Inland rail’s cost a heavy haul

Questions emerge as freight link's benefits take shape


Advocates are excited by the potential of the inland rail project, but questions hang over cost and key infrastructure links. Pic by Max Mason-Hubers.

Advocates are excited by the potential of the inland rail project, but questions hang over cost and key infrastructure links. Pic by Max Mason-Hubers.

Aa

Questions emerge as freight link's benefits take shape

Aa

FINALLY, after decades of lobbying from farmers, freighters, and rail transport fans the once mythical beast is captured. Government will invest $8.4 billion to build the inland rail by 2024. 

But even the project’s most strident backers have reservations.

Questions remain over the risk of cost blowouts, and the business case from public project proponent the Australian Rail Track Authority, while crucial links into port at Melbourne and Brisbane are undecided. 

On top of that, state governments and private industry will need significant investment to bring old branch lines up to speed and new intermodal freight hubs are needed along the route.

Australian Logistics Council managing director Michael Kilgariff was an enthusiastic supporter of inland rail. 

Economies of scale

Mr Kilgariff said port links are now a crucial next step for the project, and urges NSW to push for connections to Newcastle, Botany and Kembla, and cited hopeful signs for the bush from coming from trucking companies.

“I note that Toll and Linfox said with inland rail investment they’ll be looking at intermodal and rail freight in the future,” he said.

“It’s clear there will be major benefits to regional areas, but there has to be a discussion about where the freight terminals are located. If the train stops everywhere, the economics don’t stack up.

But Grattan Institute transport program director Marion Terrill has some doubts about the commercial viability of the project.

Cost concerns

“Infrastructure Australia accepted the proponent’s estimated benefit to cost proposal of 1.1 (benefits just above costs),” she said.

Her own research found a project like inland rail is particularly at risk of cost overrun.

“On average, Australian infrastructure projects exceed their budget by 24 per cent, and the bigger they are the more prone they are to overrun, and this one is gigantic,” she said.

A range of cost estimates are produced for infrastructure projects. 

A P50 value indicates the likely cost of a project . That is the cost at which half of the time it will come in at or under budget and half the time over budget, while the P90 cost is a “worst case” cost, where only one in ten times would it be expected to go over its budget.

“I’ve found, on average, the P90 cost should be around 26pc higher than the P50. But for inland rail, it’s only 7.8pc higher, which indicates there is insufficient provision for cost overruns, if the past 15 years of history is any guide,” Ms Terrill said.

A conservative Coalition with a small government agenda may revisit the option to privatise the $4b ARTC,” Ms Terrill said.

A privatisation plan was floated in the 2015-16 budget, but the idea was quickly dropped. When the 2016-17 budget committed funding, inland rail was left off the balance sheet, listed instead as an equity investment due to expectations of commercial returns.

Ms Terrill questioned why the government would acquire equity in a project which was set to generate returns.

“If it’s really commercial, there may be no need for a Commonwealth investment.”

Regional potential

ARTC’s business case forecast that without inland rail, the east coast would struggle with increased truck traffic, a bigger road building and maintenance bill, and heightened safety risks, especially on country roads. Road transport may gain a stranglehold on the freight supply chain, reducing incentive for ongoing rail investment.

On the plus side, it forecast inland rail would switch the Melbourne to Brisbane freight paradigm. Currently, 74 per cent of freight on the busy route goes by road, where rail gets just 26pc. The inland link is forecast to attract 62pc of that freight traffic by 2050.

In 2015, a simulation of an inland rail-sized train was organised by bulk handler Newcastle Agri Terminal, to demonstrate the potential of economies of scale in the supply chain.

The 1.3km long train, a record Australian grain haul (east coast grain trains are typically 650 metre). With increased economies of scale, the mega train saved growers $1.30/t.

But while questions remain over future coal freight demand, with exports currently valued at $38b a year, east coast grain growers stand to be the biggest beneficiaries from inland rail.

Their freight corridor carries agricultural goods valued at $34bn a year across Victoria, NSW and Queensland – which represents about 70pc of the total value of national ag commodities. 

Aa

From the front page

Sponsored by