumes 22,606 ticket sales per annum composed of:
c) 16,775
out of town visitors (13,638 domestic and 3,137 international); and
d) 5,831
Dunedin based residents.
17 This
scenario would contribute $2,020,634 direct economic value add to the city.
Scenario 2: Operations with
improving tourist market
18
Under this scenario the report assumes 33,191 ticket sales per annum composed
of:
e) 27,360
out of town visitors (17,128 domestic and 10,233 international); and
f) 5,831
Dunedin based residents.
19 This
scenario would contribute $3,621,508 direct economic value add to the city.
20 In
addition research from Angus and Associates consultants, the University of
Otago and The Research Agency all confirm that interest in visiting Dunedin is
based on our history and heritage, the accessible outdoors and to a lesser
extent wildlife and food, which is consistent with DRL being aligned to
Dunedin’s brand and identity.
21 Tourism
New Zealand data shows there is still visitor interest in DRL. Over the 12
months to March 2021, 11% of all Dunedin operator referrals from the Tourism
New Zealand website were for DRL, second only behind Larnach Castle. In the 12
months to February 2020 DRL accounted for 22% of all of Tourism New
Zealand’s Dunedin referrals and was the Dunedin operator with the most
referrals.
22 The
DunedinNZ.com website shows similar interest in DRL. From 1 December 2020 to 28
February 2021, there was a total of 2,189 referrals to DRL’s website.
This was the highest referral from DunedinNZ.com during this period.
23 Previously
DRL supported other tourism businesses through package offerings such as
combined rail and city sights tours, tours of Speight’s or Olveston, and
connection to the OCRT for cyclists. COVID-19 has impacted on tourism operators
in Dunedin affecting the wider tourism eco-system and overall city offering. A
loss of DRL as a tourism operator (even in the short term) will have an impact
on businesses that rely on DRL as part of their offering.
24 The
Dunedin Destination Plan (DDP) and the Product Development Review (PDR) will
both consider potential future marketing and product opportunities. This work
is expected to be completed early in 2022.
25 Work
on the feasibility study to extend the OCRT between Middlemarch and Wingatui
has yet to be completed and analysed. The scope of this work is expected to
include options including costs and benefits of extending the OCRT from
Middlemarch to Wingatui. Engagement with mana whenua has not yet occurred. Until
the engagement occurs, and the work is completed, an economic and strategic
assessment of the benefits of a cycle trail versus the current DRL service
cannot be undertaken.
26 The
Otago Excursion Train Trust (OETT) has expressed an interest in operating the
railway as a not-for-profit entity. OETT has recently developed a business case
including proposed governance and operating structures for consideration. They
propose to undertake further work on costing asset maintenance and review of
structures as part of their business model for an ongoing service.
27 Staff
have seen the business case but have not had an opportunity to fully assess the
content or compare projected visitor numbers with the Benje Patterson People
and Places report. An initial high-level review shows that the OETT business
case seeks several commitments from Council which have yet to be considered in
any detail. Some of the commitments would involve a direct financial
contribution from the Council.
28 Given
all of the factors that have been outlined in the body of this report there is
too much uncertainty for a full strategic analysis to be completed at this
time. The economic situation, the lack of certainty about the visitor industry
and how it will rebound from COVID-19, OCRT aspirations (but without a
feasibility study) and work on possible governance options are all required
before a full strategic analysis can be completed.
29 The
other considerations are, that without the DDP and PDR being completed, the
role that DRL plays in the overall tourism market for the city cannot be
accurately assessed. While it appears to be an important element in the
city’s tourism offering, the work on the DDP needs to be completed so the
future of DRL can be assessed in the wider destination context.
30 The
scale and scope of the decision on the future of DRL has potential long-term
impacts that cannot be easily reversed. There are competing options that may or
may not be compatible – e.g. any decision to extend the cycle trail may
not be compatible with the ongoing operations of a train service. The various
options offer different tourism outcomes and without the OCRT feasibility
study, the DDP and the PDR, it is not possible to assess the strategic and
financial benefits of one option over another. It is also not possible to
consider if there is a mixed model that may work as there is not sufficient
information available to make that decision at this time.
31 Nothing
in the recommended option would prevent DRL working with another provider that
may be able to provide a viable service and presenting that back to Council
within the proposed two-year timeframe.
OPTIONS
32 Two
options are presented below. While other options may be available in the future
(such as partnering with other entities), it is too early to evaluate these
now. This is because there is insufficient information available and great
uncertainty around the ongoing effects on visitor numbers due to COVID-19.
33 In
order for all the components to be completed, staff recommend that the current
interim arrangements continue for two more years. This would see the current
interim service continue while ensuring the maintenance of the assets
(including rolling stock) and the regulatory compliance of the operation is maintained.
34 Maintaining
the infrastructure, rolling stock and ensuring regulatory compliance through
the continuing interim operation by DCHL to 2023/24 remains the preferred
model. DCHL has two years’ experience and the expertise in maintaining
and operating the asset, as well as marketing the service based on the
‘trains not planes’ promotional campaign.
35 Staff
recommend DCHL continue to fund the costs through debt and/or revenue with no
direct financial impact on Council. DCHL estimate continuing the service will
cost up to $2.4M per annum based on the following assumptions:
· A
limited schedule based on the “Trains Not Planes” service;
· Forecast
ticket sale revenue of $250k per annum;
· Track
maintenance for rail services as far as Hindon and minimal maintenance between
Hindon and Middlemarch.
36 DCHL
have indicated that a one-off cost of approximately $400k will be required in
2022/23 for an alternative storage and workshop facility, due to Dunedin
Railways current workshop in Cumberland Street being required by KiwiRail
during the redevelopment of Hillside workshops.
Option
One – Recommended Option – continue with the DCHL model until 30
June 2024
37 Continue
with the current interim DCHL model including funding, operating and
maintaining the DRL service using the national rail network and Taieri Gorge to
Hindon until 30 June 2024.
Advantages
· Keeps
all options open including future operating models and does not preclude DRL
from investigating alternatives during the next two years;
· Allows
time for OCRT to conduct a feasibility study and engagement with mana whenua on
options for cycle trail extensions from Middlemarch to Wingatui;
· Allows
time for OETT to further develop their business case and assess track
maintenance requirements;
· Costs
of providing the service can be partially offset by passenger revenue;
· Allows
time, and greater certainty and understanding of future visitor numbers to the
city;
· Allows
the interim operation of the DRL service, maintenance of assets and regulatory
requirements to be met;
· Retains
a visitor attraction in the city at a time when other tourism attractions are
reduced in the city;
· Allows
for a service by a provider (DCHL) with two years’ experience of running
DRL in an unpredictable market;
· Allows
an opportunity to engage with Kanoa through the Regional Strategic Partnership
Fund and other potential funders and investors on the long-term decisions on
DRL.
Disadvantages
· Requires
investment of up to $2.4M per annum by DCHL in maintenance and operations until
30 June 2024;
· Economic
benefit to the city is low if visitor numbers remain low.
Option
Two – Discontinue interim funding
40 Do
not continue with current interim DCHL model including funding, operating and
maintaining the DRL service using the national rail and Taieri Gorge to Hindon
until 30 June 2024.
Advantages
· Allows
an opportunity to consider alternative use of the Taieri Gorge line including
options for rail trail extensions;
· Allows
time for OETT, or others, to develop a business case and undertake track
assessment as potential operator of DRL.
Disadvantages
· No
interim operation of the DRL service;
· Requires
similar investment in maintenance by DCHL without the opportunity to generate
revenue;
· May
impact and defer future maintenance costs should a service be reinstated to
meet increasing visitor demand in the future;
· Loss
of a visitor attraction in the city at a time when other tourism attractions
are reduced in the city.
NEXT STEPS
41 If
Council approves the recommended option:
· Staff
will continue supporting OCRT Trust to conduct a feasibility study and
engagement with mana whenua on options for cycle trail extensions from
Middlemarch to Wingatui.
· Further
work will be undertaken on potential future operating models (including OETT)
based on a returning visitor market.
· Staff
will engage with potential other funders such as Kanoa through the Regional
Strategic Partnership Fund on possible support for future long-term options.
· Staff
will report back as part of the next 10 year plan.
42 If
Council approves Option Two:
· Staff
will work with DCHL and report back to Council.
· Staff
will continue supporting OCRT Trust to conduct a feasibility study and
engagement with mana whenua on options for cycle trail extensions from
Middlemarch to Wingatui.
Signatories
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Author:
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John Christie - Manager Enterprise Dunedin
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Authoriser:
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Sandy Graham - Chief Executive Officer
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Attachments
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Title
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Page
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⇩a
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Dunedin Railways - the
economic impacts of future options
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14
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SUMMARY OF CONSIDERATIONS
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Fit with purpose
of Local Government
This decision promotes the economic and
social well-being of communities in the present and for the future.
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Fit with strategic
framework
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Contributes
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Detracts
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Not applicable
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Social Wellbeing Strategy
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☒
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☐
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☐
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Economic Development Strategy
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☒
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☐
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☐
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Environment Strategy
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☐
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☐
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☒
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Arts and Culture Strategy
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☐
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☐
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☒
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3 Waters Strategy
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☐
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☐
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☒
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Spatial Plan
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☐
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☐
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☒
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Integrated Transport Strategy
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☐
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☐
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☒
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Parks and Recreation Strategy
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☐
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☐
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☒
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Other strategic projects/policies/plans
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☐
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☐
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☒
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The operation of Dunedin Railways Limited and its assets
contributes to the Dunedin 2013-23 Economic Development Strategy theme of a “Compelling
Destination” through the tourism service it provides. Dunedin Railways
Limited operations also contribute to the Social Wellbeing Strategy by
supporting stronger communities.
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Māori Impact
Statement
There was a commitment for mana whenua to be engaged by
OCRT as part of the feasibility study into the future options for the rail
trial. That engagement has yet to occur.
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Sustainability
It is not possible to assess the sustainability implications
around the future options for DRL in the absence of the DPP, PDR and OCRT
feasibility study. Once this work has been completed, the sustainability
implications will be considered as part of the next report to Council.
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LTP/Annual Plan /
Financial Strategy /Infrastructure Strategy
There are no implications for either the LTP or Annual
Plan in any of the options presented in this report.
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Financial
considerations
DCHL have estimated the financial support for Dunedin
Railways Limited will be up to $2.4M per annum until 30 June 2024.
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Significance
The decision to maintain the current arrangements for a
further two years is considered low in terms of Council’s Significance
and Engagement Policy. Any decision on the future of DRL may require formal consultation
but that will be assessed and reported to Council at the time.
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Engagement –
external
There has been external engagement with Dunedin City
Holdings Ltd, Otago Excursion Train Trust, Dunedin Venue Management Limited
and Otago Central Rail Trail Trust.
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Engagement -
internal
There has been internal engagement with Legal and Finance.
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Risks: Legal /
Health and Safety etc.
The preferred option addresses infrastructure, compliance
and regulatory risks and costs associated with running the Dunedin Railways
Limited service.
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Conflict of
Interest
There are no known conflicts of interest.
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Community Boards
Any decision on the future of Dunedin Railways Limited
will be of interest to Mosgiel-Taieri, Strath Taieri, West Harbour and Waikouaiti
Coast Community Boards.
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