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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.

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.

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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. Achmed

    There are more important infrastructure needs.

  2. Mark Duffett

    A potentially significant flaw in the assumptions of the report and Keane’s ruthless analysis is the possibility that current reports of the death of peak oil will turn out to have been exaggerated from the perspective of 2030 or 2060. The bugger is that if jet and other high energy density fuels do turn out to be a lot more expensive then, it will also make HSR even more expensive to build.

  3. Mark Errey

    Bernard you are spot on once again. For HSR to work it has to be between large population centres which are the right distance apart. You get this in Japan and you get it in Europe. In Australia the only major population centres that are the right distance apart are Sydney and Canberra. Canberra isn’t big enough to justify it. Hopefully it never is.

  4. Savonrepus

    Funny how it can add up in Europe and China but not here? Bernard you have no vision.

  5. Mark Heydon

    Savonrepus, Germany has four times Australias population, France has three times, Spain has two times. Each of these is smaller than NSW. China has 50 times Australia’s population in a land area only 25% larger. It isn’t “funny” how it adds up. It is exactly as Bernard states – Australia does not have the concentration of population as other countries with HSR.

  6. Bo Gainsbourg

    Bam! Where to start.
    1. There are European population densities here, especially along the Melb, Syd, Can, Bris corridor. Don’t believe me, check the stats. RMIT public transport experts can help.
    2.There is a thing called climate change response. Its kind of important, and by 2030 we won’t be flying like we are now, or for the same costs. Guaranteed.
    3. We are going to spend some $42 billion on needlessly subsidising the extremely well off via superannuation over the next few years. Savings anyone?
    4. Reallocating just some of the squadrillions we spend on road funding to a rail project won’t cost us the farm, and will again help with that pesky minor issue. Climate change. Not to mention the cash we seem to be hosing to the U.S. on defunct fighter planes.
    5. If there are other better options for rail use and reduction of CC lets favour them, but rejecting HSR on the grounds above alone doesn’t stack up.

  7. Achmed

    Comparison with Europe and China has its faults. Population is but one and possibly the most important, for example the city of Shanghai has a larger population that all of Australia.
    To have such a railway it must be cost effective and have a large “client” base.
    Built on the eatern seaboard of what benefit will regional taxpayers or those west get? Fund it but never have the chance to use it with soending $1,000’s to get to it

  8. Ron Chambers

    Nice article. Objective journalism at its best.

  9. Terry de Ste.Croix

    I am an avid enthusiast of train travel and when travelling in Europe I will take the train ahead of plane travel or car hire any day. The system is vast and will always get you to where you want efficiently, relatively cheaply and in a very relaxed manner. The reason why that is so is population and geographical size – which are the same reasons it makes not sense for Australia. Build a second Sydney airport and increase passenger capacity as necessary – end of sory.

  10. Francis Erin

    Clearly, this is a very expensive project. I’m interested to hear you say that it does not add up however, when I understand this report projects benefits to the economy of 2.3x the expected cost? The east-west link in Melbourne on the other hand provides benefits of just 0.8x cost. Even the rail only option of that transport plan – which no government is seriously planning to implement – would deliver benefits of 1.2x cost. Oh at $15 billion (in 2008), it’s a lot more than the 5-10% of the cost of HSR you flippantly suggest. And that single project would not “put a significant dent” in congestion.

    In terms of demand, Australia has the 5th and 12th busiest air routes in the world. Madrid -Barcelona used to be in the top 10, before a 621km railway linked them and reduced air travel by 34%. Journey times and passengers served on this route is not significantly different to Mel-Can-Syd.

    It seems to me this project does indeed add up, especially when compared to the poor value metropolitan road projects governments appear to prioritising instead.

    East west economic study: http://www.transport.vic.gov.au/__data/assets/pdf_file/0015/34260/EWLNA-MeyrickandAssociates-Economic_Benefits_and_Costs_Analysis.pdf

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