By Josh Gordon
The former government clearly went to extraordinary lengths to make the East West Link appear as though it stacked up.
Using the most basic methodology preferred by Infrastructure Australia, the project was assessed as having a benefit-cost ratio of just 0.45 in March 2013.
In other words, it was a dog: according to the government's own numbers, the project involved a loss-making return of just 45 cents for every $1 spent.
To boost the numbers, the government added in three so-called wider economic benefits, resorting to a controversial branch of analysis known as "agglomeration economics".
Former premier Denis Napthine, flanked by federal Infrastructure Minister Jamie Briggs and former transport minister Terry Mulder spruiking the East West Link.Credit: Justin McManus
In doing so, it assumed that the project would cause businesses to "cluster", leading to efficiencies associated with a higher density of activity.
It also - somewhat dubiously - claimed the road would increase the number of hours worked because of reduced travel times, resulting in higher tax revenue, before adding in an extra productivity gain for good measure stemming from higher labour productivity.
But even after adding in those three "wider economic benefits", according to the government's own numbers the project did not stack up, producing a benefit-cost ratio of 0.84, suggesting a loss-making return of 84 cents for every $1 spent.
So it was back to the drawing board. Three months after producing a first business case, the former government released a second, revised version, in which it dramatically increased the claimed benefit estimates.
It achieved this by including a range of "complementary" projects in the analysis, including widening the Tullamarine Freeway, widening the Eastern Freeway and a range of "north-south" public transport improvements.
Despite these projects arguably being completely separate measures for Melbourne's transport network, the Coalition was finally able to product a positive benefit-cost ratio of 1.4, which it selectively spruiked in a glossy "short-form" business case.
In an extraordinary admission, cabinet documents reveal the former government decided not to release the full business case to Infrastructure Australia – the independent umpire – because it was worried the low benefit-cost ratio "may be used as a justification for not supporting the project".
Instead, cabinet decided to dodge scrutiny by providing "updated strategic material". "The Victorian Government can then state that it has submitted updated project information to IA for assessment," the cabinet assessment says, also suggesting this would allow it to lobby the Commonwealth for cash to build the road.
In retrospect, convincing the public that the road was unambiguously a good idea was always going to be challenge, given the high construction costs, relatively low toll revenues and massive ongoing three-monthly availability payments guaranteed to the consortium over 25 years.
Building the link as a tunnel was extraordinarily expensive, costing an average of $1.2 billion per kilometre, compared to just $200 million for CityLink and $100 million for EastLink.
In return, Victorian taxpayers would claw back just $112 million a year in toll revenue, compared to $435 million for CityLink and $208 million for EastLink.
That meant it would it would take 56 years of projected tolling rates to pay construction costs alone.
All of this is before considering the fixed availability charge paid to the consortium, which the business case suggests would cost about $345 million a year.
There were a number of problems. As the original business case makes clear, building the road "at grade" on the surface would have been by far the cheapest option, costing about $1 billion. This would have produced an unambiguously glowing benefit-cost ratio of 4.62 after including the wider benefit, but on the downside it would have trashed inner Melbourne and divided the city.
A viaduct – involving a raised LA-style freeway – was another option, although it would also be expensive, producing an only marginally better benefit-cost ratio than the tunnel option.
The business case also reveals relatively modest traffic flows for the road, with only 7 per cent of motorists at the end of the Eastern Freeway heading to the airport and a further 6 per cent heading to the western suburbs. During the morning peak, roughly 30 per cent of motorists were believed to be heading into the city, suggesting the toll road would be of less benefit.
According to the government's figures, about 122,000 vehicles would use the toll road on a typical week day. For the western half, which the Coalition put on the agenda in the May 2014 budget, would involve about half that traffic (50,000 to 65,000 vehicles), largely because the untolled West Gate Bridge would soak up most of the cars.
The obvious solution would be to toll the West Gate to create a level playing field between the two roads, although politically this was seen as difficult, given it had already been ruled out by former premier Denis Napthine.
Small wonder the East West Link was such a hard project to sell. To convince the public of its merits would have taken some very good sales skills indeed. On this front, the Coalition was clearly lacking.