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Defined Terms and Documents Annexure A Discussion Paper as at 23 December 2021:
'Centralise'
responsibility
to the Productivity Commission
to evaluate/audit each
Conforming Cost-Benefit Analysis for
each future State or Territory rail
infrastructure
project
with forecast Capex
that exceeds $20,000,000.
"What we need is fundamentally better processes for developing and discussing transport planning." (Comment from former top NSW rail executive, Dick Day - Dec 2017) (This Discussion Paper is prepared by Philip James Johnston, Sydney NSW - Click on the myriad of embedded threads in coloured or underlined text herein)
============================================ A seminal 2009 publication 'THE SOCIAL LOSSES FROM INEFFICIENT INFRASTRUCTURE PROJECTS: RECENT AUSTRALIAN EXPERIENCE' (largely republished on the Productivity Commission website shortly thereafter) -
a) explained that State Govts were no longer equipped (due to out-sourcing) to adequately identify cost-effective infrastructure projects; and
b) inter alia proposed (at bottom of page 162) that the Productivity Commission takes carriage for the below two bullet point responsibilities "to be a centre of excellence or reference for cost–benefit analysis within the Australian Government" commencing with each proposed rail infrastructure project with forecast Capex that exceeds $20,000,000:
* SECT 51(i) and SECT 98 of the Australian Constitution behoove the Commonwealth Govt to enact legislation to 'Centralise' responsibility upon the most skilled Commonwealth Govt agency at evaluating 'what is and what is not a cost-effective rail infrastructure project', by legislating that the six States and two Territories must submit (to the Productivity Commission in ample time prior to Financial Close) a Conforming Cost-Benefit Analysis for each proposed rail infrastructure project with forecast Capex that exceeds $20,000,000 * For those proposed rail infrastructure projects over $100,000,000 Capex, the Productivity Commission would, at arm's length, allocate and publish a score out of 100 points based on the Nine Steps of Cost-Benefit Analysis ============================================ 1. Central Business District and South East Light Rail (CSELR) project cost double the initial provision/construction forecast and took a year longer than predicted with lengthy disruptions to small business An example is the Central Business District and South East Light Rail (CSELR) project that involved constructing a new 12km, 19 stops, light rail service from adjacent to Circular Quay Station along George Street passing Wynyard and Town Hall stations to outside Central Railway Station, through Surry Hills to Moore Park, then branching to:
Conventional trains have run between Circular Quay Station and Central Station for eons of Sydney's history (since 1964) that adequately satisfied patronage demands. Why did TfNSW duplicate that existing train service over the 3.5km from Circular Quay Station passing by Wynyard Station, and Town Hall station to outside Central Railway station? Simply, why did TfNSW build a parallel, juxtaposed train line that involved one of Sydney's most famous roads, namely George St Sydney, being lost to NSW Govt buses?
Whatever Cost-Benefit Analysis that TfNSW undertook failed to identify that beneath George St was ladened with vital functioning utilities (ostensibly electricity cables but also water, sewerage, drainage, gas) that needed to be relocated. Prima facie, the cost to lay tram tracks adjacent to the existing train lines between Circular Quay Station and Central Railway Station was $1,000,000,000 circa. (For those non-mathematical, a billion dollars is one thousand million dollars.) “It’s a toy,” the former chief executive of Infrastructure NSW, Paul Broad, declared of the tram line he had campaigned against in government. On 3 June 2019, TfNSW settled a claim by ALTRAC Light Rail (the operating company responsible for delivering, operating and maintaining CSELR) of misleading or deceptive conduct due to the manor/detail that TfNSW failed to provide information on how to manage electricity cables under George Street. TfNSW agreed to provide ALTRAC an additional $576,000,000. Back in Nov 2013 the NSW Government announced the business case details for CLSER, with an estimated cost of $1.6 billion, and purportedly almost $4 billion worth of benefits. The NSW Auditor-General Report dated 11 June 2020 estimated total cost to be $3.147 billion - virtually double the original cost forecast. Legal battles cost NSW Govt to settle with the Spanish contractor, Acciona, a additional $576 million. CSELR was completed a year late causing significant traffic disruption to businesses and residents. $60 million for the small business assistance package due to extended disruption. Refer History of CSELR cost increases and construction delays. The 120 tonnes CSELR trams are 67 metres long - amongst the longest in the world and almost four times as long as a bendy bus. Consequently, there are less than half the light rail station stops, that were provided by previous Govt buses. Hence, passengers walk further to their final destination on their way to work and walk further from their office to catch a light rail on their journey home in late afternoon. The Writer estimates that even before COVID, under TfNSW slogan, Turn Up and Go, over 80% of daily CSELR tram trips were less than 20% occupied and that the frequency of these lengthy trams were double what was required across each working day. Yet even under COVID, TfNSW failed to materially reduce the frequency of services. Creditworthy investigations, from within Australia, the USA and Europe, on the relative cost-effectiveness of buses/light rail/heavy rail, conclude that buses are more frequent, materially cheaper and more flexible to tailoring to public transport demands.
Materially cheaper demand responsive transportation modes for the CBD South East Light Rail (CSELR) were available, most notably diesel and/or electric buses that - i) run on 'rubber tyres'; ii) did not necessitate closing off George Street Sydney to Govt buses because of tram tracks with external electricity overhead cables or a third tram rail; and iii) whose supply frequency can be readily tailored according to passenger demand, eg. the impact of COVID. Casual empiricism suggests that public transport usage (over the next 50 years) between both Randwick and Kingsford to/from Central Railway station, and onto Circular Quay, could have been provided for 10% circa of the +$3,000,000,000+ tram set, plus 50 years of the 120 tonnes, 67 metres longlight rail operating costs, had George St been restricted to Govt diesel or electric buses (not a light rail network). Unlike trams, electric buses do not require external electricity supply. 2. Commonwealth Govt contributes 46% circa of the six States annual fiscal expenditure and is obligated under the Australian Constitution to ensure that those Public Purse fundings are expended cost-effectively Australian Government financial payments effectively support about 46 per cent of Australia's six states' annual fiscal revenue expenditure. "In aggregate, the states were estimated to receive Australian Government payments of $127.4 billion in 2019–20."
If the above rudimentary analysis of one of the smaller recent light rail fiascos, namely CSELR, doesn't concern the Federal Treasurer, Josh Frydenberg, that funded the States $127.4 billion in 2019–20, under Commonwealth obligations pursuant to SECT 96 of the Australian Constitution, then perhaps nothing will: ++ The Commonwealth Govt has obligations for State railways under SECT 51(i) and SECT 98 of the Australian Constitution - explained in Section 4 below. Relying on d SECT 98, $1,000,000,000 circa of the Public Purse can be saved annually (in the immediate years thereafter) by the Commonwealth Govt Centralising responsibility for evaluating, measuring, ranking and scoring proposed larger future rail infrastructure projects (>$100 million) to Australia's specialist Cost-Benefit Analysis unit, namely to the Productivity Commission. The benefits of so doing will be exponential as the Productivity Commission enhances its - A. rail infrastructure project evaluation expertise; and B. passenger usage/patronage forecasting proficiency. Chapter IV. Finance And Trade of the Australian Constitution, in particular SECT 96 'Financial assistance to States', authorises the Australian (Commonwealth) Parliament to "...grant financial assistance to any state on such terms and conditions as the Parliament sees fit." Ipso facto, because of the many billions of dollars of cost blow outs upon rail infrastructure funded partially from fiscal grants from the Federal Government (to the States) in recent years under SECT 96 'Financial assistance to States', obligations under SECT 51(i) and in particular SECT 98 of the Australian Constitution (explained in Section 4 below), compel the Commonwealth Govt to enact new laws to 'Centralise' an arm's length responsibility to the most skilled Commonwealth Govt agency at evaluating what is and what is not a cost-effective rail infrastructure project, by legislating that the six States and two Territories must submit a Conforming Cost-Benefit Analysis that inter alia addresses each of the Nine Steps of Cost-Benefit Analysis (to the Productivity Commission in ample time prior to Financial Close) for each future rail infrastructure project with projected Capex that exceeds $20,000,000.
Enacting new laws to 'Centralise' an arm's length responsibility to a Gatekeeper, namely the Productivity Commission, will - a) save the various States and Territories' Public Purse at least $1,000,000,000 (in agg.) annually in the immediate years from implementation, and b) materially reduce embarrassment that befalls State Premiers, Deputy Premiers and Transport Ministers when significant cost blowouts and project delays (Annexure A) are exposed in Australia's free press. The below comments made by the NSW Premier in Feb 2020 (when CSELR was finally fully operative) to a journalist from The Australian in article Light rail’s online, but more to come for Sydney - NSW Premier Gladys Berejiklian reveals how light rail will unlock Sydney’s spectacular future add weight to the Productivity Commission being the Centralised body to evaluate the utility of proposed State Govt. major rail infrastructure projects, particularly as a lot of the Public Purse expended comes from the Feds:
Why are the NSW Premier's above intangible values/attributes to warrant a $3b+ light rail of concern? The fundamental goal of state transport infrastructure is to gain maximum buck from minimum spend of the Public Purse. Because some of the States have Boondoggled Billions of the $120+ billion annual Federal Govt funding in recent years on rail infrastructure projects and the NSW Premier is intent upon continuing to, when a Conforming Cost-Benefit Analysis will often identify and quantify materially $$$ cheaper public transport alternatives that will satisfy associated public transport needs, thereby ensuring the $120+ billion annual Federal Govt funding to the States gains maximum buck. Monorail: build it and they will come, except they didn't - SMH - Linton Besser - Jan 9, 2012 3. Former NSW rail authorities et al have expressed concerns about the economic logic of recent rail projects Below is an extract from SMH article 29 June 2018 "How did Gladys make such heavy work of light rail?" that inter alia acknowledges that State Govts no longer possess the engineering expertise to cost-effectively appraise, prioritise and administer major infrastructure projects:
Below are concerning extracts from How $4 billion blowout puts Sydney's rail transport plans on the line - SMH - Matt O'Sullivan - 8 Feb 2020:
Below is an extract from Trains, pains and Berejiklian - The Monthly - Paddy Manning - March 2019 that provides a damming account of conflicts of interest by vested interest infrastructure groups to the material detriment of "....public investment, commuters and passengers....": Below is an extract from an article in the SMH (25-Mar-21) by Percy Allan, visiting professor at the University of Technology Sydney and a former secretary of the NSW Treasury and a former chair of the NSW Council on the Cost and Quality of Government. Below is an extract from Fixing climate change, poverty and ocean plastic requires a 'Moonshot' approach - ABC Radio National - 2 April 2021. Esteemed English economist, Professor Mariana Mazzucato, asserts that British Govt civil service depts no longer enjoy the synergies and economies of scale attainable from long term employment of specialist skilled personnel. Rather the British civil service is bereft of 'high skill level expertise and experience' and relies upon external consultants that "...don’t embed their experience..." within the civil service:
4.
The Australian Constitution -
Below are the two aforementioned sections of the Australian Constitution that obligate to the Commonwealth Govt to enact new laws to 'Centralise' responsibility to ensure that all future major State infrastructure projects are robust and cost-effective and do not waste the Commonwealth Govt. Public Purse:
SECT 96 'Financial assistance to States' of the Australian Constitution allows the Commonwealth Parliament to make financial grants to the States predicated "...on such terms and conditions as the Parliament thinks fit....". Due to the magnitude of the on-going annual tax payer wastage evident in Annexure A, SECT 96 behooves the Commonwealth Govt. to 'Centralise' responsibility for measuring, quantifying and ranking all proposed rail infrastructure projects, upon the Productivity Commission.
5. In 2009 the Productivity Commission offered to take carriage for "systematic auditing of cost–benefit analyses .... by being a centre of excellence or reference for cost–benefit analysis within the Australian Government."
Below is an extract from Section 6.4 Conclusions of a paper written by two eminent economists for the Productivity Commission titled "6. Evaluating major infrastructure projects: how robust are our processes? - Henry Ergas and Alex Robson - 2009:
Significantly, the afore-mentioned pivotal research paper by Henry Ergas and Alex Robson - 2009 offered for the Productivity Commission to be 'a centre of excellence for cost–benefit analysis'.
Messrs Ergas and Robson's below noted concerns of insufficient attention to the project evaluation process and the blurring of responsibility for financing infrastructure as between the public and private sectors have both occurred (refer Annexure A), perhaps more so than their below concerns expressed 12 years ago:
• The distortions arising from this undesirable narrowing of the range of options considered are then compounded by evaluations that are too vulnerable to ‘fudge factors’. In a Gresham’s law of evaluation, bad evaluations (often by consultants) can drive out good, given that they trade at equal values. In our view, these outcomes are driven by governments that see little real value in major project evaluation. They may see merit in evaluation of essentially routine decisions (such as the decision to place a new roundabout or improve a road surface) or in cost-effectiveness analysis of the options available for meeting predetermined goals (such as improving bus transit in a congested area), but not in the full analysis of objectives and options (including the option of not spending taxpayers’ money). This, we argue, reflects the impact of a perception (initially due to strong economic growth, and then to a belief that the global financial crisis justifies greatly increased outlays) that public funds have a negligible opportunity cost. This perception has been accentuated by the growing blurring of accountability in the Australian federation, which reduces the budget disciplines on the States, and the blurring also of responsibility for financing infrastructure as between the public and private sectors (which, whatever its other merits, increases the return to rent-seeking deals between governments and private infrastructure developers). Together, these trends risk making cost–benefit analysis merely a box to be ticked, rather than an exercise that has real value, not least to government itself." The Productivity Commission possesses the requisite - * Core Functions, 'output streams' and Cost-Benefit Analysis Knowledge and Expertise; and * would operate at arm's length with unbiased impartiality, particularly as its input would be on the public record.
The Commonwealth Govt. should legislate that - A. State Government depts/agencies, hereinafter Agencies, must - i) submit (to the Productivity Commission) a Conforming Cost-Benefit Analysis when expending more than $20,000,000 on any rail transport infrastructure project; and ii) place each such Cost-Benefit Analysis in the public domain oodles before Financial Close to enable Community Consultation; and B. Core Functions of the Productivity Commission that includes 2. Performance monitoring and benchmarking and other services to government bodies be broadened to include the Productivity Commission auditing each submitted Conforming Cost-Benefit Analysis for each State Governments' rail infrastructure project over $100,000,000 in Capex well before Financial Close and allocate a score out of 100 points. State Govt. Agencies do not possess the specialist Cost-Benefit Analysis Skills/Experience that the Productivity Commission possesses. These Agencies too often learn from their mistakes which cost a billion dollars circa annually. Those billions can be saved by Centralising responsibility to the Productivity Commission, enabling material synergies that ensure the integrity of the documentation chain, including a genuine system of post-completion cost-benefit reviews that addresses deficiencies/failed forecast outcomes. Such reviews would, in effect, benchmark State jurisdictions to more effectively learn from prior mistakes. 6. Keynesian economic theory of Govt initiated public works programs to stimulate a flagging economy was predicated upon a robust positive NPV British economist, John Maynard Keynes' publication way back in 1936, The General Theory of Employment, Interest and Money, is the most influential/practical/useful publication in the history of modern macro economic theory. Probably COVID driven, Govts have recently been spruiking the Keynesian remedy of new Govt infrastructure programmes to create employment, which is sensible provided that such new infrastructure projects are cost-effective; meaning profitable or less costly than existing services, with a robust positive Net Present Value. If it ain’t broke, then don’t tamper with it. The Writer supports the longstanding John Maynard Keynes economic logic provided the cost-benefit analysis for each proposed infrastructure project is demonstrably positive and robust as quantified in a Conforming Cost-Benefit Analysis. Unfortunately some infrastructure projects prove to be vastly cost in-effective. Sadly, there is precious little Govt accountability for wasting the Public Purse. Governments like to announce transport infrastructure projects to voters that governments profess will reduce travel times, be more frequent and/or lower fare costs, particularly those projects that appear large, shinny, and brightly coloured. Unfortunately, a lack of 'due diligence' of all the costs, but also complimentary synergies that could be incorporated with better planning and appraisal, too often renders the finished project cost-ineffective, because build it and they will come, and a turn-up-and-go public demand did not eventuate to cover Capex and administration costs. As asserted by Dr Michelle Zeibots in Section 3 above, some infrastructure decisions are overtly influenced by vested interest groups, often construction and infrastructure companies seeking to be awarded the D&C contract. A creditable First World Country should have disciplines/protocols legislated that are above reproach to protect not only taxpayers, but also the integrity of the elected governments, because as can be evidenced at Infrastructure Australia contractors want to build, build, build and some gullible bureaucrats want to advance their careers by fostering a new infrastructure project, albeit often with precious little infrastructure risk management expertise, as patently evidenced by inter alia the costly/dragged-out Sydney CSELR fiasco (Section 1 above), when restricting George St to State Govt. bus services would have satisfied patronage demands for the next 50 years at 10% circa of the Public Purse cost of CSELR. Utilising electric buses on the two CSELR routes to Randwick and Kingsford over the next 50 years would have cost a mere 15% circa of the $3+ bil to lay tram tracks and 50 years of operating costs of those overly frequent, heavy trams, that now have advertising stickers over the windows to conceal their emptiness. Those whopping 120 tonnes 67 metres long CSELR trams don't run on the smell of an oily rag. Research Paper no. 17 2007–08: Specific purpose payments and the Australian federal system by Bennett and Webb (14 Jan 2008) explains that Specific Purpose Payments (SPPs) to the States and Territories inter alia provide an opportunity for greater scrutiny by the Commonwealth of how successfully each payment is expended. An Assessment of Australia’s Future Infrastructure Needs - The Australian Infrastructure Audit 2019 is a 640 pages PDF that pitches all sorts of infrastructure opportunities from energy, water, telecommunications, to social infrastructure such as hospitals, schools and parks, and access to goods. In promoting their wares, the word ‘profitability’ appears only three times in 640 pages. The three words ‘cost benefit analysis’ appears only twice in this voluminous marketing paper. Patently, the entity that published a 640 pages document in 2019 professing to be an Australian Infrastructure Audit, has no focus, or places no importance, on the profitability/utility of "infrastructure opportunities from energy, water, telecommunications, to social infrastructure such as hospitals...." and is not focused on 'value for money'. Hence, Infrastructure Australia is not equipped to, or interested in, appraising the cost-benefit of major infrastructure funded from the Public Purse. 7. Where is the forecast numeric patronage evidence from State Govt accredited Traffic Forecast Usage/Patronage Consultants that support the NSW Government's effusive, bullish assurances regarding its huge rail infrastructure projects seemingly relying on build it and they will come and Turn Up and Go The Australian article (Feb 2020) Light rail’s online, but more to come for Sydney - NSW Premier Gladys Berejiklian reveals how light rail will unlock Sydney’s spectacular future evidences that the NSW Premier believes that her Government's massive outlay on single floor light rail infrastructure is cost-effective, meaning the Net Present Value of fares revenues attained say over 20 or 30 years of Operations will exceed the monumental construction/operations costs and be cheaper than alternative transport modes. Below are two divergent views/concerns extracted from How risks are rising for Sydney’s mega rail projects - SMH - March 22, 2021:
Concerningly, the Transport Minister, Andrew Constance's enthusiasm for rail infrastructure projects, specifically “We’re building an entire network ........ It’ll drive us out of recession”, ignores the first rule of Keynesian Economics that Govt initiated public works programs to stimulate a flagging economy, is that the (published) Cost-Benefit Analysis must evidence a robust positive NPV. In laymen's language, if you expend $10,000,000,000 over say three years to build a new rail network, and Operating/Administration costs over say 30 years are $3,000,000,000, then the NPV of future fare revenues needs to exceed $13,000,000,000.
8. Winners and Losers The biggest Winners from the Commonwealth Govt legislating that the States and Territories submit a Conforming Cost-Benefit Analysis for all proposed rail infrastructure projects with forecast Capex beyond $20,000,000 to the Productivity Commission to audit, relying ostensibly upon SECT 96 and SECT 98, would be the State Premiers, Deputy Premiers, Transport Ministers, the Federal Treasurer and Australia's taxpayers. The biggest Losers would praesertim be the major transport construction infrastructure companies that have been the beneficiary of billions of dollars of work due to the majority of State Govts too often charging into misdirected transport expenditure where expending Big (Other Peoples) Bucks have been the norm. State politicians would be less likely to make premature announcements until their Conforming Cost-Benefit Analysis, supported with a Base Case Financial Model not overtly reliant on Blue Sky patronage forecasts, was robust because the Productivity Commission would opine on it and likely assist the pertinent State embellish it or identify a less costly transport alternative. 9. Questions: 1. How many of the $120 billion p.a circa that the Commonwealth Govt has funded more recently to the States annually would have been better expended, had the Commonwealth Govt. accepted back in 2009 the Productivity Commission's offer to be 'a centre of excellence for cost–benefit analysis' by passing requisite new laws, pursuant to SECT 96 and SECT 98 of the Australian Constitution? 2. Had the Productivity Commission been so appointed, would it have - i) challenged the rationale/economics/logic of providing a juxtaposed rail system between Circular Quay and Central Railway (adjacent to the existing heavy rail service) that cost $1,000,000,000 circa. CSELR was completed a year late causing significant traffic disruption to businesses and residents. A $60 million small business assistance package due to extended disruption; ii) recommended that George Street be restricted to Govt buses only by diverting all cars etc to nearby roads, seemingly at about 10% of the cost of the CSELR light rail provision and operating costs over the next 50 years; and iii) asked TfNSW to provide the annual patronage forecasts (at least over 20 years of Operations) that calc'd that CSELR would achieve almost $4 billion worth of benefits? Philip James Johnston (the Writer) |
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