Thursday, July 13, 2017

Benefits from a Wollongong-to-Sydney rail upgrade would exceed costs, Cabinet told

Work needed for an upgrade to the Wollongong to Sydney rail link that would deliver passengers to Central in 66 minutes produces benefits at up to twice the cost according to a previously unreleased Cabinet in Confidence report.

The proposed schedule, also seen by Fairfax Media, has express passenger trains taking 20 minutes to get from Wollongong to Helensburgh, 35 minutes to get from from Wollongong to Hurstville, 54 minutes to Wolli Creek, and 66 minutes to Central.

The main expenses would be a $2.9 billion tunnel from Thirroul to near Waterfall on Sydney's southern tip and completion of the long-stalled freight link from Dombarton near Dapto to the commuter line.

Costed at between $700 million and $800 million in the Cabinet in Confidence document seen by Fairfax Media, the freight link has a benefit-cost ratio of between 1.5 and 2.4 depending on the scenario chosen.

A benefit-cost ratio above 1 means the project is worth doing. A benefit-cost ratio above 2 is exceptional.

Among the benefits quantified are time savings, transport cost savings, avoided environmental externalities, avoided crash costs, road congestion, and avoided road damage.

The biggest benefit, transport cost savings, is estimated at $2.4 billion over 50 years, or $560 million in present day dollars. Time savings are worth around $1 billion, or $200 million in today's dollars.

To convert future benefits to present-day dollars the 2013 study used a discount rate of 4.4 per cent "in accordance with the federal department of infrastructure and transport's nation building appraisal guidelines".

A more recent Transport for NSW assessment, evaluated this year by Infrastructure Australia, used a higher discount rate of 7 per cent, even though interest rates had fallen during the intervening years. It awarded the project a benefit-cost ratio of only 0.9 meaning the project "would not generate sufficient benefits to justify its costs".

Projects with high upfront costs and benefits years out into the future look better when low discount rates are used and worse when high discount rates are used.

Answering a question in parliament, on behalf of roads minister Melinda Pavey in June, primary industries minister Niall Blair quoted only the Infrastructure Australia conclusion and not the conclusion of the minister's department.

On the same day primary industries minister Don Harwin, replying on behalf of transport minister Andrew Constance, misled parliament when answering a question about the rail tunnel under Thirroul saying it had not been the subject of a strategic assessment or strategic paper.

Fairfax Media has seen the assessment, contained in a Cabinet in Confidence document entitled Rail Corridor Strategy: Sydney to Wollongong produced in 2014, when current premier Gladys Berejiklian was transport minister.

On Wednesday a spokesman for Ms Pavey distanced the minister from the Maldon to Dombarton benefit-cost study conducted when Ms Berejiklian was transport minister, saying the 2013 study "relied upon assumptions about growth in the iron ore market that did not eventuate".

The less favourable 2017 Infrastructure Australia assessment was "in line with an earlier report from 2011 by the then-Labor government which found the project had a benefit cost ratio of 0.56."

Asked whether Ms Pavey would release the study that found a much higher benefit-cost ratio, the spokesman did not reply.

Three-quarters of the 35 kilometre link was completed by 1988 when the NSW government suspended the project in the midst of an economic downturn and lower than expected coal traffic. The line stops in mid-air on either side of the Nepean River.

The unpublished benefit cost study finds costs at around $780 million in present-day dollar terms more than offset by benefits at $1100 million. The total cost of upgrading the Sydney to Wollongong commuter line would be around $5 billion.

An F6 Extension motorway, under active consideration by the government as an alternative to the rail project, has a price tag of around $18 billion.

 

In The Age and Sydney Morning Herald