#EWLink’s real cost to Victorians: Could easily be $10b for stage 1

This article by The Age’s Josh Gordon last week raises a really good point about the East West Link Stage 1 that needs to be remembered:

The up-front cost of $2 billion contributed by the State is not the total actual cost to Victorians.

It’s also not the construction cost — long thought to be upwards of $6 billion, but now finalised at $6.8 billion.

The consortium building it provides $3.3 billion. The Federal Government (which, remember, refuses to fund urban public transport) is providing $1.5 billion. The state is providing $2 billion.

East West Link: eastern section, western gateway in Royal Park

But the consortium doesn’t do this stuff out of the goodness of its heart; it needs to make its money back, plus a profit.

The state has to pay Availability Payments to the consortium for 25 years. We don’t yet know how much they are because the Business Case has been kept secret, but Josh Gordon “conservatively” speculates that it could be $200 to $300 million annually, but it could be more. That means the Availability Payments would add up to be something in the range of $5 billion to $7.5 billion — a tidy profit to the consortium for a $3.3 billion up-front outlay (though they’d also be paying maintenance costs during that time).

The cost to the state would be offset by the tolls. Again, we don’t know how much they will be or how much income they will bring in. Even if the business case was public, estimates for toll roads are notoriously inaccurate, with many Australian toll roads taking years to get to anywhere near their “steady state” volume of traffic and income levels.

And tolls may extend well beyond the contract period of course.

So remember: when the state government says it’s costing $2 billion, it’s actually costing us a great deal more than that:

$2 billion initially from the State
+ $1.5 billion from the Feds (from taxpayers around Australia)
+ perhaps around $6.5 billion (maybe more, maybe less) in Availability Payments and tolls paid by motorists
+ more in toll money if they continue after that.

That $2 billion road is actually something like a $10 billion road, for 5.5 kilometres. And that’s just, the eastern section, stage 1. — for a road which is unlikely to have any lasting impact on traffic congestion.

Govt flyer sent to #Bentleigh voters missing any mention of their biggest project: #EWLink

Letters that arrive in anonymous envelopes and then turn out to be party political propaganda are not my favourite thing.

This one from the State Liberals showed up the other day.

The Liberals’ signature project, perhaps the most expensive infrastructure project ever undertaken in the state, is the East West road tunnel — around $18 billion in construction costs, but likely to cost much more to taxpayers as a PPP.

Am I mistaken? I can’t see it mentioned here at all — not in the brochure, not in the cover letter. Could it be that they know few in this area think it’s a good idea?

What are other areas getting?

Liberal flyer, September 2014 (front)

Liberal flyer, September 2014 (back)

Liberal flyer, September 2014 (cover letter)

Update:

#EWLink: What is it? What is it For? Why it won’t die easily? – Sophie Sturup on mega projects

I and others have been known to call the East-West Link tunnel a zombie project — you can fight it off (as was done in the 70s) but it will never truly die.

Last year at the launch for the Trains Not Tollroads campaign, Dr Sophie Sturup gave a great speech on mega projects. She made some really good points about how these multi-billion dollar mega projects get up, and about EWLink specifically.

She’s given variations on the speech elsewhere… these are summary notes from a similar speech given to the Carlton Residents Association meeting on 14 March this year. Reproduced with permission. Hopefully they’re as compelling in written form as they are spoken.

Victorian government advertising their "second river crossing"

What is East – West?

East – West project is a mega project and a road project. That is why my research on the mentalities of mega projects has some relevance to it.

From my research, a mega projects have a couple of salient features:

1. Power is in mega projects is based on sovereignty – which is to say that these projects rest on the fact that someone with the authority to do so has declared that they will be done. Thus the legitimacy of the project is directly linked to the people who said it would happen. To question the legitimacy of the project is to question the right of the ‘sovereign’ to decide things, and this is generally confused with the legitimacy of the sovereign at all. The other thing about this is that everyone operating in the project is able to do so because of the sovereign decision. Thus they cannot question the project’s legitimacy either without removing their ability to operate in the project at all.

2. Process in the project is dominated by project thinking. Project thinking is about deciding what needs to be done, and then creating boundaries around that so that it cannot be interfered with. That is, making the project manageable. This is one of the reasons why consultation looks pretty weird in these projects. By the time the community gets talked to about the project, the project has already been decided upon (see 1) and the fact that it is happening cannot be questioned. The project thinking means that the only questions of relevance are those which will ‘improve’ the project either by reducing its costs or reducing the impact on the community. And the reduction of impact on the community can only be accommodated if it reduces costs or the time taken in the project (which also costs money).

3. Mega projects do not come about as a result of identification of a problem, and then the application of a solution. The process of creating a mega project includes the problem and solution being jointly conceived. This happens as the stories or rationales for the project, and what can be conceived as being done jointly emerge – this lets you get at the next item on this agenda which is why has this project happened?

EWLink interchange to Citylink at Royal Park

What is the project for?

The rationale for mega projects needs to make sense if the project is going to be a success. In this sense East-west is a failure waiting to happen. It won’t be a failure because it isn’t built on time and on budget. The Linking Melbourne Authority has the competence to ensure that that happens. Unfortunately that isn’t what constitutes success in mega projects.

One of the key findings of Omega Project 2, a research project looking at 32 mega transport projects across 10 countries (run by the Omega Centre, Bartlett School of Planning, University College London and funded by Volvo Education and Research Foundation (VREF) was that mega projects are context specific and where they don’t have an open and exploratory relationship with the context they work out as a failure.

My own research which focused the Australian cases of Melbourne’s City Link, the Perth to Mandurah Railway and Sydney’s Cross City Tunnel, found in Australia we define success as occurring when projects meet their stated outcomes (in transport projects that means traffic numbers) and the companies which build them are successful in financial terms (which of course is related to the traffic numbers being correct).

The reason that East – West will be a failure is therefore that the stated goals are:

a) Fluffy

b) Not agreed on

c) Based on inducing traffic, so there won’t look like any kind of benefit. For example the modelling shows that the traffic in Alexandra Parade will reduce a tiny bit briefly, but be back at the same level by 2020 2030. This will not look like 30% reduction in traffic on the Eastern Freeway, unless of course the traffic numbers projected to be induced doesn’t’ happen in which case there won’t be enough traffic to meet that modelled expectation. Similarly the changes on Bell St or reduced traffic on M1 will not be noticeable by the people who are near enough to the tunnel to make a difference.

The fluffiness of the dialogue on the purpose of the project is thus such that if they succeed in getting the numbers they predict the Eastern Freeway will be horrible and the numbers on Alexandra Parade the same so the predictions will be wrong because there will not be a 30% reduction in traffic. Or alternatively they won’t get the numbers of induced traffic in which case the tunnel will be seen as a failure because it isn’t able to pay for itself (and therefore wasn’t really needed).

This leads to the conclusion that whatever the stated objectives in the media (primarily ‘reduce congestion’) that probably isn’t what it is really for. So what is indicated in the objectives which isn’t quite so fluffy?

The objectives which appear to have teeth are:

a) Induce traffic onto the eastern freeway – in the form of trucks. This makes sense. After turning the section of Freeway between the City Link tunnels and the Bolte Bridge into freeway spaghetti, it is not surprising that B-double truck drivers are less than happy with that route. City Link changed the location of key freight logistics hubs and helped the development of a major one out at Lyndhurst/Dandenong. East-Link was built to facilitate this development (among other things). However the trucks (which represent several cars in terms of counting traffic) have failed to use the road to come to the Eastern Freeway. Why? Because there is nowhere for them to go when they get there. Thus one logic for this road which makes sense is to create a new link for trucks trying to access the port from Lyndhurst. This will have the effect of reducing the cost to the state of East-Link (because of increased toll revenue), and thus obliquely help pay for the East-West. It will also keep the truck moguls happy, and reduce the truck traffic on the M1 (which is of course Liberal heartland). It is possible to observe this as a source of equity, it will share the truck traffic, and hence the enormous danger to health and life they present, around the city more. Bringing large numbers of B-doubles and their pollution into those eastern suburbs which are almost truck free.

b) As speculation, another source of possible logic for East-West is to grant access to the Liberal swinging voters in the east to some of the jobs that are coming from the west in particular the Airport. Obviously this isn’t one of the things discussed widely in the media. This would explain why ‘improving access to the airport for those in the eastern suburbs’ might make a type of sense. Certainly spending $8 billion on a tunnel so “George” can go to the airport twice a year more comfortably doesn’t.

c) A third logic which makes sense is that this project is getting funded by the Federal government and there is no money on the table for anything else. It is against all logic in public service not to take up money when it is offered even when it only represents 18% of the cost of $8 billion.

d) Finally the logic of keeping car driving alive and well in the city is also relevant here. Tony Abbott has clearly expressed the view in various publications including Borderline what in his view we will have failed as a society if freely available car transport isn’t provided.

The other reasons why the road is occurring are largely borrowed from the Eddington report which was based on dealing with an accessibility and equity problem that was real – the issues of the disadvantaged West and the actually congested Westgate Bridge. The rationale in Eddington doesn’t make much sense for the East-West stage 1 because it comes from a study which had the centre of it’s study area in Laverton, and only at the very edge reached the end of the Eastern Freeway. An example of such nonsense statements is the one which came out in the second news letter from LMA (before the second half of East West was announced) which stated that the project was required because by 2031 almost 440,000 cars would be crossing the Maribyrnong by road (none of course would be in the East-West stage 1 as that project does not cross the Maribyrnong).

Why this project won’t die easily

One of the main reasons is that both sides of politics have a vested interest in maintaining the legitimacy of their right to make sovereign decisions. The major parties like to make decisions on these things and then deliver them it removes all that messy business of democracy. If the Labor Party was to revoke the contracts it would not only be expensive by they would essentially be admitting that these things should only happen after consultation (which is likely to make it very difficult to get anything done).

Secondly the Labor party has linked their policy to jobs. Because of the time it takes to get large projects up and running, they will not meet their targets without East-West. Therefore they will not revoke contracts unless forced.

Why do I care?

I believe that we probably do have an infrastructure crisis in this country. Apart from new projects much of our infrastructure is aging and needs to be replaced. Also I believe we need to massively retrofit our cities for sustainability and even to just accommodate more people. We probably need mega projects to do that.

The problem with this project is that every failed mega project inflates the cost of the next one. You can already see that with the massive cost increases between Cross City Tunnel, the Brisbane tunnels and this project.

The other problem that this project exposes is the degree to which government has come to the conclusion that the community cannot be consulted with. I don’t believe this is just ideology, it has also come from bitter experience. If the community is going to insist on being consulted, then it is up to us to figure out how to do that in ways which are productive.

More reading/viewing:

Sovereign risk not an excuse for pursuing bad policy: Labor should pledge to scrap EWLink contracts

I swear I wrote most of this blog post before reading last Friday’s Age article regarding contract law experts including Dr Nick Seddon. It confirmed my suspicions:

Should Labor win the November state election, there is no legal impediment stopping it from tearing up the contract for the East West Link if it is sincere in its opposition to the road project, experts in contract law and public policy say.

— Age 18/4/2014: Labor could tear up East West Link contract if it wins election

ShredderLabor are in the interesting position of officially opposing the East West Link (section 1, at least), but saying that if the contracts are signed before the election, they’ll build it anyway, citing “sovereign risk”:

If Dr Napthine snubs the state Labor’s plea and signs a contract before November (2014), Mr Andrews said he would not rip up the contract despite it being the “wrong project”.

— Herald Sun 31/7/2013: Opposition Leader Daniel Andrews will lead Labor opposition to East West Link

and:

The Victorian Greens are threatening not to direct preferences to Labor in marginal seats at this year’s state election unless the ALP pledges to rip up contracts on the east-west link if it wins government.

Labor leader Daniel Andrews has consistently said that while he does not support the east-west link, he would not rip up contracts once they were signed because of sovereign risk.

— The Age 23/2/2014: Greens may run open tickets in Victorian state election if Labor holds to east-west link vow

It happens all the time

Now, I’m no lawyer, but even before Dr Seddon spoke out, it seemed pretty clear that the argument of sovereign risk doesn’t really up.

A quick look around the place finds numerous examples of both threats to tear up contracts, and governments actually doing it.

  • The government’s contract with Telstra to build a national broadband network (NBN) could be thrown out if the Liberal Party wins the next election, the opposition says. Opposition communications spokesman Malcolm Turnbull said although he had not read the contract between Telstra and the federal government, it would be cheaper to rip it up than to follow through with the NBN. — 20/7/2011
  • The NSW government is threatening to rip up its contract with the operators of Sydney’s M5 East tunnel after a second shutdown in three months caused massive delays for motorists. — 22/9/2008
  • The federal government has cancelled the contract for Optus and Elders to build a WiMAX broadband network. … Futuris and Optus, in an equal partnership called OPEL, were awarded $958 million by the Howard government to construct a broadband network for rural and regional Australia. — 2/4/2008
  • The $6.6 billion purchase of 24 Super Hornets as a stop-gap fighter jet could be jettisoned by the Rudd Government as it reviews all aspects of the program to give Australia an edge in air-combat capability in the region. … Even if contracts have been signed, as is the case with the Super Hornets, the Government is prepared to break them if the case is compelling. This marks a shift from previous Labor thinking. — 31/12/2007
  • The controversial Tcard contract will be dumped after years of delays and a $64 million bill. NSW Transport Minister John Watkins… said a notice of intention to terminate had been issued on Monday to ERG Limited, the Perth company that had been contracted in 2003 to introduce the Tcard system. 9/11/2007
  • The State Government announced yesterday it was prepared to tear up its contract with National Express to run V/Line passenger services after the company said the contract was not financially viable. — 24/8/2002

It seems to be abundantly clear that governments of any persuasions can rip up contracts if they like, as long as they are prepared to stomach the legal and political consequences.

The latter might include accusations of sacrificing jobs, and undermining business/investor confidence.

Sovereign risk, as Bernard Keane at Crikey writes, has morphed into a general meaning of governments doing anything that a business doesn’t like, no matter how much it might be in the national interest.

Another good example (though not directly related to a specific contract) is the Rudd government last year ending FBT car rorts costing taxpayers billions of dollars a year by effectively allowing people to claim personal use of cars as a business tax deduction. The Coalition reversed that decision, perhaps helped along by what I hear was a massive lobbying push from the novated car lease industry.

If East West Link is so good, take it to an election

East West Link is likely to be the most expensive infrastructure ever built in the state — and it’s not just about the construction cost, it’s also the cost of decades of availability payments from taxpayers to the private owners, to ensure they make a profit.

In the case of the East West Link, the Coalition government has ignored years of opinion polls showing people want public transport ahead of motorways. And they’ve refused calls to release the business plan, and to seek a mandate for the project at November’s election, despite it being a hugely expensive, largely unwanted project.

As Andrew Herrington wrote in Crikey: Inner urban resident groups opposing the freeway are incensed that… Labor will quietly let the freeway be built. They urge Labor to pledge to “tear up the contracts” arguing that the ink will be barely dry and the normal arguments about sovereign risk and payment of damages hold little weight if the validity of the contract is questioned in advance.

If Labor really believe it’s a dud project, they should properly differentiate themselves from the Coalition. They should make it clear right now that if they win, they will tear up the contracts, scrap the project (no substantial work is likely to have started anyway), and put the money into alternative projects, such as new rail lines and more Smartbus services.

Flagging it before the election, and before contracts are signed, means investors can only blame themselves if they get burnt, knowing that the risk existed all along.

As it is, it seems both major parties are denying the Victorian people any kind of say about a project which is not only unpopular, but will also generate heaps of traffic in the inner north, and swallow up billions of tax payers’ dollars.

Sign the peition: No mandate: Give Victorians a chance to vote on the East-West toll road

Investment in motorways vs rail capacity – where are we at?

There’s been some speculation about who is running the SpringStSource Twitter account and web site. The web domain name is registered through WhoIsGuard, a Panama-based service specifically for hiding details of people who want to remain anonymous.

It’s not hard to see whoever is behind it is well and truly on the side of the Coalition state government. As Crikey noted:

Spring St abuzz with Twitter mole. Who’s the Spring Street source? That’s the buzz in the halls of Parliament House in Melbourne, where a certain twit is dishing dirt, spitting at the Labor Party and attracting legal threats and plenty of attention. The anonymous @SpringStSource popped up around the time Denis Napthine took the premiership. It seems mostly designed to smear Labor, but has dropped some interesting tid-bits and there’s talk lawyers have looked over it on behalf of some victims.

Crikey 20/1/2014

So anyway…

Sunday’s announcement of $100 odd million of PT upgrades as part of the East West Link project made me think it was worthy of a graph comparing the investment.

This didn’t sit well with Defender Of The Crown SpringStSource.

I think he/she has missed my point.

It’s not about where the money comes from; it’s about how much there is.

As I wrote last year: if we want more people to drive, building more roads is the way to do it. If we want more people to use public transport, provide more of that instead.

Where the money comes from is also important, mind you. $1.8 billion will come from the State; another $1.5 billion will come from the Feds. The rest is likely to come from private enterprise, but will still don’t know how much taxpayers and road users will end up paying over the life of the contract…

But for all that, I’m really interested in the amount invested in the infrastructure, not what people might end up paying in tolls as the private operator tries to make its money back.

Following a bit more argy-bargy on Twitter, Mr/Ms Spring St Source responded on their blog, with a post that catalogues all the public transport spending they could find from the last few years: Bowen get real

I especially like the way this person who posts anonymously, and covers their tracks to stop their identity being revealed, and consistently takes a pro-Coalition line, concludes by talking about trust.

My response: comparing investment on transport network expansion

Much of the spending listed by SpringStSource is well outside Melbourne, or has no real effect on key issues such as network capacity. And s/he doesn’t count the numerous basic road widenings and renewals done constantly by VicRoads and councils, but does include equivalent things such as station upgrades.

Comparing apples and oranges is difficult, of course. For example a freeway is almost all capital expenditure; you can’t treat a railway like that — nobody will use it unless a fleet is provided and services are run.

What I’m trying to measure is how much the government is increasing large-scale capacity in the transport system, and whether they are prioritising roads or PT. So to keep it simple, I’ve cut my comparison down to just this:

Freeway/motorway projects (eg those that markedly increase road capacity, enabling mass movement by motor vehicle)

vs

rail projects (eg those that enable or increase mass movement of people by public transport).

In other words, for the purposes of this exercise, ignore stuff like minor roads, re-surfacing of existing roads, and major renewal works which don’t increase capacity (such as the $32m for maintenance on the Westgate bridge in the last budget). Also ignore new bus routes, trams, and railway line renewal/maintenance.

Do include the big stuff: motorway widening and extensions, new motorways, new railways and stations, rail duplications and signal upgrades which may increase capacity, station upgrades that increase the number of platforms, as well as packages which include elements that increase capacity — for instance the $100m Bayside Rail Improvements package — even though so far the only visible signs from this are repainting of stations from one shade of grey to another.

Repainting Bentleigh station

Some other points/caveats:

  • I’ve decided to try and catalogue projects funded from 2005 onwards (so some projects funded earlier but completed later are excluded). 2005-2010 is Labor; 2011-2013 is Coalition. To directly compare them, halve the Labor totals.
  • In a couple of cases, Regional Rail Link and the M80 ring road widening, some funding came through in the Labor years, some under the Coalition. In cases like that, both (state) sides get credit for getting the money through, for facilitating it, even if it came from the Federal government.
  • They’ve been left out, but trams and buses can under some circumstances come close to heavy rail (or indeed freeway)-like capacity. Same with high-capacity “bus rapid transit” of the type seen in cities like Curitaba, and closer to home, Brisbane, or indeed the Monash University 601.
  • You could include grade-separation, as it may enable extra trains… but this only really happens when all the level crossings in a section have been removed. And the biggest capacity benefit is to road users (including pedestrians, cyclists, bus and tram passengers mind you). I’ve left them out.
  • Station upgrades (without extra platforms) may increase capacity a little. The North Melbourne upgrade was designed to improve interchange between trains, thus assisting in running Werribee trains direct to Flinders Street, increasing overall network capacity. But often (especially when done as part of grade separation) the effect on passenger or train throughput is minimal, so I’ve left them out unless they specifically provided extra platforms.
  • One could argue that painting a station or deploying PSOs makes a difference to patronage. But there’s little specific evidence of this, so I’ll leave those out too.
  • I am including the full cost of EW Link (stage 1) here, because it’s basically been announced, even though the contracts aren’t in place yet, so the money hasn’t yet started flowing. But the intent to push it through this year clearly been stated though.
  • Public transport service provision makes a huge difference to network capacity, but is far too hard to track by dollars. Tracking by service kilometres is far easier.
  • I’ve included rail studies where specifically budgeted, though I wonder if anything will ever come from them.
  • Obviously the Coalition may announce other project funding in this year’s budget in May.
  • Since I don’t have a team of party minions to help compile figures, and I’ve had a very busy week, I may have missed something. Leave a comment below.

The figures

So, motorway capacity/coverage vs heavy rail capacity/coverage funded 2005-2013 (all figures in millions of dollars):

Labor funding 2005-2010
PT Funded Millions  /  Road Funded Millions
Clifton Hill-Westgarth duplication 2005 $53   Deer Park Bypass 2005 $331
Train control 2005 $229   Tulla/Calder 2005 $150
Coolaroo Station 2007 $36   Pakenham bypass 2005 $242
Laverton Turnback 2008 $93   M1 upgrade 2006 $1,390
Westall upgrade 2008 $153   M80 ring road widening 2009 $1,725
Craigieburn stabling 2008 $30   Dingley Arterial 2009 $75
Williams Landing, Cardinia Road, Lynbrook (Caroline Springs) 2009 $189   Calder Fwy/Kings Road 2009 $25
Rail capacity measures 2009 $132   PeninsulaLink 2009 $759
Sunbury electrification 2009 $205        
South Morang extension (incl Hurstbridge) 2009 $562        
38 new trains 2009 $651        
Regional Rail Link 2010 $4,300        
             
Labor 2005-2010 Rail $6,632     Roads $4,697
             
Coalition funding 2011-2013
PT Funded Millions  /  Road Funded Millions
Regional Rail Link   $500   Dingley Bypass 2011-12 $156
Extra 7 trains, stabling etc 2011 $222   M80 ring road widening 2013 $525
Doncaster, Rowville, Airport rail studies 2011 $15   Westgate managed motorway   $25
Metro rail tunnel planning 2011 $50   EastWest Link stage 1   $8,000
Extra 8 trains, stabling, etc 2013 $177        
High capacity trial 2013 $5        
Southland station 2013 Unknown        
Bayside Rail Improvements 2013 $100        
             
Coalition 2011-2013 Rail $1,068     Roads $8,706

Totals: 2005-2013:

  • Heavy rail: $7,700 million
  • Motorways: $13,403 million

My conclusion from looking at the figures: From 2005 when they finally caught on that PT was important, Labor was relatively balanced in new spending on major capacity boosts to public transport and roads. The Coalition did the same in its first couple of years, both sides helped in no small part by the Regional Rail Link project, which is the biggest thing in Melbourne PT for many decades.

This balance has been blown out of the water by the East West Link. The Coalition government now seems obsessed with this one project, and it alone skews the money balance heavily in favour of road capacity.

Did I miss something?

Disagree with my methodology? Leave a comment.

If I’ve missed anything, or mis-attributed it? It’s possible. Leave a comment.

Corrections/updates: