Main construction work has commenced on a $30-34.5 billion project that will reshape Melbourne’s railway network and unlock urban renewal opportunities across the city.

On Monday, main construction work commenced on the Victorian Government’s Suburban Rail Loop East project (SRL East).

Set to open in 2035, SRL East will link Cheltenham in Melbourne’s southeast with Box Hill in the east via two 26-kilometre rail tunnels and six new underground stations.

The project represents the first stage of the broader Suburban Rail Loop – a 90-kilometre orbital rail loop that will connect middle suburbs from Melbourne’s southeast, east, northeast, north, northwest, west and southwest.

Tunnelling is being delivered in two works packages.

At the southern section of the project, the first sixteen kilometres of twin tunnels between Cheltenham and Glen Waverley is being constructed by the Suburban Connect consortium. This involves CPB Contractors, Ghella and Acciona Construction.

Major works in respect of this section commenced on Monday at a site in Clarinda.

From there, tunnel boring machines (TBMs) will be launched next year. Two machines will head toward Glen Waverley whilst the other two will head toward Cheltenham.

With respect to the northern section between Glen Waverly and Box Hill, the final ten kilometres will be constructed by the Terra Verde consortium.

This includes Webuild, GS Engineering and Construction and Bouygues Construction Australia.

Tunnelling in respect of this section is set to begin from a site in Burwood next year.

In what the Victorian Government describes as an Australian first, the TBMs will start their journeys through ‘flying launches’.

This enables tunnelling to begin while the TBM continues to be built from behind a smaller launching area and minimises disruption.

Each TBM will take about three months to assemble and will travel up to 90 metres per week.

According to the Victorian Government, benefits associated with SRL will be substantial.

As things stand, Melbourne’s metropolitan railway network is designed around a loop that runs around and under CBD. Commuters wishing to travel between suburbs generally first need to catch a train into the CBD before catching another train out to their destination.

This has created significant planning challenges in terms of diversifying employment opportunities outside of the CBD.

By contrast, SRL will enable commuters to travel more directly between suburbs and will faciltate greater rail connectivity between and across Melbourne’s suburbs.

This will unlock significant opportunities for housing, urban renewal and employment above and surrounding the new SRL stations.

In terms of housing alone, the government believes that up to 70,000 new homes could be delivered in and around SRL stations.

This is particularly important as Melbourne’s population is expected to reach nine million by 2056 – a similar size to London today.

Nevertheless, the project has been subject to controversy.

First, uncertainty remains as to how the SRL East will be funded.

In 2021, the Victorian Government released a business case that assessed the combined benefits and costs of the SRL East and SRL North projects (SRL North will be constructed following SRL East).

That document estimated the cost of SRL East at between $30.0 billion and $34.5 billion.

As things stand, however, only $14 billion worth of project funding has been committed. This consists of $11.8 billion which has been committed by the Victorian Government and a $2.2 billion contribution from the Federal Government.

This leaves a gap of approximately $20 billion, which the Victorian Government is hoping to bridge through additional Commonwealth contributions as well as value capture opportunities such as selling development rights above SRL stations.

Beyond that, concerns have been raised about the quality of the project’s aforementioned business case.

In a report provided to the Federal Government in January, Infrastructure Australia acknowledged that both SRL East and SRL North have ‘strong potential to reshape the urban form, increase access to jobs and services, and improve transport connectivity in Melbourne.’

However, it found concerns about the project’s business case in several areas. (The business case found that the combined SRL East and North projects would deliver a positive benefit to cost ratio of between 1.1 and 1.7 to zero.)

One area of concern involved a difficulty in assessing SRL East separately as the business case bundled SRL East and SRL North together.

Other concerns included the adequacy of assessment that was undertaken in regard to options for SRL and SRL East; low confidence that the project could be delivered within budget; industry wide cost escalation which has occurred since the business case was prepared (likely to add further costs); insufficient detail to provide confidence that value capture mechanisms can deliver the proportion of funding which the Victorian Government hopes; and net project benefits being likely overstated as the business case uses an unusually low rate of 4 percent to discount future benefits and costs into today’s dollars.

It suggested that the Federal Government hold off on committing further funding until the Victorian Government can provide further information. This includes an updated and more detailed cost estimate, a comprehensive funding and financing strategy and more rigorous analysis that more clearly demonstrates project benefits.

Asked about this, a Victorian Government spokesperson stressed that the project remained on time and on budget.

Assessing SRL East in isolation would provide an incomplete picture of its impact, the spokesperson said. This would be the case as benefits associated with infrastructure and housing will accrue over decades and will become more significant when considered in combination with the delivery of other sections of the SRL project.

Internationally, the spokesperson pointed out that investments of this scale, scope and ambition are typically assessed as a broader network or program rather than as stand-alone parts delivered in stages over time.

This is necessary in order to comprehensively capture the full suite of long-term benefits and network impacts of large-scale infrastructure projects.

When the United Kingdom undertook its Crossrail (Elizabeth Line, London) project, for example, the benefits of the entire scheme were assessed rather than isolated sections or stages.

As for value capture measures, the spokesperson confirmed that these are being developed by the Department of Treasury and Finance and that the Government will continue to engage with the Commonwealth in finalising these arrangements.

The project also received a significant boost as a result of Federal Labor’s win in Saturday’s federal election.

Had the Coalition won the election, Opposition Leader Peter Dutton had promised to scrap federal funding for the project.

All up, SRL East is expected to create up to 8,000 direct jobs during construction.

More than 3,000 people are already working on the project.

Victorian Premier Jacinta Allen welcomed the start of major construction.

She said Victorians have strongly backed the project.

“Victorians have backed this project time and time again, and we’re cracking on.,” Allan said.

“The Suburban Rail Loop delivers better public transport and less congestion on the roads.”

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