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Public transport

Mar 8, 2016

Melbourne Metro: what do you get for $10 Billion?

The Business Case for Melbourne Metro was finally released publicly last month. It confirms the need and the solution. Now the Commonwealth needs to come to the party with matching funding

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Metropolitan rail network at the completion of Melbourne Metro program
Metropolitan rail network at the completion of Melbourne Metro program

It assesses a range of strategic land use, regulatory and capital options, but the Business Case for the Melbourne Metro predictably comes down strongly in favor of building the 9 km rail tunnel under Melbourne’s CBD promised by Premier Daniel Andrews at the last election.

It makes the case that Metro will provide many benefits for the estimated $10 Billion outlay, including:

  • Extra peak hour rail capacity across the network.
  • Improved reliability from separating lines.
  • Reduced pressure on existing strained CBD rail stations by siphoning off some pedestrian traffic to two new CBD stations.
  • Fewer trams clogging Swanston St.
  • Enhanced transport options at Parkville, North Melbourne and Domain through the construction of new stations.
  • Reduced car use by shifting some car trips to public transport.
  • A foundation for further investments to increase capacity.

The most publicly visible part of the Business Case is the 1.1 Benefit to Cost Ratio (BCR). Some are disappointed at how modest it seems but it’s not surprising; it’s in line with what is expected from this sort of project. Most mega transport projects in Australia don’t produce large BCRs (see Is investment in transport a game-changer?).

There’s a number of reasons for that but a key one is projects in mature networks don’t tend to produce the spectacular BCRs that come with small, early stage networks where connectivity is still poor e.g. like bicycle paths (see Does this freeway make any sense?).

The 1.1 BCR is also based on the conventional methodology preferred by Infrastructure Australia. In this narrow interpretation most benefits are time savings and increased comfort for train and car users.

If the so-called Wider Economic Benefits (WEBs) that Infrastructure Australia downplays (WEBs include things like agglomeration economies) are also included as in my view they should be, the BCR increases to a more impressive 1.5.

The Government has also chosen to rely on the most conservative of the multiple models it used in the evaluation, the Victorian Integrated Transport Model. However, Veitch Lister’s Zenith model, which has given superior results on road projects, gives a base BCR of 1.4, increasing to 1.9 with WEBs (see Who got the facts wrong on traffic forecasts?).

On top of that, the Government has used the more demanding 7% discount rate in its public utterances rather than 4%. Moreover it has also resisted the temptation to include future works “enabled” by Metro – like Melton electrification – in the calculation (in contrast with a certain notorious road project).

So it’s refreshing to see the Business Plan hasn’t sought to gild the lily; in fact, it’s surprisingly modest.

Even the publicly quoted cost of $11 Billion does the project no favours. That’s in nominal terms yet expenditure will be spread out over ten years. The P90 discounted figure is $10 Billion; that’s what I’ll cite from now on.

One doubt though is the Government has included the current upgrade to the Dandenong line (e.g. level crossing removals) in the base case. It seems to make sense because the work will be completed well before the Metro opens in 2026.

But the full suite of benefits from the Metro can’t be realised without the upgrade works. The problem here is the Government hasn’t released the business case for the Dandenong upgrade; we don’t know if the benefits exceed the cost.

A particularly interesting insight the Business Case provides is that getting a BCR that’s acceptable (i.e. equals or exceeds unity) doesn’t depend on generating a huge increase in patronage or in mode shift.

When it opens in 2026, the Business Case says Melbourne Metro will increase network capacity in the morning peak period by 39,000 “passengers”, equivalent to an 8% increase in trips. That might not sound like much of an increase for $10 Billion but it’s equivalent to the number of travellers nine freeway lanes carries in the morning peak. (1)

The Business Plan insists it’s enough headroom for future growth on the Sunshine-Dandenong corridor as well as demand spurred by possible future projects, including electrification to Melton and construction of new lines to the airport and Rowville.

The project also confirms a point I made recently; even huge investments in public transport don’t have a big impact on mode share (see Will simply building more public transport seriously suppress car use?).

By 2031, total public transport trips in Melbourne in the morning peak are forecast to increase by 2% as a consequence of building Melbourne Metro and car trips to decline by half of one percent. The net effect is there’s no substantial change in peak period motorised mode share. (2)

Consistent with another point I’ve made before, this project isn’t going to save the planet either. The social benefits (externalities) only account for 10% of all benefits. These are the sorts of things that are usually invoked popularly to justify investing in public transport e.g. reduced emissions and pollution, fewer road casualties, and better health from more exercise.

The rest of the benefits accrue to public transport travellers and motorists in the form of time savings and greater comfort, especially reduced crowding. These are private benefits; they could be paid for by the beneficiaries.

The impact on job location is also pretty modest. The Business Case forecasts Melbourne will have 3.9 million jobs in 2046. Metro won’t change the total number of jobs but it will have some effect on how they’re distributed. Its forecast to increase the number of jobs in the CBD by 2046 from 455,000 to 483,000. Without Metro, these future jobs would locate in the inner city and major suburban centres.

The Business Case gives a lot of prominence to what it calls the Extended Program – a series of future upgrades that would extract more value from the initial investment in Metro. The principal ones are electrification of the Melton Line, quadruplication between Sunshine and Deer Park West, and use of 10 car trainsets between Sunshine and Dandenong.

The Extended Program isn’t counted in the $10 Billion (real) cost announced by the Premier or in the 1.1 BCR. If implemented it would cost a further $2 – 3 Billion, but it would increase the combined BCR significantly, from 1.1 to 1.5 (2.1 with WEBs). It would increase peak period capacity by an additional 41,000 “passengers” and increase the number of jobs in the CBD by a further 19,000 to bring the total to 502,000.

What $10 Billion doesn’t buy, though, is anything better than a 20 minute off-peak frequency for Pakenham, Cranbourne and Sunbury residents. They might be disappointed because the new tunnel is part of their “metro-style” rail line.

Overall though, the Business Plan substantiates the need and the solution. Now the Commonwealth needs to match the State’s financial contribution so the project can be confirmed.

___________

  1. “Passengers” is the term used in the Business Case and it’s unclear what it means exactly. I’ve treated it as synonymous with trips; if however it means boardings, then the increase is only 5%.
  2. Public transport’s share goes from 22.8% to 23.2%.

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