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Martin Lehmann - 3 January 2004
When the Gallop government took over the controversial
Mandurah railway project from the outgoing Liberal
government, the estimated cost was
$1.2billion. Costs since then have rapidly escalated. Planning minister Alannah MacTiernan revealed
on 16 December another $100 million blow-out, taking the
total to $1.52 billion even before work has commenced.
Four of the State's most experienced construction
experts, led by consulting chartered engineer Peter Bruechle,
warned in an open letter to the government on 27 September
2003 that the city rail tunnel plan could blow out by up
to $700 million, taking the total cost of the project over
$2 billion. They said the plan to run the rail along the
freeway, across two bridges and then under the city is
fraught with financial dangers. "History shows that the
cost of major tunnelling works cannot be accurately
ascertained and that there are normally substantial cost
overruns", they said.
Dodgy figures fail to hide
misuse of taxpayer funds
Although the Gallop
government has re-routed the proposed railway system
and vastly increased the overall cost, the table above, taken from the South West Metropolitan
Railway Master Plan (page 73) illustrates the
duplicity of the planners in trying to justify the
rail system over the equivalent bus system.
The planners have tried to assess the financial
viability of the project by calculating its Net Present
Value. This is a standard method used by planners,
corporations and entrepreneurs to calculate the value of a
project by adding all the estimated cash flows over the life
of a project and discounting them by a certain rate to value
the project in terms of today's dollars. The
planners have used some very questionable figures for the
rail option. For example they have estimated a cash flow of
$519.7m for something called "User benefits". They
have defined these as savings in travel time and "the
benefits to passengers diverting to rail". It looks
like they plucked these figures out of the air to pump up
the rail option. In spite of the dodgy figures,
the planners arrived at the startling conclusion that while
the bus option has a positive NPV of $60.2m, the rail option
has a negative NPV of $64.5m. No business operator
using his own money or company director using shareholders
funds would ever proceed with a project with such a large
negative NPV. I interviewed a retired senior executive
from the Main Roads Western Australia. He told me two
things:
- His planners never thought the rail option was
preferable to the bus option. He believed the railway
was a political decision.
- Travel time savings on railways are an illusion. If
you are comparing train travel time with private
vehicles, you have to take into account the time taken
to drive or bus from your home to the railway station
and to wait for the train. Then you have to count the
time taken at the other end to drive or take a taxi or
bus to your destination.
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