Tuesday, September 28, 2010

Questions for the NBN cheer-squad


Today's SMH:

"A high-speed rail line linking Sydney and Melbourne is not viable, the federal Department of Transport has told the government, claiming it is too expensive and will not attract enough passengers...

The department's brief says viable high-speed rail lines need about 6 million passengers a year to be viable when construction costs are low. More typically, they need about 12 to 20 million passengers to be able to recover their costs.

And while Sydney and Melbourne have large populations, an average speed of 250 km/h still demands a journey of three hours or more - which ''is the upper limit for the train to be competitive with airlines.''

''Other cities are more competitively distanced from each other but do not have the passenger and population base to warrant a new line,'' the brief says. For instance, fast trains linking Sydney with Newcastle and Canberra would have trip times well under two hours, but would be ''highly unviable'' due to their construction costs.

The briefing cites international construction costs for very fast trains rising from $16 million per kilometre on a rail link in Spain to $110 million per kilometre for the Channel Tunnel rail link into London. More densely populated areas produce higher costs, due to the price of buying land.

Some questions:

. This is only a departmental opinion about the high-speed rail proposal. It will be followed by a full cost-benefit analysis. Do they think it is worth bothering with one? (Given that they don't think it is worth bothering with one for the NBN)

. Should the high-speed rail go ahead regardless? (Perhaps because all analysis is crap, and the project will be nation-building)

. Should the project be abandoned? (Because it will use up resources and money that will be needed to build the NBN)

Just asking.


Oh and here's Conroy, it's his "response" to critics who have called for a cost-benefit analysis. But it fails to address the question. Perhaps it slipped his mind.



Related Posts

. The NBN is a slowly unfolding disaster

. What passes as cost-benefit analysis of the NBN

. We're spending a fortune on new wires. In case you don't want them, we'll disconnect the ones you have

28 comments:

Andos said...

I thought this kind of low-brow snark was beneath you, Peter. Are you trying to say that NBN = High-speed rail?

Peter Martin said...

I genuinely have no idea which would be the better use of tens of billions.

Do you?

Steve said...

It is much easier to talk quantitatively about the costs and benefits of high speed rail than it is for the NBN.

With HSR, you have the capital cost, predictions on number of passengers at given ticket prices. You can even do some (subject to some uncertainty) measures of other costs and benefits by e.g. making assumptions about other forms of transport you are offsetting, whether and if you will save people time, whether/if the changed transport modes will result in reduced emissions.

What you can't do is be too optimistic about usage predictions, since there is little historical data available on how australians will change their rail usage if high speed rail is offered. There is also a good deal of uncertainty over things like a carbon price and energy prices, which will impact on passengers for high speed rail over other modes of transport. So conservative assumptions.

It is *much* hard to talk about the benefits of an NBN with meaningful quantification of these benefits.

What you can do with the NBN is what has already been done in the implementation study - look at capital costs, and what you could charge users, how many users you expect to get in the short term, and what the rate of return will be.

Much harder to speak definitively and in quantitative terms about the non-tangible but very likely significant benefits coming from the nbn.

What you can be fairly sure of is that the NBN will be used, as there is a pretty clear trend in exponential use of both computing and bandwidth, over many years.

1. CBA for high speed rail is a good idea
2. Perhaps the high speed rail should go ahead regardless - public transport is often not a profitable enterprise, it is viewed as a public good. Maybe ticket prices on the high speed rail would have to be subsidised.
3. I don't see why high speed rail needs to be viewed as competing with the NBN for resources.

Peter Martin said...

Good points Steve,

Agree there is much more blue-sky involved in the NBN expenditure than the HSR expenditure. We have a fair idea of what HSR will be used for.

You lost me though at "I don't see why high speed rail needs to be viewed as competing with the NBN for resources". It would. Construction labour and the government's ability to borrow for potentially money-losing propositions are limited.

Andos said...

Re: limited resources.

We've been through this time and again, Peter. With so much wasted labour resources and monetary sovereignty, the limits you refer to are a long, long way away. We could easily do both.

Peter Martin said...

Wasted labour resources, in construction?

Andos said...

Wasted labour resources in unemployed and underemployed people. ABS labour force underutilisation is 12.5% (as you would know, I'm sure).

Sure, not all of those people could work in construction, but it certainly illustrates how much idle labour resources we have.

Marek said...

we would just import a high speed train set from china anyway

carbonsink said...

Yep, Sydney's Waratah trains are built in China.

Only a few years ago we could still build trains but sadly not anymore.

We ship 'em dirt, and they send it back as a finished train. Well done "Clever Country". Why do we train engineers again?

Marek said...

meanwhile the Vic opposition is complaining that 51% of new trams are to be built locally

http://www.theage.com.au/victoria/dandenong-plant-to-build-50-trams-20100927-15u42.html

we don't train enough engineers(or doctors etc) in this country

Peter Martin said...

I had a great tour of the Newcastle train building factory some years back. We were making them for India!

Now, about the relationship between VFT and NBN:

I've been thinking. I was too quick to agree that while the NBN would have blue-sky uses, we have a fair idea what the VFT would be used for.

We don't.

The VFT is such an increase in speed it may well be transformative in ways we can not yet imagine.

Certainly it would become easy to live in Australia's most livable city (Canberra) and commute into the centre of Sydney - daily.

Any number of locations en route could become very big regional centres, taking pressure off our two biggest cities.

New uses for the VFT would emerge, along the way making a dent in our airline carbon emissions.

I reckon there is a lot of blue-sky in the VFT, just as there is in the NBN.

On the face of it both are about speed (and access in the case of the NBN). But each could could end up enabling much more.

I'd love to see a CBA for each.

The Productivity Commission could do the job. That's what it's there for.

And yes, the possibility and likelihood of new uses would be acknowledged in such a study.

How about it Conroy, Albo?

You're meant to be evidence-based, remember?

Charlie said...

Passenger numbers, for example, will also depend on how much rail tickets are subsidised and the effect of a carbon tax and oil price increases on the relative price of air travel.

People will spend a few hours extra to save some money, and they might even care about the environment by then.

derrida derider said...

I reckon 6m passengers is perfectly feasible. You forget the alternative is using Mascot, with all its capcity limts, proce gouging and gernal chaos. Even without Mascot's particular problems, you spend far longer getting to and from terminals and waiting around in them than you do in the air on a Canberra-Sydney or Melbourne-Sydney flight. So the comparative travel times aren't waht they seem at first glance.

That said, I agree there are higher-priority infrastructure projects at the moment - rail freight if you want low-risk modest-payoff ones, the NBN if you want high-risk ones with potentially huge payoffs that may or may not be realised. Still,if we ever face an extended downturn (so the IRR needed to justify it is very low) its something to bear in mind.

Steve said...

I'm not sure that speculating about the blue sky stuff is 'evidence based'.

I'm not sure that there would be huge value in paying some consultant millions to conjecture on blue sky stuff.

To avoid being too dismissive: I think that there would be some value in a CBA for the NBN - it would certainly provide something for everyone to discuss and agree/disagree with, a common starting point. It could involve interviewing a bunch of experts for their opinions on the blue sky. But I'm a bit wary of this - I've seen plenty of consultant reports where a hefty sum was paid out to just be told stuff you could have though up for yourself. Not to mention that with blue sky stuff, the govt could just pressure the consultant to tweak it to say whatever they wanted it to say.

In any case, I still think the likelihood of the NBN being used by large numbers of people in a short timeframe is a lot higher than for the VFT, given the past trends of computer and bandwidth use, and also trends towards innovation in applications as bandwidth and computing power have increased.

On your blue sky for the VFT:

- i dont think a VFT would mean the sudden creation of 'very big regional centres'. Surely factors other than transport dictate whether an area is a popular place to live?
- Too many stops along the way and it ceases to be a fast train trip.

I like the idea of a VFT though, don't mean to be too critical of it.

The departmental report suggested a Canberra to Sydney VFT wouldn't be viable because there wouldn't be enough passengers. But what if you stuck Sydney's second international airport in a paddock near Canberra?

Anonymous said...

I am talking to an installer as I type this. He services and installs data cabling for a variety of clients including government and heavy industry. He regards the NBN as simply the next logical step in the evolution of internet and points out that when most people still had dial-up some people said "who would want broadband?" Now that broadband is widespread, people say "how did we ever live with crappy dial-up?"

The dogged insistence that people won't use it is just a negative belief taken to an extreme.

llengib said...

"You lost me though at "I don't see why high speed rail needs to be viewed as competing with the NBN for resources". It would. Construction labour and the government's ability to borrow for potentially money-losing propositions are limited."

Wouldn't you build the Rail in Brisbane while building the NBN in Melbourne and then vice-versa. Most labour resources would be local.

As for public resources, if the projects are a public good, with decades in life span, wouldn't the debt be serviceable out of the gross economic benefit?

Peter Martin said...

Dear A,

"The dogged insistence that people won't use it is just a negative belief taken to an extreme."

The last time people were offered something much better (coaxial cable to the home) they didn't use it much - FACT. They still could, if they weren't satisfied with what they have.

The NBN will be different. Our existing wires will be disconnected.

We will have to use if we want the home phone on.

Yes - it will be deliberate value destruction on a massive scale.

No - I certainly do not doggedly insist that people won't use it.

Peter Martin said...

llengib, this is good thinking.

But I would still like to know whether each project stands up as a worthwhile use of tens of billions.

llengib said...

Peter, agreed. More information is better information.

However I see the question less in terms of project x OR project y.

If both projects return a return then both should go ahead. By return, I do not mean a balance sheet return, unless you count the triple bottom line balance sheet (quintuple? however many we are up to).

I guess my bias is toward shifting the proportion of human effort in society (shorthand: money) from Plasma TV's into "Nation Building". Assuming tax is a constraint on spending.

...and I've probably gone on a bit too long reiterating in this comment :) - my dusty old econ degree enjoyed the brief sunlight it had and wanted more.

Steve said...

"The last time people were offered something much better (coaxial cable to the home) they didn't use it much - FACT. "

That's not quite fair. For starters, coax cable was initially rolled out for pay TV, not for internet. Many people (myself included) didn't take it up for TV because most of what is on TV is crap, and having more channels didn't fundamentally change the TV experience, so it was a lot of money for not much benefit.

As an option for internet, coax cable to the home has had to compete - in urban areas only - all this time with ADSL and ADSL2+, which, until recently had kept up as far as speed goes.

It is only recently that cable speed has really taken off (at least peak speeds). And as a result of that, more of my friends are considering cable, especially those friends who live far from the exchange. I would also consider cable, but, being in a unit and a renter, I'm probably not able to do it, since I'd need to get approval from the body corporate etc etc.

As far as destruction of the copper network is concerned: I am no expert on this, but I have read some argue that the copper network is pretty old and clapped out, and in need of upgrading. If that is the case. then perhaps you laid the hyperbole on a bit strong in saying "deliberate value destruction on a massive scale".

Isn't it a huge cost for Telstra to try and maintain the ageing copper network? Doesn't buying them out and dismantling the copper network help to solve the structural separation issue, while avoiding nuking Telstra's share price?

Anonymous said...

Peter,

the FACT is that this ground has been ploughed over many times before and the FACTS are that nothing significantly superior to what most people currently use has ever been offered to all users at competitative prices.

I like to think that people with a great deal of experience in communications infrastructure and hardware are well aware of FACTS in their area of expertise.

It seems likely now that the NBN will be implemented and while your employer will certainly take advatage of it, do we have your word that you will personally refuse to use any increased capacity that you will have access to - say, upgrading this blog site (I take it this is your personal blog, not your employers) - as a matter of principle?

Peter Martin said...

Steve, I am like you. I think much of what's on TV is crap. But I did get the Optus Vision cable connected for my home phone and for broadband.

I did it because I was excited by the groundbreaking technology (sending phone calls down a coaxial cable) and because I wanted to free myself from dependence on Telstra.

The FACT is there were very few people like me, yourself included.

That's because most households in the suburbs served by the vastly superior coaxial cable were happy with what they had. Or at least happy enough not to change, yours included.

On the other matter, you say you "have read some argue that the copper network is pretty old and clapped out"

I've read that too.

Let's find out.

Why on earth would we spend billions ripping out the copper network without first finding out?

Peter Martin said...

Dear A,

You say "nothing significantly superior to what most people currently use has ever been offered to all users at competitative prices"

I would take issue with you on that.

Significatly superior technology has been offered several times, is still on offer, and the prices are competitive. Have you checked out TRANSACT in the ACT?

When given the choice even the majority of ACT residents stick with the copper wire they have.

Right?

Not that we would ever find out whether the NBN would entice them to switch. Those in charge of the NBN are alive to the risk they wouldn't. They are going to disconnect the copper.

Which makes your question about what I would do as a matter of principle sadly irrelevant.

Anonymous said...

Peter Martin said...

"I had a great tour of the Newcastle train building factory some years back. We were making them for India!"

Ummm opposed to the NBN, uses a "some years back" tour to underpin his view on our current train building ability. Some years back China was not building high speed train links, Australia was still building it's own rolling stock, actually, "some years back" brings us back to tariff barriers. Things change.

I see a pattern here. Peter it's time to get out and about more.

Anonymous said...

The national broadband network will finally introduce real competition into our telecommunication market; with another business holding the asset on which the services run. It will finally split Telstra into a retail and network business. Something that should have been done when baby steps towards industry competition were being taken.

Your load on opposing the NBN but silent on this issue, as it would seem is most of the media; why?

Peter Martin said...

Dear Newcastle Anonymous,

Umm... I know my tour was some years back. I said so.

I didn't use it to underpin my view what happens now.

Here's the point. It isn't building the fast trains that would be the benefit of the the VFT, it would be the ability to use them. Just as with the NBN. Okay?

But you made me curious.

As it happens, United Goninan still makes trains in Newcastle and in 2010 has a record order book.

www.goninan.com.au

Get out more.

Peter Martin said...

Dear A,

I agree the NBN would finally split Telstra into a retail and network business, something that should have been done earlier.

It's an extraordinarily expensive way to do it.

I have written about structural separation quite a lot. And early.

http://goo.gl/4Hsg

http://goo.gl/PJzp

Don't doubt my views.

Anonymous said...

What would be good is huge improvements to rail generally and a systmatic attempt to have rail supplant road for interstate freight.

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