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.