Taxpayers across Australia could be exposed to cost blowouts worth tens of billions on major transport projects, a new report suggests.
In latest report, The Grattan Institute says the number of ‘megaprojects’ valued at $A5 billion or more which are planned or underway has grown from one ten years ago to nine today.
On just six of these, it says cost estimates have blown out by a cumulative total of $24 billion.
Across all publicly funded projects all of sizes since 2001, meanwhile, the Grattan Institute says taxpayers have forked out an aggregate of $34 billion or 21 percent of project value compared with what was originally promised.
It warns that further megaprojects could lead to more overruns as well as developments which deliver poor value for money.
“Australian governments are now fast-tracking transport projects in the quest for an infrastructure-led recovery from the COVID-19 recession,” Grattan researchers Marion Terrill, Owain Emslie and Greg Morgan said.
“But spending big on transport projects conceived before COVID makes little sense, because the pandemic has pushed population growth over a cliff, and fewer people will commute in future as working from home becomes part of ‘COVID normal’.
“The danger is that governments rush to build what may turn out to be white elephants.”
In its report, Grattan documents six current projects where costs have blown out by a cumulative $24 billion.
These include blowouts worth:
- $5.5 billion on the 1,700 kilometre Inland Rail freight rail project connecting the ports of Melbourne to Brisbane, which was originally costed at $4.4 billion in 2010 but is now expected to cost $9.9 billion according to the latest costs available in the full business case in 2015.
- $9.8 billion on the North East Link project linking the Eastern Freeway in Melbourne with the M80 Ring Road from ‘more than $6 billion’ in the Victorian Government’s transport plan in 2008 to $15.8 billion as at May 2018.
- $2 billion on the 33-kilometre WestConnex road project which will link the west and south-west of Sydney with Sydney Airport and Port Botany and which will include around 19 kilometres of tunnels. Initially set at between $10 billion and $13 billion in the 2013 NSW budget, the most recent estimate in 2015 puts the cost at $14.9 billion.
- $1.2 billion on the Melbourne West Gate Tunnel project from $5.5 billion when the Victorian Government signed an in-principle agreement with Transurban to construct the project to $6.7 today.
- $3-4 billion on the City & Southwest section of the Sydney Metro rail project which will extend the Northwest line in Sydney from Chatswood in the north to Bankstown in the south-west via the CBD through a 30 kilometre line involving twin tunnels under Sydney Harbour and high-frequency driverless trains operating mostly underground. Originally set to cost between $11.5 billion and $12.5 billion, the current estimate sits at $15.5 billion whilst an internal review is said to talk of a $16.8 billion price tag.
- At least $1.5 billion on the Cross River Rail Project in Brisbane which includes a new line under the Brisbane River from a government estimate of $5.4 billion in 2017 to $6.9 billion in the 2019 Queensland Budget Papers including $1.48 billion in ‘private finance contributions’.
These overruns may yet be understated.
On Inland Rail, proponents of a rival plan to build an inland rail has suggested that the project’s final cost could reach $16 billion.
On Cross River Rail, the Queensland Shadow Transport Minister wrote to the Auditor-General suggesting the actual cost may reach $12 billion.
On several projects, meanwhile, Grattan says it is doubtful that benefits will exceed the eventual cost.
In its report, Grattan says larger projects are more prone to cost overruns because of their complexity.
Moreover, it says overruns are more common on projects which are announced early or ‘prematurely’ before a formal commitment such as a funding commitment is made
Such developments make up only 33 percent of government projects above $20 million over the twenty years to March but account for 79 percent of the cost overrun which has occurred on such projects.
Projects which are announced early involve cost estimates which are preliminary in nature and do not incorporate a detailed engineering design or feasibility assessment, Grattan said.
It says this would not be a problem if Australia had a robust process for cancelling those projects which on closer examination turn out either not to be the best option or not to be worth building at all.
However, this is not the case and projects usually end up being built once they are announced.
In its report, Grattan warns against relying on megaprojects to drive economic recovery after COVID.
Large-scale infrastructure projects may not be effective as a form of immediate stimulus where they take a long time to get going, it says.
With many projects already underway, meanwhile, new projects will put further pressure on skill and resource availability.
Meanwhile, there are renewed doubts about the need for megaprojects amid uncertainty over both long-term immigration and population levels and the number of people commuting into CBDs for employment following COVID.
Instead, Grattan has called for governments to move away from mega projects and focus stimulus efforts on existing infrastructure upgrades and social infrastructure.
It has also called for measures to improve the transparency of project assessments.
These include continuous disclosure of material changes in anticipated costs, benefits and project delivery dates as well as having infrastructure advisory bodies publish assessments of the quality of the business case and the robustness of its assumptions before project funds are committed.
“The pandemic should prompt governments to rethink major projects that have been promised or are under construction, particularly those announced without a business case,” it said.
“Governments should continuously disclose to Parliament material changes to expected costs and benefits, as listed companies are required to disclose to the stock exchange. And to avoid ending up here again in future, governments should collect data on and learn lessons from past projects.
“The key lesson is that megaprojects should be a last, not a first resort.”