Barnaby Joyce's inland rail revenues won't cover capital cost, ARTC CEO says   - AFR - Jacob Greber 20 Feb 2018

The Turnbull government's Melbourne-to-Brisbane inland rail project - Barnaby Joyce's most politically important pet project - won't generate enough revenue to cover its capital cost, said the chief executive of the Australian Rail Track Corporation, John Fullerton.

In remarks that may undermine a key justification for the government's decision to fund the project "off balance sheet", Mr Fullerton told a parliamentary committee last week that revenues from customers on the future freight route won't be enough to cover its construction cost.

"From a strict ARTC point of view, no, the revenues that flow to us wouldn't cover the full capital cost and provide a return," he said.

Deputy Prime Minister and Minister for Infrastructure and Transport Barnaby Joyce visits the site of the first steel delivery of the inland rail project at Peak Hill, NSW, on Monday 15 January 2017.

Mr Fullerton added that the broader benefits would flow from the project that wouldn't be captured by the company, which is getting an $8.6 billion injection from taxpayers to construct the 1700km rail line. While the project is backed by Infrastructure Australia and Labor, doubts remain that it will ever be profitable in its own right given estimates that it will deliver just $1.10 for ever dollar invested.

Marion Terrell, transport program director at the Grattan Institute, said the inland-rail project is relatively unusual as the money is treated as a capital investment from the Commonwealth's point of view.

That differs from the way most Commonwealth infrastructure is treated, as a direct cash hit to the budget, because money is provided to state governments to build roads, ports and railways.

Ms Terrell said the Melbourne-to-Brisbane railway was particularly risky because of its size - which makes cost-blowouts more dramatic; the threat of political changes and interference; and, the fact that the 1:1 cost ratio is an "extremely tight margin for error".

Experts worry that any blowouts in the inland rail project will see a repeat of the NBN Co debacle, in which the Commonwealth was forced to tip in additional resources to keep the project viable.

That has increased pressure for the NBN Co to produce a viable return to the government.

Andrew Charlton, an economic consultant and former advisor to former prime minister Kevin Rudd, says that such projects must deliver a market-based return or be treated as a straight government expenditure.

"That was the big sleeper with the NBN - if it didn't ultimately generate a commercial return then all of those equity injections could come back and hit the budget," he said.

Mr Fullerton told the parliamentary committee that there are two phases in the project.

"There is the construction phase itself up to 2025, which is the build phase. ARTC through the arrangements with the Australian government are now responsible for the delivery of that project to budget, to scope, to time.

"Beyond that, those revenues that will be generated as a result of that project will flow to ARTC.

"And in given the business case projections around the market size, the market share shift pricing of access on the corridor, there's been some assumptions made about the revenue flow from that project from day one."

Mr Fullerton said it had always been clear that from a "pure commercial" point of view, ARTC wouldn't invest the full cost of the project because "a lot of the benefits don't flow to us".

"The only benefits that we collect off the projects are additional access revenues because of the high volume.

"Those revenues that flow from day one cover all our operating costs and all future growth Capex on the corridor, but in terms of an economic investment from a government perspective, it's a positive return, because benefits flow to the above-rail operator and other benefits are identified in that business case."  THE 2ND HALF OF FINAL SENTENCE IS RUBBISH.  THE TANGIBLE AND INTANGIBLE COSTS FAR EXCEED THE TANGIBLE AND INTANGIBLE BENEFITS

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