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Apr 12, 2013

High-speed rail just doesn't add up -- time to move on

The new report on high-speed rail shows that in Australia the numbers simply don't add up for it. And won't for many, many decades. It's time we all moved on.

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For anyone who can add up, the high-speed rail phase 2 study released yesterday (or, if you were a newspaper journalist, Wednesday) should bring to an end the flirtation Australia’s polity is having with the idea of a high-speed rail network. There, in black and white, not very far into the report, is the key reason why:

“Based on charging competitive fares, the HSR operations and ancillary services (such as car parking and lease revenues from related property development) would not deliver sufficient revenue to fund or recover the expected capital cost of the HSR program.”

That is, if governments spend $114 billion (in 2012 dollars) building the thing, that’s the last taxpayers will ever see of that money. It’s sunk. Gone. The best a high-speed rail network could do is cover its operating costs, if it prices tickets competitively with airlines.

Like the phase 1 study, the report assumes airlines won’t respond to this new competitor on their key routes, but simply reduce capacity, allowing HSR to take up to 40% of air passengers on east-coast routes. However, it does model a scenario in which airlines engage in a two-year price war with HSR, declaring it doesn’t substantially change the financial outcome. More damaging is the scenario in which the NSW and federal governments get their act together and resolve Sydney’s aviation capacity constraints, which increases the losses of the network and reduces the economic benefits of the investment.

Advocates of HSR will doubtless respond that writing off the cost of the investment is acceptable when it comes to roads. Putting aside that we should be charging for road access, at least in metropolitan areas, this misses the signal that failing to cover capital costs sends: this is an investment that isn’t needed. We already have a highly competitive, efficient transport network between Brisbane, Melbourne, Sydney and Canberra — called airlines. There is no market failure for government to address here: indeed, in constructing such infrastructure and then failing to price it to cover its costs, governments will be engaging in a vast exercise in anti-competitive behaviour against private companies that have to generate a return on capital.

“And for $114 billion, you could buy airline tickets for everyone who currently flies …”

In contrast, the much smaller (despite whatever Malcolm Turnbull claims) government investment in the NBN will generate a return because access pricing is intended to cover the cost of capital and yet will still be attractive to service providers. In the case of broadband, there is a market failure (one facilitated by successive governments), and the government’s investment will be repaid. High-speed rail is like investing in a new copper network when we already have fibre-to-the-premises.

There is also the issue of cost. Australia is a vast country, with only 23 million people. There are no European or Japanese-style population densities and short distances that normally make HSR viable. We have long distances and few people. The $114 billion price tag is in 2012 dollars, for a project that wouldn’t start until the 2020s and take 31 years to build. The final cost, even without the delays typical of major projects, will be in the hundreds of billions of dollars, all of which will need to come directly from the budget, because there will never be a return on it.

And for $114 billion, you could buy airline tickets for everyone who currently flies on the Sydney-Melbourne, Sydney-Brisbane, Melbourne-Brisbane, Sydney-Gold Coast, Melbourne-Gold Coast, Sydney-Canberra, Melbourne-Canberra, Brisbane-Newcastle and Melbourne-Newcastle routes, for free, for more than a quarter of a century.

Probably even longer if you asked for a bulk discount.

Forget $114 billion on HSR. For 5-10% of that, you could make a serious dent on congestion in Melbourne or Sydney, generating a substantial economic return by reducing the $20 billion-plus per annum in congestion costs we’ll be facing by 2020. For 1% of that, you could further improve reliability and cut maintenance costs on the east coast rail freight corridor, slowing the growth rate of trucks on inter-city roads and curbing freight-related greenhouse emissions. And that’s before you start looking beyond transport for Australia’s infrastructure needs.

Labor has fulfilled its election commitment to investigate HSR. It turns out it’s not a goer. Let’s move on.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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61 comments

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61 thoughts on “High-speed rail just doesn’t add up — time to move on

  1. Kevin Cox

    Few transport projects are supported by the fares collected on the routes. Construction of roads are never justified on the basis of the collection of petrol taxes.

    The value of transport infrastructure comes from the increase in wealth that occurs because the infrastructure exists – not just from the fares collected on the route. A high speed route with 10 stops is likely to mean that 1M or more “blocks” of land have increased in value in the stops along the route by at least $100K each. The wealth of society will increase by $100 Billion simply from the increase in value of some of the land. Fares are the tip of the value that is created.

    The economic calculations to justify long term projects use one or other form of discounted cash flow analysis. This approach says that a dollar today is worth more than a dollar tomorrow. While the dollar today may be worth more than a dollar tomorrow because of inflation, a railway track tomorrow is worth just as much if not more than a railway track today. Discounted cash flow analysis is useful as a tool to choose between like projects. It is not an appropriate tool to use to justify long term infrastructure projects.

    Look at the Sydney Harbour Bridge. The value of the bridge is much higher today than it was when it was built because more people use the bridge – yet the mechanics of how economists and accountants value long term projects is that the value of the bridge is worth less today than the value yesterday. The accountants and economists have got it back the front and it stops us creating wealth by the sterile catch phrase “where will the money come from”.

    The money will come from the future because the infrastructure exists.

  2. Bob the builder

    As a number of people have said – peak oil.
    Rail travel uses far less energy per passenger than air travel, so, apart from reducing pollution, rail travel will be far less affected by energy price rises.

    But, regardless of whether we build HSR, how about upgrading normal rail? Comfortable, overnight travel between Sydney-Brisbane, Sydney-Melbourne, Melbourne-Adelaide and Adelaide-Sydney should be happening now, but instead we have large stretches of ageing, single-line track and grubby, uncomfortable, unreliable services, often – unbelievably – replaced by bus for some sections.
    Antiquated tracks sit side by side never-endingly upgraded highways across the country, yet somehow train infrastructure is meant to ‘pay for itself’, while billions get poured into subsidies for road transport companies and citizens who have no alternative but to travel by road.

    If business travellers could get on the train, have a nice meal, have phone and internet access, a work space, a shower and a comfortable sleep, it’d make much more sense to get on the train in the early evening and arrive refreshed the next morning, rather than get up at the crack of dawn and struggle to the airport for an early morning flight (the flight may be an hour but check-in, travel, parking add another two hours) we could drastically reduce polluting air travel relatively easily.
    If you can have business meetings in specially designed meeting rooms on the Moscow to Petersburg service, surely we could do it here?

  3. Mike Flanagan

    In discussing the HSR report we should remember these glitter infrastructure proposals find their impetus and genesis with a small coterie of self interested engineering and bulk earthworks companies. Bureaucrats are also willing partners in producing glossy reports that show little or no feasibility or national coherence in future planning.
    As others have pointed out in previous posts, a properly constructed FTTH enabled internet will not only aid delivery of medicine and education etc, but will radically change the requirements for the public’s interstate and inter-capital travel. The absence from commentary or consideration of this project (NBN) and the perfunctory consideration of Climate Change implications, in the report, is indicative of the incoherence that seems to develop in our bureaucracy when they fall under the spell of self interested business lobbies.
    We have now had three of these reports over the last twenty years and none of them have added up. Meanwhile the existing rail infrastructure is radically deteriorating and is subject to storm surge inundation on large sections of the east coast rail according to a number of reports.
    With the predicted exponential growth in road freight it is time we seriously looked at a roll on, roll off, green fields anchored east coast freight rail investment. The opportunities to remove a considerable number of 600hp behemoths off our roads will relieve the public demands, maintenance cost pressures and carnage rates on our highways. At the same time it offers the opportunity to lower our national carbon footprint and eliminate a lot of the inbuilt inefficiencies in our freight movements.
    There have been many reports over decades that have suggested we needed to attend to our rail freight infrastructure but they have never been resolved, due mainly, to the undermining of the proposals by the road freight lobby. And that will continue until these people can see a return from the rail section of the movement, with the infrastructure and capital to be funded by the taxpayer, I might add.
    With a predicted 15% growth rate over the next ten years for the road freight element of our national freight movement, one can only suggest this proposal is nothing more than a piece of infrastructure glitter that diverts national focus and resources from the actual challenges we face.
    In conclusion may I suggest we wait until CERN masters the Higgs Boson and its’ family of particles, as all this infrastructure may prove superfluous to the public, or our freight, requirements.

  4. cud chewer

    Bernard,

    As much as I respect your usually well researched and well thought out views, what you’re failing to notice is the real story.

    The real story is a cost-benefit analysis where the benefits have been given considerable attention, but the costings, and especially the assumptions underlying those costings have been given little effort.

    In short, what we have is an exercise in how to build something the most expensive way possible.

    I’ll give you a few hints.

    Firstly, there are a host of basic physical parameters that are adopted for the study that simply haven’t been questioned. The most important of which is the assumption of roughly a 7Km minimum horizontal curve radius and with that a maximum of 8 degrees of cant.

    Why? Its not justified or gone into. Its just taken and run with. But that simple assumption is the basis of billions of dollars of extra expenditure going through things that could have been gone around.

    There is nothing in the laws of physics that would stop a train going at speed (350Km/hr) on a track with minimum horizontal radius of 2.5Km and with that a necessary combination of cant and tilting suspension of 22 degrees.

    On that simple fact alone, the entire costing should be considered rubbish. They haven’t done the sensitivity analysis on it.

    Nor have they considered modest compromises on speed that would make small differences in timing but have a large effect on cost.

    Something else for you to consider.

    They assumed that the Sydney terminal station is going to be a terminal station. Its there in the report. Its stated. But its never questioned. The consequence of having a terminal station (rather than a through station) is that you’ve consumed 3 times the real estate for platforms. Again, the billions add up.

    A far more sensible approach would be to have a through station located somewhere like Olympic Park. You will have noticed by now that their preferred route means having tunnels that stretch from Hornsby into Central and then from Central back out towards Holsworthy. This means considerably longer tunnels.

    A more sensible approach would be to have a through station at Olympic Park and then build a “fast” train (roughly 180Km/hr) into the city that would provide a fast connection. This fast train would require smaller tunnels and would be incorporated into Sydney’s wider network.

    The net result is that the larger HSR mainline tunnels would be considerably shorter and less expensive.

    No consideration whatsoever was given to this idea. And it was suggested to Aecom personally, and directly and also in the form of submission to the Department.

    Bernard, there are of course other assumptions built into the process that by their nature probably bloat the cost by 2 to 3 times. The engineers have adopted a tried and tested, but ultimately outdated and expensive method of construction. That’s called cut-fill-bridge-tunnel. Whilst tunnels are to some extent unavoidable, a lot of the cost and complexity of such projects is because of their sheer size and complexity and that’s a consequence of having a very large footprint.

    Before we are to get serious about high speed rail we need to seriously consider going back to basics on the engineering. And one such approach is to light-weight the trains themselves and to use a pre-fab (largely drop into place) viaduct construction technique. This approach literally steps over many of the issues and costs involved with the cut and fill mentality. We don’t need a heavy rail system. We need a fast rail system.

    Again, none of this came anywhere near to being studied.

    And that surely is worth another article?

    Oh and btw, I won’t get started on the presumed cost of tunnels but their assumptions amount to “lets pick a number that we hope won’t get exceeded and justify it with a few examples”. Its hardly a first principles “lets figure out how to do it better and cheaper”.

    In the end, HSR will depend on better, faster and cheaper engineering. And its about time our governments started hiring, or even offering serious multi-million prizes to the worlds best engineers to get to work and design a system we can afford. Rather than just engaging report-writers like Aecom to do the predictable.

    Aecom btw are the people who were engaged to cost a single train station in Newcastle (the result of cutting short the train line). The managed a bloated $500M estimate. Yes, really. This is why I do not trust Aecom.

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