East-West Link Stage 1 overview animation

I’ve written a few articles critical of the decision by the Victorian government and Tony Abbott to preference the East-West Link freeway over the Melbourne Metro rail tunnel (e.g. see herehere and here).

There’re doubts about the benefits of the road and it’s still at an early stage in Infrastructure Australia’s evaluation process.

But in this front page splash in yesterday’s paper, Warning on high tunnel toll: East-West link investors must charge $10.50 a trip to make a profit, The Age identifes a new worry.

The paper reports that according to an international study, tolls will “have to be three times the current cost of an average trip on CityLink for the project’s investors to make a profit”. It goes on:

The international study, led by University College London, has analysed numerous transport “mega-projects”, including Australian road and rail projects, and found that for investors to get a return on the east-west tunnel, motorists would have to be charged a minimum $10.50 to use it.

That all sounds pretty damning – international experts have looked at the East-West tunnel, compared it to similar projects worldwide, and found it wanting.

A minimum $10.50 toll for what is a relatively short section of freeway would likely be a strong deterrent to users and consequently undermine the economic case for the project.

I have to say though that I’m sceptical about this proposition. I suspect this is one of those cases where politics has gotten the better of objectivity.

The first thing to note is that the “international study” by “University College London” cited in the story didn’t examine the proposed East-West Link as The Age’s report seems to imply.

It looked at existing tollways around the world (including Melbourne’s CityLink and Sydney’s Cross City Tunnel).

The provenance of the “minimum $10.50” toll isn’t a comprehensive international study, but something far more modest.

It comes from an opinion piece, East-West tunnel plan looms as a road to ruin, that also appeared in The Age yesterday in the Comment section. It’s written by two Melbourne University academics, Sophie Sturup and Nicholas Low.

I’m more worried though about the methodology used in the opinion piece. Here in the authors’ own words is how they arrived at the $10.50 figure:

At a projected construction cost of just under three times the cost of CityLink, the tolls for the tunnel will need to be at least three times the cost of an average trip on CityLink if investors are to make a similar return. If an average trip on CityLink costs $3.50 (half the trip cap cost), then assuming similar traffic volumes for the new tunnel, tolls will need to start at $10.50 for a car trip of a couple of kilometres.

So if the new road costs three times what City Link cost to build, the toll will be three times City Link’s current toll, right? That seems a simplistic approach for an opinion piece, let alone a sound basis for a front page story.

For starters, it can’t just be taken for granted that the average toll in revenue terms is the same thing as the mid-price point of the tariff regime.

The obvious flaw though is the unrealistic – and unreasonable – assumption that the East-West Link would be fully funded by the private sector.

Following disappointing patronage outcomes on a number of recent projects like Brisbane’s Clem 7 and Airport Link tunnels, it’s now clear that investors are no longer prepared to carry all the risk on road projects.

Governments know they will have to put in a large proportion of the funding for future urban freeways. That’s common knowledge – indeed, Tony Abbott has already promised $1.5 billion in Commonwealth funding for the East-West Link if the Coalition is elected in September (e.g. see herehere and here)!

The Napthine government will have to put in at least as much and possibly considerably more, depending on the final cost.

The toll regime for the East-West Link will be shaped primarily by what drivers are prepared to pay and by the proportion of the required funding the private sector can be induced to invest in the project.

The rest of the funding will be have to be met almost entirely by government, either directly or by availability payments (CityLink and EastLink might be required to make a contribution too, to reflect benefits to them from the new road).

The East-West Link looks like a questionable project on the information that’s available, but elevating dubious arguments to front page status looks more like propoganda than real news.

The Age should be promoting well-informed debate on the merits (or lack thereof) of the East-West Link.