Are Australia’s road builders repeating the mistakes of the electricity poles and wires companies that massively over-invested in their assets and then handed the bill to consumers?
Judging by two sets of numbers that have recently emerged over road building that could well be the case.
One very interesting set of numbers is exactly how much roads cost us to build.
In the case of the Melbourne’s giant East West Link road project Fairfax reported last week that the estimated cost per kilometre will be a cool $1 billion. That’s correct, it’s the “b” word, not the “m” word. Sydney’s WestConnex will be half of that, $473 million a km.
The figures, prepared by actuary Ian Bell, show that Brisbane’s Airport Link cost $747 million a kilometre and Sydney’s Cross City Tunnel was constructed at a capital cost per kilometre of $476 million.
These revelations show that all infrastructure is not equal and far from equally good. Especially if compared with the same investment in rail for instance.
As Eric Lumsden, the then director general of planning in Western Australia, now Planning Commissioner, pointed out in our Greening the West sustainability salon in November, you need objectives first. Infrastructure is not of its own accord intrinsically good or a valuable use of scarce resources. Lumsden pointed to the Alice Springs to Darwin train line that was “great for tourists”, but little else, as a case in point.
In another set of numbers a court has heard allegations that engineers who built the Lane Cove Tunnel in Sydney used “reverse engineering” to arrive at the estimated number of people who would use the tunnel: that is, they started with their commercial objectives first and then worked backwards to create the user numbers to justify the business case.
In the court case under way, Fairfax Media reported on Tuesday that the Supreme Court has heard that the Lane Cove Tunnel opened in 2007 with about a third of the predicted traffic volumes.
“Those figures are coming back to hurt the forecasters, two of the biggest names in the business, that are facing a $144 million lawsuit by aggrieved investors,” the article said.
AMP Capital Investors, the manager of two funds that lost when the tunnel went into receivership within three years of opening, is suing Parsons Brinckerhoff and Booz Allen Hamilton, both of which have since won numerous lucrative contracts from the state government.
The trial heard that Parsons Brinckerhoff “reverse engineered” traffic forecasts for the Lane Cove Tunnel to fit the needs of the consortium that hired it.
It did this by excluding, from its forecasts, estimates of how many motorists would use the tunnel outside peak hour, AMP’s barrister Tony Bannon said. “You are saying they worked backwards from their commercial objectives,” Justice Pembroke asked Mr Bannon. “Yes,” Mr Bannon replied.
The consortium to build the tunnel included AMP, which contributed $80 million in equity to the project as the manager of two funds: REST Infrastructure Trust and the Infrastructure Equity Fund.
The Lane Cove Tunnel was placed in receivership and bought by toll-road operator Transurban for $630 million, “about $1 billion less than it cost to build”, the article says.
These examples in road building are sobering wake up calls to the decades-long cry for more infrastructure. In NSW the Carr government was decried for sidelining the infrastructure investment, a charge that Bob Carr denied when The Fifth Estate put this to him (before he was appointed foreign minister).
The Abbott government has seized on the cry for more critical infrastructure but it’s focused almost exclusively on roads.
Roads can be useful but for now they rely on fossil fuels to “drive” them.
The cost of roads as revealed by the Fairfax Media article is scandalous, not just because they it is so high and not even because governments have kept these comparative costs strictly under wraps but most importantly because there has not been an open discussion about how to best invest scarce funds and scarce resources to achieve the best outcomes for the nation or city.
What’s the plan?
It’s the Lumsden question that must be asked.
Australia and the US cosy up
Australia and the United States of America are increasingly finding common ground, and not just the kind that involves what our PM this week described as a “humanitarian” mission to bomb parts of Iraq again. Take very fast trains for example, which have been mooted time and again in both nations as a way to improve connectivity between regions and the far-flung major capital cities.
As an article in The Atlantic observed, in the US it’s simply a matter of political will. Does that sound familiar? The writer goes on to point out that the car remains king in the States, and that investment in rail has well and truly lagged compared to other wealthy nations such as France, Russia and Japan. Even Turkey, which is hardly one of the world’s gilt-edged economies, is connected to the rest of its continent by a super-fast rail link. As far as Canberra is concerned rail is all very well when it’s doing the hard and dirty work of shifting mega-tonnes of coal, iron, gold or bauxite and other profitable stuff, but while millions have been committed for freight-related rail projects in every state except Tasmania and the Northern Territory, the Feds seem reluctant to invest in shifting actual taxpayers around the country.
As Dr Julian Bolleter and Richard Weller write in Made in Australia:
High Speed Rail systems are commonplace in Japan, Europe and now China but there are as yet none in Australia. Since the 1980s several feasibility studies for HSR on the east coast have been completed, and a study for a Perth to Bunbury link on the west coast was conducted in 2009.
Although past governments have shunned the high cost of this infrastructure ($60-$90 billion for 1700 kilometres along the east coast), population growth and the capacity to reduce carbon emissions render HSR increasingly attractive.
It’s interesting to look at the maths. When we grabbed the office calculator and crunched the numbers, the HSR even at $90 billion, comes in at $53 million a kilometre, much less than the billion dollars a kilometre of the East-West link, and a bargain compared with Sydney’s WestConnex at $473 million per kilometre.
Makes rail look quite cost competitive given the benefits of highly efficient public transport between cities at a speed that compares favourably with planes. Now about that second Sydney airport…
GGB lives… sort of
The Greener Government Buildings Program might be kicking, slightly, thanks to the hard and determined work of some people who can’t bear to toss out a program that was winning accolades around the nation.
Although in no way springing back to life, it’s possible the GGB could be coming back in another life form, albeit a thinner one. Industry sources told us this week that the rebirthed GGB, now known as the Efficient Government Buildings program, is leaving some sectors without a financial leg to stand on in terms of undertaking projects.
Unlike the GGB, which provided grants for works that are then repaid from the savings on energy costs, the EGB requires new projects to find their own source of finance.
An industry source told The Fifth Estate proposals that were at the pre-tender stage such as proposed energy efficiency upgrades in the Health Sector, currently remain in limbo. There are also no new projects going to tender, which leaves the sustainability services industry in a state of uncertainty about future work prospects.
It is believed that about $30 million of committed funds remain available for already approved projects this financial year, all 14 of which are now rebadged as EGB projects and proceeding under Energy Performance Contracting models. The EPC model means the contractor is liable to financially make up the shortfall should projects fail to deliver the projected savings with the seven-year payback period. EGB projects in the installation phase include RMIT, Grampians Wimmera Mallee Water, Federation Square, Parks Victoria, Sunraysia TAFE, Holmesglen TAFE and City of Yarra.
The main difficulty for would-be new EGB projects, such as those proposed by the Department of Health, is finding the financing from its own resources given budget cuts in other areas. The EPC’s business case means finding either funds from within budgets, or from other grant sources or via debt financing. A source said Health may find it difficult to obtain debt finance unless it can be found from within government funds.
Which brings us back to how much our government is starting to resemble Uncle Sam’s, where health, education and welfare spending are constricted under the mantra of “smaller, more efficient government”.
All of which plays into the mantras of less enlightened sectors of the business community, who this week embraced the notion floated by the government that seeing as the unemployed under 30 may be denied income support for up to six months, the solution would be to allow employers who hire them to be exempt from minimum wage requirements. We can see where this is going, can’t we – suddenly there is less incentive to retain lower skilled employees long term, because they can be churned for cheaper, more desperate ones. “Oh, how socially sustainable,” said no one ever.
And as we see in coverage of the minimum wage debate in the US, the companies who engage in gouging staff create a class of people who live on the edge of desperation. And this brings us to yet more government lunacy over the past week, with the coal industry and their elected supporters arguing that increasing our coal exports pronto is virtually a form of foreign aid as it will help “lift developing nations out of energy poverty”, as one commentator put it.
News flash for the King Coal Chorus – replacing energy poverty with energy dependency in the form of imports of a non-renewable and dirty source of power is not a sustainable solution. Not only that, as someone in the renewable industry pointed out to us this week, nations including India, Pakistan and Bangladesh, one of the poorest nations in Asia, are making great strides with installing small scale renewable projects, community microgrids and other clean energy solutions. Long live energy independence and true sustainable progress.