Thursday, September 21, 2017

$220m per kilometer. Newcastle light rail burns cash

A fresh NSW transport leak reveals that the decision to shut down the last two kilometres of the Sydney to Newcastle railway line was taken before costing the light rail replacement and without an assessment of costs and benefits.

The cabinet-in-confidence report, prepared after the decision to close the line, refers to the decision as a "sunk cost" estimated at about $200 million.

The leak comes one day after Transport Minister Andrew Constance defended spending $200,000 hunting down the source of transport leaks, invoking national security.

The 2.7-kilometre light rail link that will replace it is costed at about> $250 million, bringing the total cost, inclusive of planning and development and urban renewal work, to about $600 million, about $220 million per kilometre.

The projected benefits nowhere near cover the costs. The cabinet-in-confidence document puts the benefit-cost ratio at 0.7, meaning it will only deliver 70¢ in benefit for each dollar spent.

If the value of the land released is excluded from the calculation, in line with a suggestion from the NSW Treasury, the benefit-cost ratio falls to 0.5, meaning 50¢ is destroyed for each dollar spent.

A separate, hypothetical plan to merely proceed with urban redevelopment without pulling up the rail line had a benefit-cost ratio of about 2.4, meaning that each dollar spent would deliver $2.40 in benefits.

A covering note, written by David Evans, chairman of the Newcastle Urban Renewal and Transport Program, notes that the business case takes "as given" the government's commitment to light rail.

It says the proposed light rail component "takes up a dominant and increasing share of available funding".

"This has the potential to greatly reduce the available funding for urban renewal and economic development activities which we believe are much needed," the note says. "The business case shows that a range of urban renewal initiatives have a substantially higher cost benefit outcome and could make a greater contribution to urban renewal objectives than light rail."

The document leaked to Fairfax Media and the ABC reveals that Restart NSW, the body established the NSW government to fund high-priority infrastructure projects, rejected the plan because of legal requirements that prevent it in investing in projects with a benefit-cost ratio of less than 1.

The bulk of funding instead comes from a general revenue fund known as the NSW transport capital plan.

About $44 million is to come from selling development land freed up by removing the rail line. The land under the rail line is believed to be valuable because it can take the weight of tall buildings, unlike surrounding land which is at risk of subsidence from mining.

The report notes the land is a long and narrow corridor "with a footprint that does not provide viable shaped or sized sites". It says fragmented ownership limits potential future consolidation. The land is contaminated with heavy metals and hydrocarbons.

In a departure from best practice the report does not examine alternatives to light rail including a shallow cut-and-cover rail tunnel of the kind used in Sydney's Hyde Park or a bus lane upgrade, which it acknowledges would cost $10 million rather than $250 million.

Transport Minister Andrew Constance defended spending the money on identifying the source of the leak.

"If you think information that resides within the Department of Transport being leaked is some sort of laughing matter in today's world ... in light of what's happening in the UK, in light of what's happening elsewhere around the world, you are kidding yourself," he said.

"We live in an era that relates to cyber terrorism and a whole raft of security issues."

Asked whether the government continued to maintain that the project was value for money in face of the benefit-cost ratios reported to cabinet of 0.7 and 0.5, Mr Constance said consigning Newcastle to further decline was not an option.

"Since the truncation of the heavy rail line, Newcastle has undergone a revitalisation that has seen population grow by 4.6 per cent and employment rise by 9 per cent," he said, adding the ultimate value of the project was in the revitalisation of the city. It had resulted in nearly $2 billion in private sector investment.

"The truncation of the line has also allowed us to commit to building affordable housing and the university in the corridor. We made a commitment to the people of Newcastle that we would return a portion of the port's lease to improving the city, and that is exactly what we are doing."

In The Age and Sydney Morning Herald