Rail, road projects with big cost overruns could be reassessed post-COVID
Billions of dollars are being thrown at mega road and rail projects post-COVID, but a leading think tank has revealed a way for the government to get better bang for our buck.
Victoria
Don't miss out on the headlines from Victoria. Followed categories will be added to My News.
Mega transport projects around Australia have suffered cost overruns of $34 billion over two decades and will not provide a post-pandemic stimulus salvation, a new report says.
And with the brakes slammed on population growth due to the coronavirus crisis, governments have been called to revisit business cases for massive road and rail projects to see whether they still stack up in a post-COVID world.
The report, by think tank the Grattan Institute, shows that six projects across Australia — including two in Victoria — are responsible for $24bn of the $34bn in cost overruns since the beginning of this century.
It warns the recent rise of $2bn mega projects has now been replaced by “mega mega projects” worth $5bn or more, causing construction capacity constraints.
The report, led by Grattan’s Transport and Cities Program director Marion Terrill, calls for an audit of mega projects around the country, new rules to force a continuous disclosure of costs to parliaments, and public project reviews to provide lessons for future builds.
With the Andrews government and Morrison government about to embark on a suite of new projects, such as the Airport Rail Link and the $15.8bn North East Link, governments should still “keep options open” and consider whether they stack up.
“The mantra of stimulus does not mean that every project is a good one,” the report says. “Projects conceived pre-pandemic are likely to suffer benefit underruns. A benefit underrun is just as serious as a cost overrun. Either shortcoming can render a project not worth building.”
One example of a project with massive cost overruns is the North East Link, which was flagged in 2008 as costing $6bn, before being promised in 2015 as a $10bn project now being worth $15.8bn after a business case was done.
The Herald Sun revealed on Saturday that the government was now altering the contract with the builders of the NE Link to reduce the risk of cost blowouts down the track.
The report is scathing of the process by which the Andrews government proposed a new $50bn-plus suburban rail loop before consultation with infrastructure experts.
It is one of 25 projects around Australia worth more than $500 million and committed to since 2016 that didn’t have a business case.
The report says government infrastructure projects could be worthwhile independent of the COVID-19 crisis but they “are not the best form of stimulus because they take a long time to get going” and face construction industry limits.
“When there are already bottlenecks (in the construction industry), racing to build projects dreamt up before the pandemic just pushes up prices,” the report states. “Governments would get bigger bang for taxpayer buck by instead spending more on upgrading existing infrastructure, and on social infrastructure such as aged care and mental health care.”
NORTH EAST LINK (2021 – 2027)
In 2008 the then-Brumby government said a new link to connect the M80 and the Eastern Freeway should be built, and would cost $6bn. Eight years later, the Andrews Government said it wanted to proceed with the mega-project, which would cost $10bn. Costings for three route options were revealed in 2017, and were estimated at $7bn-$23bn. The government selected the “cheapest” route later that year but it was estimated to cost $16.5bn – which has since revised down to $15.8bn after a business case was completed.
WEST GATE TUNNEL (2017- 2023)
In 2016 a deal between tolling giant Transurban and the Andrews Government was signed for a $5.5 billion road between the West Gate Freeway and CityLink, as well as a Port of Melbourne link. When a final contract was signed it was a $6.7 billion project, and has been plagued by delays due to contaminated soil that are likely to add at least another $1 billion. Legal proceedings are ongoing over who pays.
INLAND RAIL (2018 – TBC)
The 1700km freight railway line connecting the ports of Melbourne to Brisbane was initially flagged as a $4.4bn project in a 2010 report by the Australian Rail Track Corporation. In 2015, a full business case showed a likely cost of $9.9bn. Infrastructure Australia assessed the benefit cost ratio at 1.1 and said “an increase in project cost could have a significant impact on the final BCR”. Proponents of a different route say it could end up costing $16bn.
SUBURBAN RAIL LOOP (2022 – TBC)
Described in the Grattan Institute report as “a particularly egregious example of a large project being announced without appropriate scrutiny”. It will be Australia’s most expensive transport infrastructure project but was announced with little scrutiny, three months before a state election. Slated as a 90km loop connecting Cheltenham in the southeast with Werribee in the southwest, built over 30 years, costing more than $50bn.
MELBOURNE METRO RAIL TUNNEL (2018 – 2025)
The $11 billion project began construction in 2018, and the Auditor-General noted that early works cost $150 million more than anticipated. Last month, the Herald Sun revealed a deal had been struck between the project builders and the Andrews Government to pay for $1.5-2bn in blowouts. The state is expected to pick up the largest share of the extra costs and more claims could still be made by the consortium.
MORE NEWS:
UNION LOYALIST AMONG NEW MELBOURNE COUNCILLORS