A benefit-cost ratio of 1.2 and a net present value of $161 million. The not unimpressive metrics contained in Capital Metro's "full business case" supporting the design, construction and operation of the City-Gungahlin light rail system will doubtless be challenged in the days and weeks to come. That is the nature of cost-benefit analyses based on a wide range of estimates and assumptions stretching well into the foreseeable future. The economic analysis conducted by Ernst and Young on behalf of Capital Metro contains no obvious reference to return on investment, either – another metric usually to be found in cost-benefit studies. Two out of three positives isn't bad, however. On the other hand, the analysis is larded with caveats, including this: "A BCR is not a guarantee of project success. It represents the sum of the best evidence at this point in time on the costs and benefits of the project", and this: "Ultimately the outturn financial cost [a commitment undertaken, most commonly in relation to repaying money] will be determined in large part by (i) the private sector during a competitive procurement process, and (ii) the occurrence (or otherwise) and severity of risk events during the life of the project".
On the sum of the best evidence then – and assuming risk events are mild or non-existent as opposed to severe – every taxpayer dollar invested in building and operating the 12-km rail line from 2015-48 will yield $1.20 in benefits. And the net benefit of the project, calculated by subtracting total discounted costs from total discounted benefits, will be $161 million. These metrics are clearly positive, but they are not extravagantly so, and many Canberrans will now be wondering in light of the significant financial ripples emanating from the Mr Fluffy crisis, whether a sizeable investment in transport infrastructure in a city already well served by such represent the best use available of scarce government time and money.
Ernst and Young have costed light rail's transport benefits at $406 million, comprising $222 million in time savings, $54 million in public transport operating savings and "other" savings of $129 million. Greater congestion on Canberra's roads as the territory's population increases is a certainty. Nonetheless, many people will regard as heroic Ernst and Young's calculation that a 25-minute rail service carrying around 20,207 people daily (the 2031 estimate) will yield time savings of $220 million. Canberra's excellent road network has ensured a very high rate of private-car use (one of the highest in Australia) and nothing short of Sydney-style peak-hour traffic and parking charges here in the ACT will change that. And in what looks like a case of trying to monetise every conceivable scenario arising from light rail use, the business study claims it will deliver $5 million in walking, cycling and health benefits.
Intriguingly, the analysis of the land-use benefits is not particularly compelling, with the authors valuing it at just $381 million. Indeed, in a section of the business study headlined "key message", the transportation and land use component of the overall benefit-cost ratio is given as just 1.0 – or one dollar in economic benefit for every dollar invested.
Crucial to any understanding of the financial ramifications of this light rail proposal is that it is intended to be a private-public partnership – though what particular model has not been determined. The fact that the government will not incur any upfront costs during the construction and delivery phase of the project ought to be a major plus for light rail, though curiously perhaps Capital Metro Minister Simon Corbell has not laboured the point.
Then again, neither has he dwelt on the payments that the government will be liable for from the time of completion, 2019, until 2039. Neither does the business case. A host of complex variables understood only by economists will determine the size of the payments needed to cover capex costs, operational expenditures and associated financing costs. However, it is hard to see the project's "whole of life costs" being less than the $110 million subsidy handed over to ACTION buses each year.
For all the hostility that the light rail project has evinced in some circles, many believe it could make an important economic and social contribution to Canberra's future. However, convincing them that the cost won't become burdensome (which this business case was in part meant to demonstrate), remains a work in progress.
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