My notes from a quick skim of the #EWLink business case

Late last night, the Herald Sun unexpectedly published the entire East West Link business case, ahead of its official release today.

Some notes from me from a quick flick through:

p12 makes various high-level claims, particularly faster trips for motorists — but as we know, this benefit never lasts because traffic increases.

EWLink: Proposed tolls

p17 flags the toll prices used in the modelling: (2012 pricing) cars $5.50 in peak, $4.40 off-peak. Light commercial vehicles $8.80 peak, $7.04 off-peak. Heavy commercial vehicles $16.50 peak, $13.20 off-peak. I wonder what regular motorists (especially those with commercial vehicles) make of these toll levels?

By comparison, bypassing the city along the Bolte Bridge or the Domain/Burnley tunnels (not both) currently costs $7.06 in a car, or $8.15 for both sections. It’s only marginally more expensive for both because there’s a cap… I assume it’s unknown if a similar cap could exist where adjoining motorways are run by different operators.

p17 says the funding gap between the toll revenue and the cost of construction is $5.3 to 5.8 billion.

p39 says north-south public transport is being degraded by traffic congestion, which may be the case, but that’s because authorities have allowed it to happen by failing to provide tram/bus priority through busy intersections such as Alexandra Parade. They continue to prioritise large numbers of vehicles (single-occupant cars) over large numbers of people. It’s important to recognise that while the greater East West Link project includes tram priority measures, these can be implemented without building a big road tunnel.

p41-42 appears to be cherry-picking statistics to try and claim there’s a lot of demand for cross-city traffic. For instance the diagram at the top of page 42 implies lots of cross-city traffic, but it’s mapping out in percentage terms the demand from different directions heading to the Eastern Freeway in the AM peak — in other words, feeding into the freeway in the counter-peak direction, as if counter-peak travel is where the congestion problem is.

A diagram on page 41 does look at AM peak from the Eastern Freeway, and like previous studies shows little traffic heading to the west of the city — 2% to the south-west (eg Newport area), 6% due west to Footscray and beyond, 7% north-west to around Essendon and beyond. The vast majority of traffic is heading to the CBD and inner north.

In comparison, here’s the screendump from VicRoads traffic status web site this morning (8:16am, peak hour). The camera image shows counter-peak the Eastern Freeway seems to be free-flowing. It also shows free-flowing traffic most of the way across to the west (in both directions), again underscoring that the east-west route isn’t the main problem; as per the page 41 diagram, it’s traffic going into the CBD and inner suburbs.

EWLink: Realtime traffic on Eastern Freeway and Alexandra Parade, 15/12/2014 8:16am

p100 forecasts traffic rampup to % of steady state volume: 91% by month 6. 96.5% by month 12. 100% by month 22. I wonder: Is this in line with recent experience?

A NSW Auditor-General report on Sydney’s Cross City Tunnel (see page 32) found that projections of 80% initially, and 88% after a year were about double the traffic levels that actually eventuated. Brisbane’s Clem7 and Airportlink tollways, and Melbourne’s EastLink had similar problems.

Note that in East West Link’s case the taxpayer bears the risk.

p165 Whoa! The construction cost is much much higher than theoretical revenue of $112 million/year (56x) relative to Citylink (8x) or Eastlink (20x). The average construction cost is also much higher per kilometre than those projects.

p168 The assumed tolling period is 40 years.

p176 Benefit Cost Ratio of stage 1 is 0.8 (eg it costs more than it makes) when “Wider Economic Benefits” (WEBs) are excluded. Including WEBs is 1.3-1.4.

Update: The earlier estimate, using the methodology preferred by Infrastructure Australia, came out at just 0.45. In later versions of the document, the methodology changed and the estimate rose to 0.8. The version released by the Herald Sun has the higher figure, and it’s been speculated that someone supportive of the project dropped that version to them deliberately to pre-empt reporting of the lower figure. Josh Gordon at The Age has some nice analysis of how the figure grew from 0.45 to 0.8 with some WEBs, and then to 1.4 by including other projects such as the Tullamarine Freeway widening, and even Wider WEBs.

WEBs are notoriously wibbly-wobbly in their calculation, and often controversial. For instance it’s not clear how they claim $2153m in agglomeration economies (specifically “growth in Melbourne’s competitive central core”) when the tollway doesn’t directly serve Melbourne’s central core.

It also claims a lot of benefits from travel time savings, but as I’ve already noted, we know these never last.

Compared to the 1.4 the road gets with WEBs, the metro rail tunnel (which is also an incredibly expensive project) apparently got 1.9. And compared to the 0.8 for EWL without WEBs, the metro rail tunnel got 1.17 — so at least it isn’t loss-making when evaluated without possibly dodgy WEBs.

p193. If they built the road elevated rather than underground, the BCR (excluding WEBs) would still only be 0.9. It’s only by building it as a surface road (eg a ground-level motorway, thus obliterating large areas of the inner-northern suburbs) that you can get a BCR above 1: 2.6 to be precise.

EWLink costs and revenues

p209 summarises the revenues and outlays, and if I’m reading this right, seems to show toll revenue of about $200m per year against availability service payments from the government to the operator of about $345m each year. I assume by June 2023 that’s the “steady state”.

If the toll revenue doesn’t get that high, then taxpayers foot the larger bill. And remember this is only stage 1.

p211 ponders the state privatising the road later — that is, selling the toll revenue stream, presumably to offload the taxpayer risk in case revenue flops in the future.

I’ll keep dipping into the document as I get time in the next day or two, and may add some points as I find them.

Hopefully when there’s an official release in the next day or two, the PDFs available will be searchable — it’ll make finding things a lot easier!

And presumably there’s more detail coming as well — for me one thing that stands out is the courageous predictions of quick growth in tollway traffic and revenue, in the face of recent experiences with other Australian tollroads.

And I’d love to see detail on the modelling assumptions that show how well the traffic would flow if the revenue targets are met. It still strikes me that these massive tollroad projects can be profitable, or provide for free-flowing traffic, but not do both.

Update: The official release of documents has now occurred.

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14 Replies to “My notes from a quick skim of the #EWLink business case”

  1. At least they seem to have stuck to a consistent set of fictions and same flawed methodology, treating counter peak traffic as equivalent to peak traffic. Throughout they have regurgitated those same wrong assumptions and never sort to respond to obvious counterpoints like true East West demand being constrained to whatever fraction of two lane Macarthur Road traffic is using it as a though route rather than locally.

    While I won’t revisit much else, I should again note the perspicacious work of Gil Richardson in alerting the generally small C conservative City of Moonee Valley to the mess that would choke them during construction and operation if it went ahead, even without approaching the fantasy East West volumes, a mess made much worse by the final round of changes which precipitated their independent legal challenge.

  2. No jusitification, no truth, voodoo economics, all what I expected was true: no one voted for this, the bait and switch of Baillieu just to implement the EW Link, and the Libs losing the election.

  3. Lovely work Daniel.
    I too skimmed through it and just got the wibbly wobbly feeling. Reminded me of the CIS.

    I was amused by the “improvements to Royal Park” page, as tho all that traffic noise would be conducive to using RP. At least I know now where the PM got his lines

  4. We seem to be in a space where ‘wider economic benefits’ are used as a fudge factor to try to pull over the line an uneconomic project that we have committed to at the political level for non-economic reasons.

    This means, regrettably, that all claims about WEBS should be regarded as fictitious unless the document includes DETAILED methology and calculations.

  5. Daniel, you say that “p12 makes various high-level claims, particularly faster trips for motorists — but as we know, this benefit never lasts because traffic increases.”. But as pointed out in comments on your earlier (linked) article, this applies at peak times, which is only a small proportion of the week (even allowing for some congestion outside weekday peak periods). I note that the “high-level claims” are not specific to when they are talking about. You could criticise this for being disingenuous, in implying it’s across the board when it’s only at off-peak times, but as it stands the statement is surely correct—the link would have provided for faster trips.

    You also say that “p41-42 appears to be cherry-picking statistics to try and claim there’s a lot of demand for cross-city traffic.” I’m not sure that they are the ones doing the cherry-picking. They show peak, counter-peak, and all-day traffic flows. That’s pretty comprehensive. True, they don’t mention the relative sizes of these, and on that you might have a small point. But in talking about the peak flows, you also don’t mention the 10% towards Port Melbourne, which I imagine would use the East-West Link to the Tulla, then via the Bolte Bridge to the Fishermen’s Bend area.

    I’m not a big fan of the East-West Link (but not opposed to it either), and would rather see a lot more of the available money spent on public transport, so I’m not disputing your entire preliminary analysis, but thought those particular points were a bit unfair.

  6. Look ill start by declaring that I actually think that East West Link is one of the more important large scale transport projects for Melbourne perhaps not the most important (thus perhaps not the highest immediate priority) but an important project none the less and IMO a project that will never die especially with our trending significant outer metropolitan growth (i.e. it’s a “when” project not an “if” project).
    IMO the real questions start at why the business as usual project the government supported is not the lowest cost option for taxpayers and users (i.e. the surface level bang for buck option). Why is it that we are going for options that are so significantly more expensive based on amenity grounds only. I don’t believe the amenity benefits is really worth the billions of dollars we would be paying for them (i.e. I can’t see any local council getting that money out of ratepayers for such a benefit and I can’t see them spending the money in that way if they had it).
    The second point is that some people seem quite happy to deride the official BCR of this project despite it being based on toll revenue looking like it will pay for a significant portion of the project cost. i.e. it shows predictions of approximate toll revenue around $200m growing at about 10%. It looks like even if the predictions are off by a fair margin that users will be paying at least 50% of the ongoing availability payment (which represents operational costs, some capital costs and PPP interest). I assume that the Melbourne Metro BCR should also factor in a similar level of capital cost, operating cost, and interest cost recovery from PT users in the form of a fare increase (this would have a similar significant negative impact on the total user base and thus the BCR of that project and the system at large).
    If we want to really compare apples we have to either compare both projects with a similar level of cost recovery user charges or both with no/minimal additional user charges.
    IMO any new large transport project for Cities like Melbourne should be shooting for about a 50/50 cost recovery model over the 30year life of a typical project. i.e. 50% of costs recovered directly through user charges which benefit from the project and 50% from government general revenue to represent the wider benefits these projects often have for the community at large (i.e. road safety, emissions, access, land value, development opportunity etc.). Maybe with federal contributions it’s a 30/30/40 split with state/federal/user. The benefit of any large urban transport projects that cant reasonably get near to half its costs back through user charges really has to be questioned IMO (i.e. how important is a large transport project if people wouldn’t be reasonably willing to pay for less than half of it)
    As far as tolls go I think all Melbourne freeways should all be tolled by the government to generate revenue for transport improvements (mainly other large urban freeway and rail projects which add to the cities transport capacity) whilst also providing a reasonable freeway demand suppression mechanism. By vehicle type the toll caps across the whole freeway network should be tied as a proportion of the current public transport fares including caps (ie 2hr or daily). Tolls and fares should go up proportionally and all fares/tolls should have a reasonable peak usage levy (i.e. usage in the peak hours to be 20-50% higher based on the significant costs of transport systems designed around these peak users).

  7. In regards to the faster trips for EW link users is that it fails to take into account the extra congestion that will inevitably occur on connecting roads such as Hoddle St, Chandler Hwy, Bolte Bridge (southbound), Doncaster Rd to name a few. I believe this biased report deliberately understates the time lost from this extra congestion. One example is the Eastlink which exacerbated traffic on the Eastern Freeway. Although time was gained on the Eastlink itself, much of it was lost on the Eastern again, so pretty much a zero sum game with the added cost of billions of dollars in investment. PT projects has the opposite effect because private car use is greatly reduced on all roads (freeways, arterials and local roads).

    The other costs incurred by road projects is that they fail to account for the wider costs to society in general from increased car kilometres travelled. These include traffic accidents, pollution, reduced amenity and increased financial burden of having to run multiple cars. Although you may get less stop – start traffic on Alexandra Parade in peak times due to the tunnel you will get a lot more stop – start traffic on all the other connecting roads I mentioned before.

    Additionally any so called greater economic benefits are wiped out by the fact that the average household has to run multiple cars to be able to access economic opportunities which is very expensive compared to public transport.

    Melbourne Metro and other PT projects will incur a significantly higher BCR for these reasons.
    – Improved Access to Domain and Parkville.
    – Improved capacity on all major inner city railways which will carry more people than the entire Melbourne freeway network by a large margin.
    – Improved cross city travel options via PT, again which will carry significantly more people than the EW link probably by a multiple of 10 times if not greater.
    – Better and quicker access to the CBD from the west and the southeast (2 major growth corridors in Melbourne).
    – Potential for more branch lines.

  8. @John of Melbourne, you make a good point.

    My logic is this: on the occasions I’ve been in a car on Alexandra Parade or through Royal Park (weekend daytime, or evening) the traffic has flowed freely. West of Citylink (eg through Newmarket/Flemington) it’s a different story, but that corridor is not covered by the proposed EWL.

    To me, I don’t see a traffic congestion problem in off-peak. Yes it’s congested at peak, but expanding capacity won’t help that longterm.

    It’s also notable that some of the material indicates the expansion of this corridor would cause increased congestion on other connecting parts of the road network, and that eventually Alexandra Parade vehicle numbers would return to their current level.

  9. The “30 year life of a typical project” ??

    That’s the period in which the lenders want their money back. A lot of these projects are intended to last a lot more than 30 years,

  10. I agree the benefits of large scale projects will likely last longer than 30years however all conventional business cases are based on a 30 year life as the accepted BCR calculation. This is to allow different projects to be compared and to account for metric factors that change like tech. Life can and does change allot in even 30years let alone beyond it (i.e. think about changes to air travel, digital communication, vehicle safety etc. in the last 30years).

  11. As a regular visitor to Europe, I notice that they have tollways in the country and freeways in the city. This seems to accord with the view that in the country most of the benefits accrue to the road user while in the city many of the benefits accrue to non-users – i.e. removing through traffic from suburban streets benefits the residents, faster travel times makes the city more productive, etc.
    I am totally against PPP style transfers of money to banks and other parts of the FIRE sector and believe that these projects should be funded by the state and require total public disclosure of all costs and benefits.

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