Economic case for East West link may be shaky

The Age: Economic case for East West link may be shaky. July 7, 2014, Josh Gordon, Clay Lucas

The economic case for the East West Link could be shakier than first thought, with the government’s own modelling work suggesting the benefits could be overshadowed by towering costs.

It comes as Melbourne City Council on Tuesday night considers voting to strengthen its objection to the East West Link’s impact on the Moonee Ponds Creek and parts of Kensington.

An internal assessment of the project undertaken in March 2013 is understood to have examined nine options for the road link.

Even the cheapest but most destructive scenario – building the road by bulldozing a path “at grade” through Carlton and Fitzroy – failed to produce a positive return, suggesting the state would recoup just 73¢ for every $1 spent, excluding ”wider economic benefits” from the analysis.

The situation was even worse under a high-cost scenario involving maximum tunnelling, with the calculations suggesting Victoria would claw back just 45¢ for every $1 spent.

The original calculations – indicating the project would lose between 27¢ and 55¢ for every $1 spent – left those scrutinising the project concerned about the merits.

A source familiar with the business case said consulting firm PwC did further work in June 2013. Its best case scenario – revealed by the government in a glossy brochure spruiking the project later that month – claimed it would return $1.40 for every $1 spent.

It is understood this calculation, which was heavily qualified by the consultant, was produced by doubling the previous estimate of benefits of reduced travel times from $1 billion to $2 billion.

Treasurer Michael O’Brien said the cost to Victoria of failing to act on key infrastructure would only escalate if it is delayed.

“Tunnelling is an undoubtedly more expensive way of delivering this project but the alternative – creating a freeway at grade – would devastate Royal Park, the Melbourne General Cemetery as well as hundreds of additional properties including schools,” Mr O’Brien said.

The estimate for the so-called “agglomeration” effect – a controversial branch of economics which holds that businesses become more productive when urban density increases – was also dramatically increased, from about $1.5 billion to $2.1 billion.

Under a more conservative scenario, PwC estimated a benefit-cost ratio of just 0.8 when wider benefits were excluded from the analysis in line with Infrastructure Australia’s preferred approach.

Planning Minister Matthew Guy last week approved plans to build an elevated road running parallel to CityLink above the Moonee Ponds Creek. The new road would travel to Footscray Road before linking to the second stage of the project.

The elevated roadway was approved despite the state government’s own expert planning assessment committee having found it should not go ahead until other options were explored.

The group of six planning experts said the elevated roadway plan ‘‘had not been adequately assessed, and should be set aside’’ until a proposed widening of CityLink and the Tullamarine Freeway, in particular, was better understood.

The government’s planning experts found that the elevated roadway could ‘‘not be justified based on projected traffic volumes’’ until and unless a second stage of the East West Link was built.

However Mr Guy overruled them, deciding that the public interest was better served if the project – including the elevated roadway – was approved as one integrated package of works, because it would provide more certainty, which he said was ‘‘appropriate for such a major undertaking’’.

The experts also found that the elevated roadway had been designed without proper attention to its impacts. ‘‘This has led to community disquiet and scepticism,’’ they found.

This included a block of 53 apartments in Kensington that will be badly affected if an elevated roadway is built alongside it. The planning panel found that this building had not been noticed by the government’s road authority when they were planning the road.

Asked about the project on Monday, Mr Guy said that he had provided his rationale for his decision last week, and stood by it. ‘‘I believe I have approved the right project in the right areas,’’ Mr Guy said.

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