Leaked NSW Transport department report says light rail benefits won’t cover costs

A NSW transport leak reveals the decision to cut the last two kilometres of the Sydney to Newcastle rail line was taken before before costing the light rail replacement and without an assessment of costs and benefits.

The cabinet-in-confidence report, prepared after the decision to close the line, refers to the decision as a "sunk cost" estimated at around $200 million

The 2.7 kilometre light rail link replacing it is costed at around $250 million, bringing the total cost, inclusive of planning and development and urban renewal work, to around $600 million, around $220 million per kilometre.

The projected benefits nowhere near cover the costs. The cabinet-in-confidence document puts the benefit cost ratio at 0.7 meaning it will only deliver 70 cents in benefit for each dollar spent.

If the value of the land released is excluded from the calculation, in line with a suggestion from the NSW Treasury, the benefit/cost ratio falls to 0.5, meaning 50 cents is lost for each dollar spent. A separate, hypothetical, plan to proceed with urban redevelopment without removing the rail line had a benefit/cost ratio of around 2.4, meaning each dollar spent would deliver $2.40 in benefits.

A covering note, written by David Evans, chairman of the Newcastle Urban Renewal and Transport Program, says the business case takes “as given” the government’s commitment to light rail.

It says the proposed light rail component “takes up a dominant and increasing share of available funding”.’

“This has the potential to greatly reduce the available funding for urban renewal and economic development activities which we believe are much needed,” the note says.  “The business case shows that a range of urban renewal initiatives have a substantially higher cost benefit outcome and could make a greater contribution to urban renewal objectives than light rail.”

Work on the light rail project on Hunter Street started this month. The new interchange at Wickham is almost complete.

The document leaked to Fairfax Media and the ABC reveals that Restart NSW, the body established by the NSW government to fund high-priority infrastructure projects, rejected the plan because of legal requirements that prevent it in investing in projects with a benefit/cost ratio of less than 1.

The bulk of funding instead comes from a general revenue fund known as the NSW transport capital plan.

Around $44 million is to come from selling development land freed up by removing the rail line. The land under the rail line is considered valuable because it can take the weight of tall buildings, unlike surrounding land which is at risk of subsidence from mining.

The report notes the land is a long, narrow corridor “that does not provide viable shaped or sized sites”. It says fragmented ownership limits potential future consolidation. The land is contaminated with heavy metals and hydrocarbons. 

In a departure from best practice, the report does not examine alternatives to light rail including a shallow cut-and-cover rail tunnel of the kind used in Sydney’s Hyde Park or a bus lane upgrade, which it acknowledges would cost $10 million rather than $250 million.

The leak comes one day after Transport Minister Andrew Constance defended spending $200,000 hunting down transport leaks invoking national security.

“If you think information that resides within the Department of Transport being leaked is some sort of laughing matter in today's world … in light of what's happening in the UK, in light of what's happening elsewhere around the world, you are kidding yourself,” he said. “We live in an era that relates to cyber terrorism and a whole raft of security issues.”

Asked whether the government continued to maintain that the project was value for money in face of the benefit/cost ratios reported to Cabinet of 0.7 and 0.5, Mr Constance said consigning Newcastle to further decline was not an option. 

“Since the truncation of the heavy rail line, Newcastle has undergone a revitalisation that has seen population grow by 4.6 per cent and employment rise by 9 per cent,” he said. The ultimate value of the project was in the revitalisation of the city. It had resulted in nearly $2 billion in private sector investment.

“The truncation of the line has also allowed us to commit to building affordable housing and the university in the corridor. We made a commitment to the people of Newcastle that we would return a portion of the port’s lease to improving the city, and that is exactly what we are doing.”