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Is there actually a sensible case for the East-West Link?

The Victorian Government finally gave in to pressure and released more information on the business case for Melbourne’s East-West Link. Does it provide a convincing argument for the freeway?

Proposed alignment of East-West Link, stage one

One of the great mysteries of life in Victoria is how the Benefit Cost Ratio (BCR) for the proposed East-West Link freeway in Melbourne’s inner north went from negative territory (0.5) back in 2008 to positive territory today.

In fact according to the Short Form Business Case released earlier this month by the Victorian Government, the BCR is a very solid 1.4. That’s pretty good given the generally low BCRs associated with road projects, as I’ve discussed before.

It’s actually higher than the published BCR (1.2) for the proposed Melbourne Metro rail tunnel. I’m surprised by that because the Metro is required to underpin the continued growth of the CBD, a key engine of Melbourne’s productivity. From the government’s point of view it’s very fortunate since it has to justify to the public why it’s prioritising the freeway ahead of the rail line.

Most surprising though is the 1.4 BCR applies to the eastern section only (stage one). Most observers expect the major benefits from the freeway will come from the western section (stage two) which will service the port and industry directly.

The government only released the report in response to intense public pressure and, unfortunately, it’s only provided the Executive Summary.

This brief document (10 pages) doesn’t explain how the BCR was calculated or provide any data on which it might be appraised. Nor does it provide the most basic information – a simple estimate of forecast traffic volumes.

Indeed it’s not in any real sense a summary at all (assuming the full business case report isn’t similarly data-free!). It’s little more than a glossy media release with a string of unsubstantiated assertions.

So how did the government get the BCR up to 1.4?

Part of the explanation seems to be synergies. As the name implies, the East-West Link would connect existing freeways. In uncongested conditions it should generate travel time savings across large parts of the network.

The increase in travel speed from the tunnel and the widening of the Eastern Freeway should also induce more traffic on to the network. I expect there’s also a benefit reflecting faster travel times for public transport e.g. trams crossing roads like Alexandra Pde should get more green time at intersections.

They seem like plausible sources of benefits but I’d like to see how reasonable the estimates are. They don’t sound like they’d be large enough to exceed the massive $6-8 billion cost. I’d want to be convinced the lily hasn’t been drowned by gilding.

Which brings us to the more interesting aspects of the Executive Summary.

It explains that another way the BCRs been increased is by counting the Wider Economic Benefits (WEBs) attributable to the freeway. WEBs are in addition to standard benefits like travel time savings and include so-called “city shaping” pay-offs, particularly increased productivity derived from greater employment agglomeration.

This is a perfectly reasonable approach in principle. There’s a catch though – Infrastructure Australia requires the BCRs submitted for its consideration should be provided on a standard basis so projects can be compared and ranked. That basis does not include WEBs – for example, they’re not included in the BCR for Melbourne Metro published by Infrastructure Australia.

I’d like to know what the BCR of the East-West Link is without WEBs. Is it positive? I’m in any event doubtful about how much agglomeration economies could contribute to the benefits from the freeway.

It’s easy to see how public transport projects like Melbourne Metro facilitate agglomeration benefits because mass transit enables high employment densities. Delivering hundreds of thousands of workers to the same square mile over a brief window in the morning peak can only be achieved by high capacity rail-based public transport.

It’s much harder however to see how building a new freeway would provide significant agglomeration economies. Freeways can facilitate connections in relatively low density areas like Silicon Valley but in the context of the city centre – as is the case here – they’re prone to congest very quickly. Density is the enemy of freeways, not the friend.

The claim that the East-West Link will “help to realise desirable urban renewal in the highly productive central city core” consequently seems exaggerated. It sounds like it was pinched from a Melbourne Metro draft report.

Again, I’d like to know more than this skimpy document tells me. In particular, how has the government gone about estimating the agglomeration benefits it’s attributed to the freeway? How big are they? What’s included?

Another way the BCR might’ve jumped so spectacularly would be if it were calculated on the basis that part or all the freeway won’t be tolled. Tolls depress traffic demand as investors in some recent road projects in Brisbane and Sydney know only too well.

Were the government to toll users in order to finance the freeway as the report indicates it intends to, then the level of use and consequently the benefits would be considerably lower than the current BCR assumes. I don’t know if the government has done it this way but if not it’s an easy matter to clarify.

However it’s done it, the government should most certainly toll the new road and the expanded Eastern Freeway. That’s necessary both to ration demand and to protect the State budget. Indeed, tolling should be extended to all freeways.

Like most transport projects retrofitted into built-up areas, the extraordinarily high cost of constructing the East-West Link – in this case between $6-8 billion – makes it very hard to achieve a respectable BCR.

I’m not automatically opposed to building new freeways, as I’ve explained before. In a city where 90% of motorised travel is by road and logistics is a key part of the economy, I think projects have to be evaluated on their merits. However the bare minimum for any project to be given serious consideration, irrespective of mode, is that it has a positive BCR. This document indicates the East-West Link isn’t even at the starting line yet.

I’m starting to wonder if the government has consciously misled the public on the economic  justification for the East-West Link and is now digging a deeper and deeper hole for itself (yes, a pun). If it hasn’t, it needs to show it’s not a boondoggle. It needs to come clean and release the (actual) business case forthwith.

18

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  • 1
    Socrates
    Posted July 17, 2013 at 9:51 am | Permalink

    Alan

    You raise some very good questions about some very dubious analysis. This should not be a matter of opinion – there are formal guidelines for project assessment agreed by the SCOT committee a few years ago. From what you have said, this assesmsent does not meet those guidelines. A couple of key points:
    - guielines recommend that BCRs should be calculated for overall projects where they have multiple stages. Calculating incremental BCRs gives spurious results. Either the overall project makes sense or it does not. This requires stating the total cost of the whole project, and total benefits.
    - you cannot swap between options during the assessment. You cannot do the demand modelling without the toll, then evaluate the finance with the toll. The tolled and untolled roads are two separate options, with separate demand, BCR and finance issues.
    - induced traffic is not directly counted as a benefit and may result in a disbenefit.
    - there is no evidence of agglomeration benefits from CBD freeways for the reasons you state. Negative elasticities have been calculated for some such projects. Victorian DOI has been looking at both the rail and road projects, with a best case estimate of WEBs of about 11% for the road project. See
    http://www.transport.vic.gov.au/__data/assets/pdf_file/0005/74228/Job-density-productivity-and-the-role-of-transport.pdf

    - if WEBs are to be included, it is also troubling that there is no calculation of the likely negative impact on land values from project impacts on parklands. There is lots of evidence that property vlaues are positively correlated to the size, proximity and quality of nearby parklands.

  • 2
    hk
    Posted July 17, 2013 at 10:53 am | Permalink

    Maybe there is advantage in the proponents for a tunnel to take on the project health benefits and build them into the cost-benefit cases.
    There are many people who can find evidence that placing vehicular traffic in tunnels brings net community benefit to those living at surface level above the tunnel. The following unedited part quote comes from the BMA (British Medical Association) published “Healthy Transport=Healthy Lives”
    “While the expansion in car use has brought many social and economic benefits, increased vehicle numbers and traffic volume has also had negative impacts on health:
    • greater risk of road traffic crashes, with pedestrians and cyclists being particularly vulnerable
    • long-term exposure to air pollutants decreases life expectancy
    • areas of high deprivation suffer most from air-pollution-related morbidity and mortality and the effects of noise pollution
    • increased community severance as a result of poor urban planning
    ACTIVE TRAVEL
    Active forms of travel, such as walking and cycling, are the most sustainable forms of transport and are associated with a number of recognized health benefits including:
    • improved mental health
    • a reduced risk of premature death
    • prevention of chronic diseases such as coronary heart disease, stroke, type 2 diabetes, osteoporosis, depression, dementia, and cancer. “
    If the existing and future vehicular road traffic is placed below ground then ALL the above factors will become positive outcomes for the community through which the traffic flows today.

  • 3
    Russ
    Posted July 17, 2013 at 12:01 pm | Permalink

    Alan, I wouldn’t expect a freeway to provide agglomeration benefits, but I would expect it to increase/make more reliable freight speeds from the EastLink corridor to the airport. I’m surprised by the lack of detail. It shouldn’t be that hard to make a case for improving transport between Hastings/Dandenong/Gippsland and Melbourne Airport. Whether that is the best option is another matter. Industry is much more dynamic in locational response to transport changes than business and (especially) residential.

    hk, Socrates, this is the most disappointing element in the document released. Properties on Alexandra Parade rent for a significantly lower amount than those nearby. The loss of playing fields in Royal Park would be a reasonable price to pay for a substantially improved streetscape: a boulevard of two lanes both directions, bike lanes, light-rail from Clifton Hill to Melbourne University, and significantly increased density. There were some indications on the discussion documents that improvements to the streetscape were under consideration, but the latest plans reveal nothing that might add value to the local area.

    Optimally, there should be a toll to enter the tunnel, and a much steeper congestion toll for exiting the eastern freeway onto Alexandra Parade or Hoddle Street. The opportunity cost of keeping those two streets as traffic sewers is substantial.

  • 4
    Socrates
    Posted July 17, 2013 at 1:39 pm | Permalink

    hk

    The health benefit is only gained compared to the alternative of a surface road. If you build this tunnel overall traffic in VKT in Melbourne will almost certainly increase, negating any health benefit compared to a base case of no tunnel.

    I agree with your comments on active travel, but again I do not see how any net rise in active travel could be linked to this project.

    Also, I have in the past calculated secondary benefits for urban transport projects. In my experience secondary health benefits for roads rarely exceeded 10% of travel time benefits. They can be higher for rail or bus projects, because of the large number of people walking to/from the bus or train.

    Russ

    I agree on the land value benefits of those items you suggest, but again, we have no evidence that those improvements are proposed as part of this project, or included in its budget. Further, many could be done without the project, so they do not make the case for the tunnel.

  • 5
    Anderson Paul
    Posted July 17, 2013 at 2:06 pm | Permalink

    This whole thing to me reeks of corruption .. would like to see an article on how much money those who stand to benefit (freight companies, toll road operators, tunnel builders), from this god awful project.

  • 6
    Anderson Paul
    Posted July 17, 2013 at 2:08 pm | Permalink

    I would guess those vested interests who stand to benefit are big donors to the State Liberal (and State Labor – considering they’re staying quiet on their opposition to this) party.

  • 7
    suburbanite
    Posted July 17, 2013 at 2:20 pm | Permalink

    Bogans love new roads more than other services and are happy to spend everyones money building them – analysis is futile.

  • 8
    mook schanker
    Posted July 17, 2013 at 9:57 pm | Permalink

    Hmm, looks like the State will be taking on demand risk for the PPP with the private sector up for some availability mechanism. Do they run this kind of setup through the BCR calcs….?

  • 9
    b s
    Posted July 18, 2013 at 12:33 am | Permalink

    I am devastated to learn that the govt is spending our money on another road, when the state really needs improvement in public transport infrastructure, paramedics are poorly paid and many state hospitals are nearly broke. Why of all things is this road prioritised? I fail to understand why freight timetables are of more worth than basic healthcare. It seems that the politicians who made these decisions have not commuted on public transport or used public health services in a very long time. I don’t feel like the government is representing the interests of my kin.

    On a personal note, I’m sad that this plan seeks to destroy part of the park where I regularly run and get fresh air/sanity. Melbourne doesn’t have much green space and we shouldn’t destroy the little we have left. In a nation facing an obesity problem, why are we building more roads and thereby destroying sports grounds? Might this be a decision symbolic of our government’s poor choices?

    Russ: here here on local area improvements & congestion toll!

  • 10
    David Duncan
    Posted July 18, 2013 at 8:36 am | Permalink

    That map document you posted has seemingly been removed from the linking Melbourne website.

  • 11
    Alan Davies
    Posted July 18, 2013 at 9:19 am | Permalink

    David Duncan #10:

    Here’s the page with the link still there but not working – hopefully that means it’s a temporary technical problem.

  • 12
    KenS Melbourne
    Posted July 18, 2013 at 11:48 am | Permalink

    There are times when a political policy is the result a detailed discussion of the benefits to the society at large, and times where an electoral opportunity drives the policy. I feel that the East-West link is a case of the latter. The Napthine government sees the tunnel as an opportunity to wedge the opposition since Tony Abbott has already committed funding regardless of the business case. When defending the initial proposal in this year’s budget Mr. Napthine’s answer to practically every question was “But what will the opposition do? Do they support the tunnel?”
    In that case I am worried that the business case has been reverse engineered to justify what is basically a political decision. It would not be so bad if it wasn’t such a hugely expensive project.
    I think most people don’t remember that even Citylink had a shaky start when it was first opened, which resulted in the stock of TransUrban dropping dramatically! Even Eastlink has had its problems, and that cost a lot less than this tunnel.

  • 13
    IkaInk
    Posted July 18, 2013 at 12:53 pm | Permalink

    @Anderson Paul – Why would Labor act in opposition to a project they proposed?

    Very unsurprising that the Liberal Gov have not provided the details on the CBR. Even the ealier negative CBR provided by the previous government was very light on details and had some pretty strange categories: “Congestion Relief” then “Additional Congestion Relief”, why two separate categories? “Benefits of tunnelling”? I understand that tunnelling may reduce the impacts of the project on the local community, but it is hardly a benefit in itself, only the absence of a cost.

  • 14
    melburnite
    Posted July 18, 2013 at 2:00 pm | Permalink

    My initial reaction, apart from knowing that its a major project that we probably dont need, that will mainly benefit the trucking companies, construction and finance industries rather than the liveability of Melbourne, is all the extras that are NOT included as Russ has pointed out.

    I see one bus lane on the huge Hoddle Street bridge thing, but not one the other way, and is this part of a dedicated Bus Rapid Transit system or not ? And since there are official plans for a Doncaster rail line, why is the existing median being built over ? It would make more sense to build the connection as part of the scheme, even if the line itself doesnt happen for a while.

    And if traffic along Alexandra Parade is to decrease, will it be narrowed and turned into a boulevard ? As for Elliott Ave, I assumed this would be an opportunity to get traffic OUT of the park – but the connection to this road means that it will probably have more traffic in both directions – commuters to the west end of the city or inner north will exit the tunnel in the midst of the park and go back to Royal Parade, where the road is currently one lane each way – so it will inevitably be widened.

    And I can see other options at the Tulla end that would involve more tunnelling, and so be more expensive, but would use up far less of the park, and demolish fewer houses. The tunnel could split into two while still underground, with one branch heading off to eventually surface next to the citylink and off to Dynon Road (and why is that bit ‘future’ ? and how did we end up with two elevated 6 lane freeways next to each other ??) the other to the Tulla – but would stil need one elevated road popping out of the park connecting north and south to the existing freeway.

    Far better than the FIVE elevated roads, including one that goes OVER the existing citylink bridge where it crosses Mt Alexander Road. All horribly complicated, and no doubt will be horrible to look at, especially for those in apartments just built at that very intersection.

    (and just looking at the interactive map – stage two freeway to the west – doesnt even join up ! have to go from one to the other via Footscray Road ?!)

  • 15
    Swingdog
    Posted July 18, 2013 at 3:45 pm | Permalink

    Having been at and with colleagues still in the Department of Transport, it’s also probably useful to know that the first BCR which showed no benefit to the link was done internally. The government didn’t like that and so tendered it out to be done again. Result? You get the BCR you pay for from an external consultant.

  • 16
    Krammer56
    Posted July 18, 2013 at 10:35 pm | Permalink

    I suspect this project comes form two things – a dedicated authority looking for a project to build to keep them alive and a Government desperately doing the same thing.

    The interesting thing I noted from the summary (although it is more a glossy marketing puff piece if you ask me!) is that the NPV of the “Net benefits” is $1.476B – implying a total NPV of Benefits of $5.17B if the BCR is 1.4, but more interestingly implying an NPV cost of only $3.69B.

    I wonder how this compares with the $6-8b they have been touting around?

  • 17
    Krammer56
    Posted July 18, 2013 at 10:38 pm | Permalink

    While I am at it, have they included the costs of the extra lanes on the Eastern Freeway?

    And much more importantly, is this truly the best way to spend $6-8B to reduce congestion (since this seems to be the only excuse for building it the Premier can come up with)? Surely there are a whole swag of smaller projects out there with much better overall BCRs – but I presume these haven’t been tested!

  • 18
    Alan Davies
    Posted July 20, 2013 at 12:02 am | Permalink

    The Guardian (UK) looks at the East-West Link: Australia’s love affair with cars is leaving public transport behind.

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