On March 18th, the Sydney Harbour Bridge celebrated the 85th anniversary since its opening.
Along with becoming a landmark and national icon, the bridge has delivered enormous benefits though opening up the northern part of the city to expansion.
Yet according to one property industry leader, if evaluated against today’s infrastructure metrics, the bridge would not have been built. In a recent opinion piece published on the Property Council of Australia’s web site, Property Council of Australia chief executive officer Ken Morrison hinted that because of an overly narrow perspective of economic viability, benefits associated with the bridge may have been judged to exceed the cost and the bridge may not have gone ahead if being considered today against today’s criteria.
“Surprisingly, had we applied today’s infrastructure metrics it would not have been built,” Morrison wrote. “The 10,000 cars and horses that travelled over it every day could not fund the largest infrastructure project in the nation’s history.
“In all, it took the state of New South Wales 56 years to pay the Bridge off – and by that stage the Bridge had paid for itself many times over in so many other ways. It opened Sydney to the north and the city never looked back.”
Morrison’s comments came amid ongoing contract negotiations surrounding the new Sydney Airport at Badgerys Creek. Earlier this year, Sydney Airport – which has first rights to develop and operate the new airport under a privatisation arrangement struck in 2002 – said the project required federal government support in order to be viable. Should Sydney Airport decide not to proceed, the government will have to find other private interests to build the airport or otherwise do so itself.
Morrison is frustrated. A second airport for Sydney, he wrote, would provide capacity for freight, exports and the broader economy, would drive economic activity in the west and would pay for itself many times over. More broadly, he wrote, it is important that infrastructure projects be evaluated not just in the narrow financial sense but also in light wider community benefits.
Morrison was not available for interview, so whether or not he literally believes the bridge would not have been built today is not known. Nevertheless, his comments raise questions about the degree of weight which wider and less easily quantifiable benefits should be afforded in respect of infrastructure project evaluation.
Paul Hyslop, chief executive officer of economic and public policy consulting firm ACIL Allen is sceptical. Hyslop acknowledges the need for projects to be evaluated within a wider context. Benefits associated with a new road or airport, for example, need to be considered within the context of the overall transport network as opposed to an individual asset. Furthermore, he acknowledges there may be room for limited application of broader economic benefits which are not easy to quantify in cases whereby the value of the quantifiable benefits associated with a project and those of its costs are close.
Nevertheless, he says there have been cases where claimed wider benefits have been used in questionable ways to justify projects for which underlying business cases are not strong.
An example is the Canberra light rail project. Part of the supposed benefits, Hyslop says, involve separate items for travel time savings and land value increases, which he says represents double counting as the higher land values arise out of the time savings. So-called agglomeration benefits arising out of greater commercial collaboration and innovation from connecting Gungahlin to Civic Canberra on a 12-kilometre light rail link are also questionable when it is already connected by road, he said.
All up, Hyslop puts the real benefit to cost ratio at around 0.5. Furthermore, he says a bus rapid transit system could have been implemented for around half of the cost and would have provided for greater flexibility.
In another example, Hyslop says claimed benefits relating to lower energy costs and greater economic activity associated with proposals from Resources Minister Matt Canavan to build a coal fired power station in North Queensland are dubious. At any rate, if you were going to build a new coal plant, Hyslop says doing so in the state’s south would be less expensive.
“I agree that projects need to be evaluated in a wider economic context,” Hyslop says. “But I’m very cautious about the application of so-called wider economic benefits.
“Quite often what we see is projects which have benefits well below the costs of the project and what looks to us to be fairly arbitrary, ill-conceived and ill-considered volumes of wider economic benefits then added to the project to get it over the benchmark of one and justify the project.”
Hyslop also disagrees about the Harbour Bridge. Since Sydney would have developed differently had the bridge not been built, Hyslop says it is not plausible to simply take out the band imagine that the Sydney we see today would exist. Even if that were not the case, he said there would be no trouble in justifying either the bridge or something equivalent using today’s project evaluation terms.
Going forward, Hyslop says the only way to avoid projects getting through on the basis of flowery benefits was for the electorate to hold governments accountable for infrastructure decisions at the ballot box – a phenomenon he acknowledges is unlikely as many voters have priorities other than infrastructure. Whilst bodies such as Infrastructure Australia in theory provide discipline regarding project evaluation, Hyslop says recommendations from these bodies are often disregarded.
Australia may, in some cases, be wise to look at wider and less quantifiable benefits associated with large-scale infrastructure investment.
In doing so, however, we must ensure that these are genuine benefits and not merely flowery statements to justify projects of questionable viability.