Auditor finds Suburban Rail Loop benefits could be overstated

Victoria’s auditor-general says the Andrews government may have overstated the benefits of its $35 billion Suburban Rail Loop and the Melbourne Airport rail link projects by failing to follow department guidelines when producing their business cases.

The Victorian Auditor-General’s Office on Wednesday filed two reviews in state parliament that found the government had not properly assessed the major projects and was keeping the public in the dark about other work under way in its $184 billion infrastructure pipeline.

The auditor-general says the Suburban Rail Loop business case did not follow department guidelines. Credit: Jason South

The report found the business cases for two major projects the government has committed to – the $35 billion eastern leg of the proposed Suburban Rail Loop and the $13 billion Melbourne Airport Rail link, which was released on Wednesday – did not support “fully informed investment decisions”.

Suburban Rail Loop East, which runs from Cheltenham to Box Hill, has become a hot-button issue in the upcoming November election after the state opposition pledged to delay its construction to prioritise health spending.

The business cases for both projects used a lower “discount rate” of 4 per cent to calculate the current value of future economic benefits, rather than 7 per cent stipulated in government guidelines. They also went against guidelines by including “wider economic benefits” in benefit-cost ratios.

The auditor-general’s report said there was a “material risk that the economic value of these projects is overstated” because the business cases did not follow government guidelines for producing those documents.

An artist’s impression of a new elevated station to connect the $13 billion airport rail link to Melbourne Airport.

Transport Infrastructure Minister Jacinta Allan said on Wednesday the government disagreed with the auditor-general’s assessment and said there was a “a vigorous and rigorous process” for all its projects.

Allan said that “big, multi-year projects” like Suburban Rail Loop East and Airport Rail required an “approach that has to be tailored to the project”.

“We have a process where the standard business case guidelines are adhered to, but they are enhanced,” she said. “A small road project is very, very different to the Airport Rail Link or the Suburban Rail Loop.”

The Auditor-General’s Office noted, however, that departmental guidance was designed for “large-scale investment projects”. The Andrews government committed to the Suburban Rail Loop and Airport Rail before their business cases were produced, whereas it was “commonly accepted better practice” that business cases “precede and inform investment decisions”, the report said.

Workers in Clayton doing preparatory work for the Suburban Rail Loop in August.Credit: Jason South

The Suburban Rail Loop East business case said it would produce between $1 and $1.70 in benefits for every $1 invested and the Airport Rail projected a benefit-cost ratio of $1.10 to $1.30 for every $1 invested.

But the auditor-general said Suburban Rail Loop East would lose 51¢ in the dollar and the Airport Rail would lose 48¢ if the business cases were prepared using department guidelines. Governments usually do not proceed with projects that have a loss-making benefit-cost ratio.

This decision and the failure to consider alternative options for the two projects meant “decision-makers did not have all necessary information at their disposal”, the auditor said.

The auditor-general recommended the government produce a business case to demonstrate the economic rationale for the entire 90-kilometre proposed Suburban Rail Loop project. But the government told the auditor-general it had “no plans to do so”, the report says.

The rail loop would continue from Box Hill to Melbourne Airport by around 2050 and then through the western suburbs to Werribee.

The second report also found the government was not providing timely, relevant, sufficient and transparent updates to the public about how projects worth more than $100 million were progressing. The expected benefits of a project, or changes to its scope, were often not properly explained, the report said.

“Without this information, parliament and the community cannot hold responsible entities accountable,” it said.

The auditor-general’s business case report examined four projects. It found the case for the $365 million Barwon Heads Road upgrade had been delivered too late, but was satisfied with the business case for the $220 million Mickleham Road upgrade.

Shadow treasurer David Davis said the report backed up the opposition’s claim that the Suburban Rail Loop is “shonky” and “a dog of a project”.

“This is the king daddy of risky projects,” Davis said.

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