NSW government told in 2012 light rail project would waste hundreds of millions  7.30  Greg Miskelly  - 14 Sep 2018

Light rail construction near Central Station

A "cabinet in confidence" document prepared for the NSW Government forecast the Sydney CBD light rail project would be a loss-maker.

The detailed appraisal — seen by the ABC and Fairfax Media — estimated the project's delivery cost at around $1.1 billion, but found it would return only $880 million in actual value, leaving taxpayers hundreds of millions of dollars out of pocket.

The appraisal, prepared by consultants, was delivered to then-transport minister Gladys Berejiklian just prior to the announcement of the light rail's final route in December 2012.

Since then, costs have blown out even further to $2.1 billion.

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Mapping negative returns

The route of the proposed CBD and South East Light Rail (red)

The leaked 2012 appraisal modelled 26 different tram routes around Sydney's CBD and found them all to have very low benefit-cost ratios (BCRs).

The BCR is used to assess the viability of a project, with a BCR below 1.0 normally regarded as a signal to decision-makers that a project blueprint is not viable.

The appraisal found:

• No routes had a BCR above 1.0 — the "break-even figure" where each dollar in costs returns a dollar in benefits to taxpayers
• The worst route, from the CBD to Sydney University, had a BCR of 0.15, returning just 15 cents for each dollar spent
• The second worst route, from the CBD to the Barangaroo Casino, returned just 20 cents in the dollar
• The best performing route, from Circular Quay to Randwick, was only forecast to return 80 cents in the dollar

The consultants also warned that none of the routes would deliver any real savings in travel time to users, or significantly reduce urban congestion.

The appraisal concluded that "non-conventional benefits" should be added to future reports to boost the light rail's viability.

More than $200 million of 'non-conventional benefits'

Transport NSW's vision of the light rail service

In early 2013, another economic appraisal was prepared for the government which found a positive cost BCR of 1.32.

This second appraisal boosted the first result with "non-conventional" measures such as $160 million in "pedestrian benefits", suggesting walkers along George Street would vastly benefit from the closure of 40 per cent of the roadway to cars.

It also added $50 million in "non-use values", an unorthodox measure of how much "individuals who do not use a good [or service] may value it".

One example given was that a "non-user" may economically appreciate that "friends", "family" and "future generations" will one day use the service.

Disruption costs — or the pricing of delays and impacts on businesses and commuters during construction — were excluded from the documents, giving an even rosier outlook for the project.

Less than 30 per cent of the project benefits were for future light rail users— an extraordinarily low component for a cost-benefit study.

'Dicey stuff'

ANU economist Leo Dobes, a leading expert on cost-benefit analysis, said the inclusion of non-use values to boost the benefits of projects like Sydney's light rail was "very, very dicey stuff".

"The 2013 analysis seems to be trying to catch up and increase the benefits compared to the costs," he told 7.30.

He also questioned the use of wider economic benefits, "a nineteenth-century idea" which found social values when "people are more densely populated in a particular area, they talk more, they swap ideas and so on".

He said the rise of the internet and the digital economy had eliminated the value of increased density.

NSW Transport Minister Andrew Constance said the modelling was even worse for buses.

"Those same appraisal reports highlight the fact that buses compared to light rail do not meet the same efficiencies given the congestion that was being caused in the city," he told 7.30.

"One assumption that wasn't factored into the early appraisals is the fact we are now building a Metro station right next to CBD light rail. That was not foreseen at that time.

"What was also not foreseen was the $26 billion of property investment on George Street, in terms of turning it into one of the most incredible boulevards in the world.

"We are going to continue to see unexpected benefits as a result of light rail."

'No lessons learnt' from Edinburgh light rail fiasco

Usually one of Sydney's busiest streets, George Street is now almost a no-go zone due to the light rail construction

The looming risks posed by "in-street utilities" such as power and sewer cables were also flagged in the leaked documents.

It warned of "very significant delays and cost overruns" in a similar light rail project in Edinburgh's CBD.

The Edinburgh project took six years to build as builders struggled with ancient sewers and pipes in the historic city centre.

The cables and pipes causing near-deadly delays to Sydney's transport projects

·         April: The Government receives a $1.2 billion legal claim from contractor Acciona, which alleges "misleading and deceptive conduct" over its underground utilities

·         June: Teenager Anna Lambden had a near-death electrocution caused by damaged cables, left undetected, near a worksite on George Street. An investigation never established whether a light rail subcontractor or another party was to blame

·         July: Martin Place evacuated after a gas main rupture linked to Metro Rail excavation work. Fears of explosions and asphyxiation caused a lock-down of the Reserve Bank

·         August: A Parliamentary inquiry into business contracts revealed the Government cannot claim late fees beyond 15 days of any building delay

·         August: A lawsuit for $40 million in damages was lodged by 60 small businesses

The final costs exploded from GBP 375 million to GBP 776 million.

The document highlighted that the key failure in Scotland was woeful planning of the excavation timeline, and the NSW Cabinet was advised that Transport NSW would have to carefully "mitigate these risks" with all stakeholders in Sydney.

John Carson is a leading Scottish engineer who gave expert evidence at an Edinburgh's light rail inquiry.

He said Sydney's $2.2 billion project had stumbled into the same pitfalls.

"It's a another disaster waiting to happen," he told 7.30.

"The contract price they've got on that project — you'll not get it for that price at the end of the day.

"I suspect you're looking at $3 billion or upwards for a final cost on that project."

After three years of construction, and with no end in sight, the State Government is facing a legal brawl over engineering delays, critical incidents and hidden costs associated with buried cables and pipes.

Mr Constance defended the project.

"95 per cent of the track is down and vehicles are being tested," he told 7.30.

"The Premier and I rode the vehicles only 48 hours ago between Randwick and Moore Park.

"In terms of budgets … the contract is $2.1 billion. We've had a number of modifications and claims made against the project.

"The reality is, this is going to be a phenomenal project, transformative. Everyone wants to see George Street transformed."

Mr Dobes would like to see more economic training for politicians and departmental chiefs, to help them understand the risks and costs hidden in consultant's reports.

He also said governments should develop more rigorous comparative studies, highlighting which projects hold poor outcomes for taxpayers.

"Politicians should be confronted with one very basic question for any big project. And that is, how many people will die because of your project?" he said.

"In other words, if you spend $2 billion on a tram, how much medical equipment will not be put into a hospital, and how many people will die, because the equipment is not there?"