Full steam ahead for Suburban Rail Loop despite belt-tightening by Canberra

The Victorian government is pushing ahead with plans to start tunnelling the $34.4 billion first stage of the Suburban Rail Loop despite Canberra refusing to commit funding for the project beyond an initial $2.2 billion pledged by Anthony Albanese during last year’s federal election campaign.

Victoria is close to signing its first major works contract associated with the mammoth project, an agreement worth between $3 billion and $4 billion for the Suburban Connect consortium to bore the space needed for twin rail tunnels to run between Cheltenham and Glen Waverley in Melbourne’s south-east.

Premier Jacinta Allan, then the minister for the Suburban Rail Loop, inspects early works in Burwood in August. Credit: Jason South

The contract, once completed, will make the government liable for a huge damages bill if the project is subsequently abandoned.

According to this year’s state budget papers, the Victorian government has allocated $11.8 billion towards SRL East, the first section of the project, and is “seeking a matching contribution from the Commonwealth government”.

A source involved in contract negotiations but unable to speak publicly due to commercial sensitivities said there were no signs of either party seeking to back out or delay, despite long-term uncertainty over funding. “It feels like everything is going as it should,” the source said.

Suburban Rail Loop Authority chief executive Frankie Carroll said in the authority’s annual report tabled last week in state parliament that “critical construction milestones” associated with the project were being met and major tunnelling contracts would be awarded in late 2023 and 2024.

The authority’s chairman, James Merlino, a former deputy premier who retired from parliament before last year’s state election, said works along the planned rail corridor would “continue to ramp up” during the next 12 months.

The state government announced in August that Suburban Connect, a multinational consortium comprising Australian construction giants CPB Contractors and Acciona and Italian-based civil engineering group Ghella, was its preferred bidder for the SRL East main works contracts.

“The Victorian and Commonwealth governments have already committed $14 billion for SRL East – that’s more than enough for what we need to get tunnel boring machines in the ground by 2026,” a government spokesperson said.

“Victorians have endorsed SRL at the previous two elections, so we’re getting on with building it.”

Victoria’s enthusiasm for the most expensive infrastructure project in the state’s history is increasingly at odds with the financial restraint of the federal government, which is seeking to bring under control huge cost overruns on its infrastructure program.

Federal Infrastructure Minister Catherine King confirmed on Monday that the federal government would sink $120 billion into the 10-year building program, but projects in every state were likely to be delayed or axed to claw back $33 billion in cost blowouts.

“What I don’t want to do is promise people that we’re going to build something when it clearly is not going to be built,” she said.

The federal government has privately flagged with the states that it will honour Labor’s infrastructure election commitments but funding beyond that, particularly for projects that haven’t been through a costing process, will be difficult to secure.

It has received but not yet released the report of an independent review of the national infrastructure pipeline. Sources who have seen the report but are not authorised to disclose its contents say it contains a “traffic light system” that colour codes which projects should be built, delayed or abandoned.

The report mentions the Suburban Rail Loop but does not give it a colour code.

Last week the International Monetary Fund warned all governments to slow down and better co-ordinate infrastructure spending, which is contributing to inflationary pressures.

Marion Terrill, the Grattan Institute’s transport and cities program director, urged the federal government to heed the IMF message in its approach to the Suburban Rail Loop, which according to its own business case requires many additional billions of dollars of investment from the Commonwealth.

“If it [the Commonwealth] is going to take seriously this advice from the IMF, it might sort of put that on ice,” Terrill said.

“We’ve seen quite a significant spike in the price of building transport projects since about 2021. Because it’s such an expensive time to build, it makes a lot of sense to slow right down on infrastructure investment now.”

The concept of a Suburban Rail Loop, a proposed 90-kilometre orbital rail line that would encirle Melbourne’s middle suburbs, was unveiled by the Andrews government five years ago with a price tag of $50 billion. The Parliamentary Budget Office estimates that one half of the project – a series of rail tunnels between Cheltenham and Melbourne Airport – will cost $125 billion to build.

The state government is also counting on “a range of private sector investment and value capture sources”, the budget papers note.

The Victorian Auditor-General’s Office raised concerns in September 2022 about the project’s financial assumptions. It noted “ongoing uncertainty” about the Commonwealth’s contribution and warned the value-capture target may not be achieved.

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