As per his explicit election promise, Victoria’s new Premier, Daniel Andrews, yesterday announced the beginning of work on the revived Melbourne Metro rail tunnel originally proposed under the Brumby government.

Design and engineering work on the twin nine-kilometre tunnels under the CBD was well advanced in 2010 when the Brumby government lost office. Further preparatory work continued for a period under the Baillieu/Napthine government, but the project was eventually amended to follow a different route and renamed the Melbourne Rail Link.

The CBD tunnel is a very important project for Melbourne because limited rail capacity in the city centre is a key constraint on the capacity of the metropolitan-wide rail system. It’s primarily about making the existing network operate better, rather than extending coverage or promoting urban renewal.

Demonstrating that too much hype is never enough in politics, the Premier said the project would give Melbourne a public transport network “equal to those in cities such as New York, London, Paris and Hong Kong”. Not to be outdone, Transport Minister Jacinta Allan said: “If we don’t build Melbourne Metro Rail now, our public transport system will grind to a halt.”

While those claims are just silly, there are a number of important issues to think about regarding the Melbourne Metro:

  • Notwithstanding yesterday’s announcement, the Andrews government won’t make a substantial start on the project for at least four years. It’s allocated just $300 million this term for the $9 billion to $11 billion project. Yesterday’s commitment only provides $40 million to set up a new Metro Rail Authority and do more design and investigation. Tellingly, the Premier says the business case still has to be written;
  • Funding for the project hasn’t been secured. Andrews only promised before the election to “commit one-third of the construction cost of Melbourne Metro Rail” directly from government revenue;
  • Andrews’ promise was conditional on the Commonwealth contributing one third of the cost, even though the Prime Minister has said he won’t fund urban rail. A new PM or a new government in Canberra might take a different view, but that can’t be taken as a foregone conclusion;
  • Andrews also promised from opposition that a third of the cost will come from the private sector. That looks straightforward, but it could be complicated if investors are concerned about how the government handles the cancellation of the East West Link contract (e.g. investors might require a higher return);
  • The ultimate cost of the project is unclear at this stage and might increase. It was $9 billion when it was submitted to Infrastructure Australia, but that was some years ago; costs usually increase with more detailed investigations. The Napthine government put the cost at up to $11 billion;
  • There are already pressures to expand the scope of the project and hence increase costs. For example, Stonnington Council is calling for a station at South Yarra. That option might seem eminently sensible, but was originally excluded because it would be difficult to retrofit a station in that location. It could add as much as $1 billion to the total cost without a commensurate increase in benefits;
  • If the total cost increases, the benefit-cost ratio for the project will deteriorate, all other things being equal. Calculated according to Infrastructure Australia’s rules, the BCR was 1.2 at a cost of $9 billion, but at $11 billion (or more) the BCR will break even (or possibly move into the negative);
  • The business case for the Metro already exists and was submitted to Infrastructure Australia. It wasn’t made public. Now that it has released the business case documents for the East West Link, the Andrews government needs to be totally transparent about how it’s managing this project; existing and new documents should be public; and
  • It won’t be surprising if the reboot of Melbourne Metro leads to some changes to the proposal as it currently stands (e.g. to the alignment or the stations). That would partly reflect new information and new expertise, but I’d expect cost issues to be a big factor. Change will also provide a convenient excuse for the delay in starting construction.

In strictly engineering terms, the Andrews government could make a substantial start on the project in this current (four-year) term, provided it sticks to the current design. A lot of the engineering work was done under the Brumby and Baillieu/Napthine governments.

The various approvals required might routinely take up to two years, but as the Napthine government’s handling of the East West Link showed, this process can be accelerated if the will and enthusiasm is there.

The problem for Andrews is finding the money. His task will be even harder if the sale/lease of the Port of Melbourne doesn’t realise all the funds needed for the government’s signature level-crossing removal program, or if the cost of cancelling the East West Link contract is as high as many expect.

The upshot is it’s unlikely construction of the Metro will get underway in a meaningful sense until the government’s second term (i.e. 2018-2022). That would most likely see completion of the tunnel sometime in 2026-30.

If the electorate’s apparent preparedness to throw out governments after one term continues, the result could be Melbourne Metro never starts. It would be terrific to see a bipartisan approach. However, that seems a tall order because this is one of those projects where the opposition has a distinct alternative solution to the same problem (i.e. it has Melbourne Rail Link).

This is a big and strategic investment, so I’d like to see the government also assess other possible solutions for expanding rail capacity (including the Melbourne Rail Link) and take account of the best of all of them. But I recognise the Metro is an explicit election promise.

The key political imperative for Andrews is to find the money and get digging. The pressure needs to be maintained on the federal government. He should also give serious consideration to requiring those who will benefit from the project to contribute to the cost; the most prospective candidates are city centre businesses and organisations.

Peter Fray

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