Should the Sydney to Wollongong rail line be upgraded?

Posted: July 15, 2017 in Transport
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A Peter Martin article entitled ¨Benefits from a Wollongong-to-Sydney rail upgrade would exceed costs, Cabinet told¨ appeared recently in the Sydney Morning Herald on 13 July 2017. The article suggests that a $5bn upgrade to the rail line from Sydney to Wollongong would potentially provide benefits more than double their cost. It suggests that this is a favourable option to an $18bn extension of the F6 Motorway between Sydney and Wollongong.

The biggest obstacle to upgrading the rail line to Wollongong is that there is actually no business case currently available for the full project. The SMH article claims ¨the total cost of upgrading the Sydney to Wollongong commuter line would be around $5 billion¨, of which a rail tunnel from Thirroul to Waterfall is the largest expense at $2.9bn.

A Benefit Cost Ratio (BCR) of 1.5 to 2.4 is provided only for the Maldon to Dombarton freight line, which at $700m-$800m represents no more than 16% of the full project on a cost basis. This line would allow freight trains to travel to Sydney from Wollongong via Campbelltown rather than the current path via Sutherland.

The Maldon to Dombarton Railway would allow freight trains to travel between Sydney and Port Kembla without using the T4 Line through Hurstville and Sutherland. Click to enlarge. (Source: Infrastructure NSW, State Infrastructure Strategy Update 2014, p. 65.)

However, the BCR drops to 0.9 when a discount rate of 7% is used rather than 4.4%. A discount rate of 7% is the standard one used in order to compare all infrastructure projects. Using a lower discount rate inflates the benefits when compared to other projects. The reduction in BCR below 1.0 suggests that the costs of this project outweight the benefits.

Infrastructure Australia also pointed out that the benefits are probably to be overstated for 2 reasons: (1) coal freight tonnage is likely to decline in coming decades and (2) there are no current plans to convert part of the T4 Illawarra Line to metro standard which would subsequently require a new entry path for rail freight from the Illawarra into Sydney.

The full text of Infrastructure Australia´s conclusion is included below.

¨There is significant uncertainty around forecast future freight demand, particularly from 2031 onwards. Freight throughputs were estimated for 2014, 2021 and 2031. Beyond 2031, demand was assumed to remain constant at 2031 levels. The business case assumed coal would represent 58% of projected freight tonnage using the line in 2031. However, a number of coal mines which were projected to use the Maldon-Dombarton Rail Link over the entire 50-year evaluation period are expected to be exhausted within the next 20 years. For example, the Tahmoor coal mine – which was expected to account for around 22% of rail paths on the Maldon-Dombarton Rail Link from 2031 – is expected to close by early 2019. This lost freight demand is unlikely to be replaced, and lower freight demand would lower project benefits.

The base case is not a ‘do-minimum’ base case because it assumes uncommitted future network changes to the Sydney rail system, including the potential introduction of rapid transit services to Hurstville by 2031. This would affect freight rail capacity on the Illawarra line. However, these changes have not been committed or funded, so it is not certain that the related project benefits would be realised.Also important to consider is that the $700m-$800m cost was calculated at P50. In other words, there is a 50% chance that the cost will be higher than that estimate, and a 50% chance that it will be lower. Additionally, the analysis excludes wider economic benefits. These include things like agglomeration economies, improving market competitiveness, or increased tax revenues from labour markets. They are excluded in part because they are indirect and thus hard to measure. But it does mean that a BCR of close to 1.0 could still make a project such as this viable as WEBs would ultimately make the benefits outweigh the costs. However, as previously stated, if the benefits are overstated then it is unlikely that the BCR would be close to 1.0 anyway.¨

So does this mean that an upgrade of the South Coast Line from Wollongong to Sydney does not stack up? The answer is: we actually don´t know.

A section of the partly completed Maldon to Dombarton freight railway. Click to enlarge. (Source: Marcus Wong.)

Remember: this is a $5bn project and the Maldon to Dombarton freight line is just one small part of it. In order to determine if the full project is economically viable, a business case needs to be developed for the full project. Not one part of the project. Not all of the parts separately. The full project. This is because when taken as a whole, individual parts of the full project could provide benefits for another part and vice versa.

What certainly doesn´t help is a government decision to look into a road improvement to connect Sydney to Wollongong, excluding all other options. Instead, the government could have committed itself to evaluating the transport corridor first, then determining which mode provides the best possible outcome.

It remains possible that improved road connections could provide a greater benefit than improved rail connections. However, the higher estimated cost of road ($18bn) compared to rail ($5bn) makes this seem less likely when taken at face value.

But without a study into the business case of both, we won´t know for sure.

  1. Andrew Roydhouse - TfNSW CSELR Community Rep - Kensington, Kingsford & Randwick says:

    Given TfNSW’s history of refusing to reveal business cases to the public (CSELR, Gladys misleading Parliament & community over cost blow-out whilst CSELR passenger capacity reduced NOT increased etc etc) – isn’t the point that a publicly released business case needs to be done and ALL underlying assumptions revealed and justified.

    It took our approach to the State Auditor General with TfNSW’s own documents that showed that the CSELR was cutting public transport capacity between Central/Circular Quay and Kingsford/Randwick – to get any information released publicly on what was in the top-secret business case.

    The State Auditor General found that over $1bn in “benefits” did not exist and that the NSW Transport Minister’s office had been told of this BEFORE the infamous “fake news” of Gladys’ media release which turned out not to contain a single correct figure other than the cost blow-out.

    We cannot even get minutes from the Community Reference Group meetings to contain what was actually raised. Too much to hide?

    It is time that all infrastructure projects, major Govt spending etc have its underlying assumptions, and analysis laid out in their entirety.

    Or would that be inconvenient for those donors who stand to profit from the public purse?

    Since the advent of freeways/highways/tollways etc – the one indisputable fact is that they never solve congestion.

    It is amusing to pull up some of the grand claims made for the M5 East and how it was going to shorten journey times. Just like the claims made to justify every other toll road or freeway expansion.

    Is it a coincidence that historically in Australia 5 of the top ten donors to both major parties were identical when you consolidated ‘declared’ donations across local, state and Federal levels.

    Guess which industry they hailed from?

  2. Should we continue to drive Sydney’s population up by 2,000 people per week for at least the next 40 years with no Liberal, Labor or Green policy on net overseas migration? That is the real question here. All else is like ‘shuffling deckchairs on the titanic’

  3. Ray says:

    Great to hear from you again Bambul. Your commentary has been missed.

    It seems that there is some disagreement over what level of discount rate (7% or 4.4%) should be applied to establish a Benefit Cost Ratio (BCF) for infrastructure projects, with the latter taking into account Wider Economic Benefits (WEB). Although I’m no expert, from my reading of the situation, in lay man’s terms, it seems that WEB should be taken into account, even if they happen to be negligible. If a lower discount rate is considered feasible, then it would make a difference to whether a project is considered viable or not.

    The assessment by Infrastructure Australia seems to be perfectly reasonable, having regard to future demand for freight traffic, particularly coal, to Port Kembla and any likely impediment to continued freight movement through the Metropolitan area via the Illawarra Line, in the absence of any planned conversion of the existing line to metro as far as Hurstville. It shouldn’t be assumed that this is likely to happen in the immediate or even longer term future.

    However, just looking at it from an operational perspective, it seems logical to separate freight traffic from inner suburban commuter traffic, such as the Illawarra line, allowing for growth in the latter. If the WEB were applied to the Maldon to Dombarton freight link, with a lower discount rate, then it would have to be considered as having a positive BCR.

    The issue of an upgrading of the Illawarra Line from Waterfall to Wollongong is another matter. I don’t consider this to be a solution to traffic congestion between Wollongong and Sydney on its own, but part of a broader transport solution which includes an upgrading of the F6 motorway corridor. We need both.

    In my opinion, the proposed cost of the F6 upgrade of $18 billion is a gross overestimate, having regard to the fact that it’s suggested that the inner section from Alexandria to Sans Souci would be in tunnel. Why? It’s within a long standing reserved surface corridor, so there’s no need for it to be undergrounded. Infrastructure Australia has stated that the cost of tunnelling can be 5-10 times the cost of a surface route, so there’s a substantial saving if the F6 is constructed on the surface.

    I’m pragmatic and I’d prefer to see a balanced solution which involves both road and rail upgrades.

  4. Alex says:

    I recall that another reason for the tunnel was to provide a long-term solution for the instability of sections of the Illawarra line. If this is the case the potential economic cost of landslips closing the line should be factored into the BCR calculations of the tunnel alternative.

  5. Greg says:

    Ray – Good to see some discussion of the various discount rates that can be applied, but you have it a little mixed up. The issue of which discount rate is used is separate from the inclusion of Wider Economic Benefits (WEB). WEB is simply another kind of benefit. As a simple example, if a rail line costs $10b and has benefits (excluding WEB) of $10b, you would say is has a BCR of 1.0 (excluding WEB). If it also has WEB of $5b then the BCR would be 1.5 (including WEB).

    The discount rate determines how you get to those numbers – if the benefit is in the future they reduce it to compare it with a benefit which exists today. If you discount it at a higher number, you get a lower benefit and you prioritise projects with short term benefits over long term benefits. With our same example above, if we used a discount rate of 7% to get our benefits (excluding WEB) of $10b and WEB of $5b, then maybe if we used the lower discount rate of 4.4% we actually end up with benefits (excluding WEB) of $20b and WEB of $10b. So our BCR using a 4.4% discount rate is 2.0 (excluding WEB) or 3.0 (including WEB).

    So the BCR can be expressed both with and without WEB for both (or any) discount rate.

    Infrastructure Australia recommends an appraisal period of 30 years and a discount rate of 7%. This is not unusual internationally, with some agencies saying it should be higher and some that it should be lower. If you look at the UK Treasury though, they asses a project over 60 years, with the first 30 years at 3.5% and the next 30 years at 3%. This allows the longer term benefits to be captured in the analysis. Crossrail was assessed on this basis and had a positive BCR – if it was assessed under the Infrastructure Australia guideline of 7% Crossrail would have never gotten off the ground (so to speak).

    This is something that definitely needs more attention.

  6. Ray says:

    Thanks for correcting me on that Greg. I don’t claim to be any expert.

  7. @Ray –

    Thanks for the kind words. I’ve been overseas this year and won’t be back in Australia until January. So posts are a bit sporadic at the moment. Well, more sporadic than the usual infrequent.

  8. Hisashi says:

    Hi, I’ve been following your entries for a couple of years now. I do hope you continue this good discussion of Sydney’s transport system, no matter how sporadic.

    There is the question in what kind of upgrades would be done if the upgrading goes ahead. Would this include straightening parts of the South Coast Line to allow higher operational speeds, and if so, would there be a case in determining routes and securing property earlier (maybe even now)? I know this would take a long time to determine, due to negotiating with the property owners.

    Case in point: The quadding project for the Odakyu Line in SW Tokyo apparently goes back to 1962 in one of the metropolitan plans, with the first stage of construction happening in 1989, and the final construction is expected to finish this year. It took this long due to lawsuits/resistance from residents living nearby, and I don’t think the improved section is even half of the entire line. Granted, Australia isn’t anywhere near as dense as Japan, but I’d be surprised if the difficulty of acquiring private property aren’t more or less similar between the two.

  9. Build Sydney says:

    It is very hard to say whether the project provides a business case or not, however, it would provide the opportunity for Wollongong to become as close the CBD as Penrith with the added benefit of a beach, cafe lifestyle & a thriving university.

    Projects like this rail line will drive demand for people who want to move out of Sydney, whether they will be able to afford to once this project opens to the public is another matter altogether. It would be very interesting to see if a future high-speed rail line running from Newcastle to Canberra would be feasible because if it is then it would make this rail upgrade redundant in less than a decade whereas the road would be funded mostly by tolls.

    In a utopian world, both projects would be built, but a metro system across Sydney’s suburbs would again be a wiser spend in many ways. Sydney is currently under a massive infrastructure boom & any extra infrastructure we get from this point onwards in the next 5 years will be a huge bonus. If only the population wasn’t growing at 100,000/year for us to actually enjoy the infrastructure without the congestion.

  10. Ray says:

    @Build Sydney –

    As you say, the F6 (M1) upgrade would be mostly funded by tolls. Whatever the final cost is, the government would only be making a modest contribution, or they should be, so there should be more than enough funding available for the rail upgrade. If they claim there isn’t sufficient funding for both projects, then they’re pulling the wool over our eyes. Considering what they’re spending on the metro, it’s a drop in the bucket.

  11. Build Sydney says:

    @Ray –

    Fully agreed, these are urgent projects if our population rate is going to continue to grow according to forecasts. Really the F6 Extension & the Rail upgrade should be built, NOW! We really need to start being proactive about infrastructure projects rather than be reactive which is the major cause for our congestion & network over capacity issues.

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