$4.3 billion cost blowout in Sydney's metro rail project

The Berejiklian government’s flagship metro rail project under Sydney Harbour and the central city will cost up to $16.8 billion to complete, more than $4 billion above what has been budgeted, a secret government document shows.

The rail line from Chatswood to the central city, and onto Sydenham in the south and Bankstown in the west, is critical to government plans to expand the rail network to handle surging commuter demand. The government originally budgeted the rail line to cost $11.5 billion to $12.5 billion.

But an internal review by Sydney Metro, the state’s operating agency delivering the railway, has forecast it will cost $16.8 billion to finish by 2024 due to blowouts across many parts of the City and Southwest project.

Transport Minister Andrew Constance, left, and Premier Gladys Berejiklian inspect one of the station sites last year. Credit: James Brickwood

The highly confidential budget review, completed about 18 months ago, shows the biggest projected cost overruns are for new trains and systems; excavating tunnels and sites for underground stations, such as at Martin Place and Barangaroo; and extensive work at Central and Sydenham stations.

While blaming "market pressures" for much of the cost blowout, it found "significant" under estimates in the much-vaunted project's final business case, which was completed about five years ago, for new trains and systems, as well as the scope of works at Chatswood.

The cost of buying new trains and systems, and then integrating them into the rail network, is projected to nearly double to $2.3 billion.

The budget review reveals that nearly $220 million for temporary transport, which includes putting on replacement buses while the existing Bankstown rail line is closed, was "not anticipated" in the project’s final business case five years ago.

The revelations raise questions about how the government will find the money to cover a blowout in the City and Southwest metro line, while committing the state to other rail projects whose cost will run into the tens of billions of dollars this decade.

They include the opening of a rail link to Western Sydney Airport at Badgerys Creek by 2026 – dubbed Metro Greater West – and an underground train line from central Sydney to Parramatta known as Metro West by the end of the decade.

The budget review shows the government is forecast to collect an extra $500 million – above what was originally anticipated for City and Southwest – from companies building offices, shops and apartments on top of new underground stations such as Victoria Cross in North Sydney.

But it reveals the large cost blowouts in other parts of the project will far outweigh the higher returns from those over-station developments.

In the face of costs blowing out, Sydney Metro officials have requested extra funding from NSW Treasury to help cover the forecast shortfall, according to transport sources.

The government has yet to release an estimate for its planned Metro West line, from central Sydney to Parramatta, although it has said it will cost "upwards of $20 billion".

But a blowout in the second stage of the metro rail network risks thwarting any expansion plans, such as extending Metro West to Zetland in the city’s inner south.

The state's acting Transport Minister Paul Toole declined to comment, while both Treasury and Transport for NSW did not respond to specific questions about the forecast blowout.

Sydney Metro said in a statement that the NSW government was "fully committed" to delivering the City and Southwest, Metro West and Greater West rail projects.

"The final cost of each project won’t be known until services commence," it said.

A spokesman said Metro Northwest from Rouse Hill to Chatswood, which opened in May last year, was on time and $1 billion under budget.

But a cost blowout in the second stage of the metro network will be an embarrassment for the government in the wake of Sydney’s troubled light rail line.

The final cost of the light rail line from Circular Quay to the eastern suburbs ballooned to $2.9 billion – $1.3 billion above the amount first budgeted.

The final business case for the City and Southwest project forecast it to deliver $1.53 worth of benefits for each $1 invested. A major increase in the final bill to build the project risks reducing substantially the benefits of the new line relative to its cost.