Politics, Finance and TransportAITPM 2014 THE NEED FOR SYSTEMATIC REFORM

Scott Elaurant and William McDougall

Overview

1. Introduction

2. Transport funding – the macro level

3. Choosing the right project: modes and ideologies

4. Delivering the project right

5. A better approach

Introduction

• Transport funding: is the funding level correct?

• Project selection: do we allocate the funds to the right projects?

• Project delivery: do we spend the funds well?

Transport funding trend since 2001

• Below long term average up to 2006

• Rapid increase in stimulus for GFC

• Urban transport funds less; includes PPPs

Price Waterhouse Coopers for Business Council of Australia

Transport funding: is it enough?

• Australia population +1.5% p.a. (OECD +0.7%)

• Australian GDP +2.6% p.a. (OECD +1.7%)

• Highly urbanised – growth is in cities

Department of Infrastructure and Transport, 2013

Transport funding: international comparisons

• Australia is average in OECD

Project selection: politics and ideology

Road versus rail

• Decision still controversial

• Is there a consensus?

• Are preferences changing?

Urban versus rural

• Do we build some projects simply because we want to spend money in that area?

Darwin-Alice Springs Railroad

Political cycles

• Project priorities change with political cycles – causes delay and waste

• Inconsistency :

– Melbourne East West: road to rail to road– Brisbane CBD: busway to road to rail

• Delay:

– Sydney NW Rail, Perth LRT, Pacific Highway

Ideology

• Ideological preferences

• Right wing governments tends to fund roads more

• Left wing tends to fund public transport more

“They underestimate the sense of mastery that many people gain from their car. The humblest person is king in his own car.”

Tony Abbott, Battlelines

Politics and transport: trends

• Planning efforts wasted as priorities change with governments

• Major decisions made without analysis being made public

• Ideological preferences: transport mode, urban/rural

• Transport planners (hopefully) make decisions on technical grounds. Politicians do not!

Project delivery: is it efficient?

Road across Blue Mountains, 1860s

Construction price inflation

• Road cost index higher than inflation

2004 2005 2006 2007 2008 2009 2010 2011 201260

65

70

75

80

85

90

95

100

105

InflationRoad Costs

Megaprojects and Risk (Flyvjberg 2003)

• European evidence on large ($0.5 billion+) projects

• Large projects tend to have larger cost overruns (50 to 100%)

• Revenue and patronage tend to be overestimated (20 to 70%)

• Australia has built an increasing number of “megaprojects”…

Australian megaproject outcomes

• Most recent large roads are PPP toll roads

• 5 of last 7 toll PPPs have gone bankruptProject PPP Year Cost ($M) Real Cost (2012 $M) PPP Outcome

Cross City Tunnel, Sydney Yes 2005 680 900 Bankrupt

M7 Motorway, Sydney Yes 2006 1,600 2,020 Profitable

Regional Fast Rail, Vic No 2006 840 1,060  

Perth Mandurah Rail, Perth No 2007 1,700 2,080  

Lane Cove Tunnel, Sydney Yes 2007 1,100 1,350 Bankrupt

Liverpool Parramatta T-Way, Sydney No 2007 990 1,210  

East Link, Melbourne Yes 2008 2,500 2,890 Write off

Epping Chatswood Link, Sydney No 2009 2,200 2,360  

Forrest Highway, Perth No 2009 705 760  

Clem 7 Tunnel, Brisbane Yes 2010 3,200 3,460 Bankrupt

Gateway Upgrade, Brisbane No 2010 1,880 2,030  

West Gate Freeway Upgrade, Melbourne No 2010 1,390 1,500  

Airport Link, Brisbane Yes 2012 4,800 4,800 Bankrupt

Logan Motorway, Brisbane No 2012 1,950 1,950  

Western Ring Road, Melbourne No 2013 980 970  

Peninsula Link, Melbourne Yes 2013 760 750 On budget

Managing project risk (Flyvjberg 2003)

• Decision maker & proponent independent

• Public scrutiny of decision process (transparency)

• Rigorous regulatory regime (accountability)

• Unguaranteed risk capital (risk transfer)

• Flyvjberg recommended changes to governance measures to control risk:

– measures mainly NOT done in Australia, – forecasting methodology reviewed

A better approach

• Political reform:

• Independent statutory body needed for infrastructure decisions

A better approach

• Financial and project governance reforms:

• More smaller projects?

• Guidelines for PPPs to include governance

• Revenue & funding consistent in long-term

• National policies needed for revenue

• Policy consistency needed over time for effectiveness in demand management

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Politics, Finance and TransportAITPM 2014 THE NEED FOR SYSTEMATIC REFORM

Scott Elaurant and William McDougall