The Australian Government’s infrastructure advisory body has delivered a damning assessment of the business case for Melbourne’s biggest railway construction project.

And the Victorian and Australian Governments have been advised to prepare exit strategies in case the project’s delivery turns out to be unviable.

On Friday, Infrastructure Australia released its evaluation report for the business case behind the $30.0 billion to $34.5 billion Suburban Rail Loop East project (SRL East).

Scheduled to open in 2035, SRL East represents the first stage of the broader Suburban Rail Loop project (SRL). The SRL will create a 90 km orbital railway loop that will connect Melbourne’s middle suburbs from Cheltenham in the southeast to Werribee in the southwest (see map).

As the first stage, SRL East will connect Cheltenham in the southeast to Box Hill in the East via two 26 km underground tunnels and six stations.

As well as better connecting Melbourne’s middle suburbs, the project is expected to deliver opportunities for housing, employment, urban development and green space along the line and around key stations.

Early works in relation to the project commenced in 2022. Tunnelling is expected to commence next year.

Of the $34.5 billion in estimated project cost, the Victorian Government has committed one third with $11.5 billion whilst the Commonwealth has committed $2.2 billion.

To meet the remaining project cost, the Victorian Government is hoping that the Commonwealth will agree to provide an extra $9.3 billion to take the Commonwealth share of project funding to one third ($11.5 billion).

For the remaining one third, the Victorian Government is hoping to raise $11.5 billion through ‘value capture’ mechanisms, such as charges levied against developers in exchange for the rights to develop above and around new stations.

In 2021, the Victorian Government released a business and investment case associated with both SRL East and SRL North – the second stage of the Suburban Rail Loop project that will link Box Hill in the east with Melbourne Airport in the northwest.

That document found that the combined east and north projects for SRL would deliver net benefits of between $3.0 billion and $22.9 billion and will deliver a positive benefit to cost ratio of between 1.1 to zero and 1.7 to zero.

The business case did not provide a separate, disaggregated analysis of the individual SRL East and SRL North projects individually. Rather, it simply lumped the two projects together.

As noted below, this has created difficulty in assessing the merits of SRL East separately.

In its evaluation, Infrastructure Australia acknowledged that both the SRL East and SRL North have the ‘strong potential to reshape the urban form, increase access to jobs and services, and improve transport connectivity in Melbourne.’

But it found concerns about the business case in several areas.

In particular, Infrastructure Victoria found that:

• As the business case does not provide separate, disaggregated information in respect of SRL East (see above), it is difficult to undertake an analysis of the costs and benefits of SRL East on its own.
• Whilst potential benefits of the program are significant, the level of assessment that was undertaken in regard to options for SRL and SRL East was not sufficient to provide a convincing justification as to why the proposed rail solution was selected and why it is being prioritised. A more rigorous assessment of options would be needed in order to do this.
• Based on the information provided, there was low confidence that SRL East can be delivered within the cost estimate in the business case of $30.0 billion to $34.5 billion.
• The business case (published in 2021) uses cost estimates from 2020 and therefore does not reflect industry-wide cost escalation which has occurred since then. Nor does the cost estimate reflect design and scope definition activities that have been undertaken over the past five years.
• There was insufficient detail in the business case to provide confidence that value capture mechanisms can deliver the large proportion of the funding which the Victorian Government hopes to be delivered through these means.
• Net benefits associated with the project are likely overstated as the business case uses an unusually low rate of 4 percent to discount future benefits and costs. This is much lower compared with the 7 percent discount rate that is recommended in Infrastructure Australia guidelines.

In its report, Infrastructure Australia recommended that the Federal Government demand several pieces of information from the Victorian Government before committing further funding to the project.

This includes:

• an updated and more detailed cost estimate
• a comprehensive funding and financing strategy, including detail about how value capture will fund one-third of the project’s cost; and
• more rigorous analysis (including cost-benefit) that more clearly demonstrates project benefits.

Infrastructure Australia also recommend that the Commonwealth and Victorian Governments develop exit strategies in cast the project is not able to be feasibly delivered.

(SRL map. Source: Infrastructure Australia Suburban Rail Loop East Business Case Evaluation Report, Infrastructure Australia)

Despite being released on Friday, the report was published and provided to the Commonwealth in January.

This meant that the Federal Government had the report and knew of its conclusions and recommendations before releasing $2.2 billion in relation to the project in February.

In a press conference held on Saturday afternoon, Victorian Government Suburban Rail Loop Minister Harriet Shing defended the Victorian Government’s handling of the project.

But she refused to commit to providing the information which Infrastructure Australia had recommended – instead suggesting that the Victorian Government would continue to work with IA.

“We are on time. We are on budget. We have workers on the sites today,” Shing said.

“We will see tunnel boring machines in the ground next year, and trains running across the network from Box Hill to Cheltenham in 2035.”

However, Emeritus Professor Michael Buxton, a professor of environment and planning at RMIT University, described the project as ‘a sham’ and being ‘mired in deception’.

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