AITPM presentation by Scott Elaurant

1. Politics, Finance and Transport
Aitpm 2014 The Need for Systematic reform
Scott Elaurant and William McDougall

2. Overview
1. Introduction
2. Transport funding – the macro level
3. Choosing the right project: modes and ideologies
4. Delivering the project right
5. A better approach

3. Introduction
• Transport funding: is the funding level correct?
• Project selection: do we allocate the funds to the right projects?
• Project delivery: do we spend the funds well?

4. Transport funding trend since 2001
• Below long term average up to 2006
• Rapid increase in stimulus for GFC
• Urban transport funds less; includes PPPs
Price Waterhouse Coopers for Business Council of Australia

5. Transport funding: is it enough?
• Australia population +1.5% p.a. (OECD +0.7%)
• Australian GDP +2.6% p.a. (OECD +1.7%)
• Highly urbanised – growth is in cities
Department of Infrastructure and Transport, 2013

6. Transport funding: international comparisons
• Australia is average in OECD

7. Project selection: politics and ideology

8. Road versus rail
• Decision still controversial
• Is there a consensus?
• Are preferences changing?

9. Urban versus rural
• Do we build some projects simply because we want to spend
money in that area?
Darwin-Alice Springs Railroad

10. Political cycles
• Project priorities change with political cycles – causes delay and
waste
• Inconsistency :
– Melbourne East West: road to rail to road
– Brisbane CBD: busway to road to rail
• Delay:
– Sydney NW Rail, Perth LRT, Pacific Highway

11. Ideology
• Ideological preferences
• Right wing governments tends to fund roads more
• Left wing tends to fund public transport more
“They underestimate the sense of mastery that many people gain
from their car. The humblest person is king in his own car.”
Tony Abbott, Battlelines

12. Politics and transport: trends
• Planning efforts wasted as priorities change with governments
• Major decisions made without analysis being made public
• Ideological preferences: transport mode, urban/rural
• Transport planners (hopefully) make decisions on technical
grounds. Politicians do not!

13. Project delivery: is it efficient?
Road across Blue Mountains, 1860s

14. Construction price inflation
• Road cost index higher than inflation
2004 2005 2006 2007 2008 2009 2010 2011 2012
60
65
70
75
80
85
90
95
100
105
Inflation
Road Costs

15. Megaprojects and Risk (Flyvjberg 2003)
• European evidence on large ($0.5 billion+) projects
• Large projects tend to have larger cost overruns (50 to 100%)
• Revenue and patronage tend to be overestimated (20 to 70%)
• Australia has built an increasing number of “megaprojects”…

16. Australian megaproject outcomes
• Most recent large roads are PPP toll roads
• 5 of last 7 toll PPPs have gone bankrupt
Project PPP Year Cost ($M) Real Cost (2012 $M) PPP Outcome
Cross City Tunnel, Sydney Yes 2005 680 900 Bankrupt
M7 Motorway, Sydney Yes 2006 1,600 2,020 Profitable
Regional Fast Rail, Vic No 2006 840 1,060
Perth Mandurah Rail, Perth No 2007 1,700 2,080
Lane Cove Tunnel, Sydney Yes 2007 1,100 1,350 Bankrupt
Liverpool Parramatta T-Way, Sydney No 2007 990 1,210
East Link, Melbourne Yes 2008 2,500 2,890 Write off
Epping Chatswood Link, Sydney No 2009 2,200 2,360
Forrest Highway, Perth No 2009 705 760
Clem 7 Tunnel, Brisbane Yes 2010 3,200 3,460 Bankrupt
Gateway Upgrade, Brisbane No 2010 1,880 2,030
West Gate Freeway Upgrade, Melbourne No 2010 1,390 1,500
Airport Link, Brisbane Yes 2012 4,800 4,800 Bankrupt
Logan Motorway, Brisbane No 2012 1,950 1,950
Western Ring Road, Melbourne No 2013 980 970
Peninsula Link, Melbourne Yes 2013 760 750 On budget

17. Managing project risk (Flyvjberg 2003)
• Decision maker & proponent independent
• Public scrutiny of decision process (transparency)
• Rigorous regulatory regime (accountability)
• Unguaranteed risk capital (risk transfer)
• Flyvjberg recommended changes to governance measures to
control risk:
– measures mainly NOT done in Australia,
– forecasting methodology reviewed

18. A better approach
• Political reform:
• Independent statutory body needed for infrastructure decisions

19. A better approach
• Financial and project governance reforms:
• More smaller projects?
• Guidelines for PPPs to include governance
• Revenue & funding consistent in long-term
• National policies needed for revenue
• Policy consistency needed over time for effectiveness in
demand management

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Politics, Finance and Transport
Aitpm 2014 The Need for Systematic reform
Scott Elaurant and William McDougall