Archive for November, 2015

VIDEO: Shaun Micallef: Australia’s NBN proposals

A High Speed Rail (HSR) network connecting Melbourne, Canberra, Sydney, and Brisbane has been shown to create more benefits than costs while fares would pay the operating costs of trains on such a network. Yet there seems little appetite in the government to build one. Initially, this may appear to be due to the high initial costs of $114bn to build it; but on closer inspection it may be necessary to re-evaluate the way we look at HSR as something for regional Australia rather than just for travel between the capital cities.

Cost benefit analysis suggests that HSR is worth building. The Phase 2 Study found that HSR has a BCR (Benefit Cost Ratio) of 1.1 when a 7% discount rate is used. Thus, the benefits of building HSR are greater than the costs. However, the bulk of these benefits would accrue to the users of HSR in the form of time savings. In 2028 dollars, HSR users would receive $141bn of the total $180bn of benefits that HSR is expected to create. An additional $14bn of benefit go to operator benefits, which help to pay the operating costs and up to $16bn (14%) of infrastructure costs, but this still leaves the government paying for $98bn (86%) of infrastructure spending on HSR. (Sources: HSR Phase 2 Study Executive Summary, pages 42, 9).

This means the government would be subsidising the travel costs of HSR users to the tune of $98bn. This is unlike the NBN, where the initial infrastructure spending is expected to be eventually recouped. The majority of users (65%) would be leisure travellers; however the bulk of the benefits would be realised by business travellers (the remaining 35%), who would receive $93.6bn of the $141bn of benefits. That is because of the higher value attached to their time. This point was raised by Alan Davies in Crikey, who proposed that “if the [time] saving is so valuable to business travellers, they should pay the full cost of constructing the line”. The Phase 2 Study even recognises that these travellers would be willing to pay a higher fare:

“Increasing the cost of fares would increase the financial returns and reduce the funding gap, although doing so would reduce the number of people using the system. Even so, the economic benefits of the program would remain positive.”Source: HSR Phase 2 Study Executive Summary, page 9

Higher fares would have the benefit of reducing the government’s cost below $98bn. However, it would do so by impacting leisure travellers the most, with many choosing not to travel on HSR. Business travellers would mostly still continue to use HSR, but the loss of many leisure travellers would see the total benefit of the project reduced. Although the Phase 2 Study claims the economic benefits in such a situation would still remain positive (i.e. a BCR greater than 1), this may be based on the less conservative 4% discount rate, rather than the more conservative 7% discount rate that is normally applied to transport infrastructure projects. The 1.1 BCR that a 7% discount provides is dangerously close to falling below the 1.0 required for the project to be economically viable. Therefore, as it stands HSR does not appear viable without a $98bn government subsidy, most of which would flow to business travellers who least need government welfare.

An alternative perspective

The Phase 2 Study emphasises that HSR accrues more benefits as time progresses, given the growth in population. If governments work collaboratively and actively to preserve potential HSR corridors then HSR cost increases should be limited. Therefore, HSR becomes more viable as time progresses with benefits growing faster than costs.

Since HSR gains most of its benefits from additional users, one way to increase the viability of HSR is to add additional population to the corridor. This would be much easier to achieve around the regional stations where constraints are much more limited than in the major cities. HSR could act as an enabler, allowing a greater number of people to live and work in regional areas without becoming isolated from those services only available in major cities. The Phase 2 Study’s assumptions of modest population growth in regional towns situated on the HSR route show that this was not considered as part of the feasability for HSR.

In fact, the Phase 2 Study finds that HSR will produce $73.2bn in benefits from intercity travel, more than the $67.5bn in benefits from regional travel (Source: Department of Infrastructure, page 43). This finding that most of the benefits accrue from intercity travel rather than regional travel suggest that not enough is being done to massively develop regional Australia. HSR provides this opportunity which in turn makes HSR more viable.

Proposed East Coast High Speed Rail alignment. Click to enlarge. (Source: Department of Infrastructure, page 17.)

Proposed East Coast High Speed Rail alignment. Click to enlarge. (Source: Department of Infrastructure, page 17.)

 

This idea was floated by the ABC show Catalyst in its 4 December 2014 episode “Future Cities“, in which Dr Julian Bolleter says:

“So, what we think is really important, as the capital cities grow beyond mid-century, is that we begin to think not so much in terms of mega cities, but mega regions. Essentially, it means chains of smaller cities connected with very good public transport infrastructure. So we could conceive of a mega region running from Brisbane to Sydney through Canberra to Melbourne which is bound together by a high-speed rail link, and those cities will have access to affordable land, and they’ll also be able to be designed from the ground up around the principles of 21st-century sustainability. High-speed rail can travel at about 350km/h, so there’s no city along this mega region that is further than two hours commute on a high-speed train from a capital city.”Source: Dr Julian Bolleter, ABC

Achieving this would require us to rethink how HSR would work in AustraliaShadow Transport Minister Anthony Albanese recently wrote on HSR in which he concluded one well thought out and one not so well thought out point. His statement that “people could live in regional Australia and commute to work in the city” was not well thought out; this is true only to the extent that people can currently commute to work in Sydney by flying into Kingsford-Smith Airport, or any other major city airport. However his point that “companies could establish themselves in the regions, taking advantage of lower costs but comfortable in the knowledge the city was a short train ride away” hits the nail on the head.

In order for HSR to be a success in spurring regional development people need to live, work, and spend leisure time in the same place. Employment opportunities as well as services that are needed on a day to day basis such as health and education would be provided locally. But the existence of HSR provides convenient access to services which are not needed day to day, such as medical specialists or major cultural festivals.

If the 1,700km HSR corridor had a station every 100km or so along major regional cities, and these cities were allowed to grow to 800,000 residents each (as Dr Bolleter suggests in the Catalyst video), then it would be roughly equivalent to a doubling of the existing populations of Sydney and Melbourne combined. Once it becomes prohibitively expensive to retrofit the necessary infrastructure into our growing major cities, it will become cheaper to build it in regional cities even after the cost of HSR is factored in. Australian cities have not reached that point yet, but it remains a question of when rather than if they do reach that point.

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