Vic Government mulls East-West Link 2.0

By in Australian Economy

| 13 comments

By Leith van Onselen

After dumping the flawed East-West Link project, the new Victorian Labor Government is now considering building a new $5.5 billion “Western Distributor”  that would link the western suburbs with the City Link toll road. From The Age:

Premier Daniel Andrews has revealed he is seriously considering an unsolicited bid by CityLink operator Transurban to connect the West Gate Freeway to CityLink via a tunnel, a second river crossing and an elevated freeway along Footscray Road.

To handle the increased traffic, the West Gate Freeway will be widened, with two extra lanes from the M80 Ring Road to the West Gate Bridge boosting capacity by about half. The Tullamarine Freeway will also be widened.

…motorists will ultimately pay for extra tolls. Transurban is proposing to pay for [two-thirds of the] project by extending the life of CityLink tolls by up to 15 years until 2050.

It also wants a $3 car toll and a $13 truck toll for the new tunnel and bridge from the West Gate Freeway to CityLink for 25 years…

The Abbott government will also be asked to chip federal money previously earmarked for the dumped East West Link…

According to the article, Deloitte Access Economics estimated that the project would deliver net benefits to the state of some $1.60 per dollar invested using Infrastructure Australia’s preferred methodology, which is more than triple the paltry $0.45 cents for every dollar invested estimated for the dumped East-West Link project.

According to The Age’s Adam Carey,  the Western Distributor would cost around half as much as East-West Link and “looks like a big enough traffic-mover to kill the need to build the western half of the East West Link between the Western Ring Road and CityLink”.

It is appropriate that the Victorian Treasury undertake further due diligence before any decision. With a significant share of Melbourne’s future growth likely to take place in the West, along with ongoing increases in freight through the Port of Melbourne, providing further road capacity – including a second river/bay crossing – will be essential. But the project must add economic value not take it away.

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Comments

  1. david collyerMEMBER

    The new road is an unsolicited proposal from Transurban. From the AFR:
    “Transurban chief executive Scott Charlton said the project would be funded a third from federal government money, a third from tolls and one-third from extending Transurban’s CityLink concession deed from 2035 to 2050.”

    So the Victorian government would be carried free. However, and mate this will hurt Melbourne’s efficiency and competitiveness for decades, all users will be tolled at high and rising rates – not just on the new link but across the entire private road network, value enhanced by this addition, for an extra 15 years.

    For these valuable privileges, Transurban will pay only one-third of the construction cost.

    If the East-West financial case did not add up, I can’t see how this one will – except for Transurban shareholders. This idea is monopoly rent-seeking writ big.

    We observe Sydney paralysed by poor roads and eye-watering toll costs and want none of it. The correct economic answer is network-wide congestion charges and to use the lower interest rates available to the state. The existing CityLink concession expires in 20 years. I want this leech to expire with it.

  2. Ian F

    It is interesting to compare this proposal with Transurban’s previous ‘unsolicited bid’, for an F3 to M2 link in Sydney, now known as North Connex.
    That was funded by $810M from the two Govts, a “back-door” NSW grant via concession extensions, escalation and multiplier uplifts, with the balance to be met by tolls synchronised with Sydney’s M2 which is now $6.23 for cars. In Sydney Transurban is also standardising tolls for trucks to 3 times that for cars.
    Western Distributor will be almost double the cost of the $3 billion North Connex yet the tolls quoted are less than half of the M2/North Connex for cars. For trucks $13 versus cars $3 gives a multiple of over 4 times – so is that the future for Melbourne?
    At $3 it seems an extraordinary good deal for car drivers relative to capital cost, but that is because other than CityLink and EastLink there are generally free roads, which is a little different to what is emerging in Sydney with WestConnex proposals and the Badgerys Ck airport Elizabeth Drive extension to their M7. The problem comes on the other side of the equation, which is the impact on the State budget – free or cheap roads means higher State taxes and/or budget deficits.
    So I think new solutions are required – e.g. congestion charging, network tolling in peak times, etc., more mass transit investment, better rail for freight.

    • Unconventional Economist

      I agree with all that. But the proposal at least deserves detailed consideration, including genuinely independent cost-benefit analysis (as opposed to analysis funded by Transurban).

      • Ian F

        I would be happier if it wasn’t an isolated tolls increment; namely if there was systematic change across all of Melbourne with CityLink tolls being relieved for instance by tolling other motorways and freeways starting with peak times. Playing around with concession extensions when there is only one bidder does not seem sensible. In other words it is the funding package that looks wrong not the road solution itself (given where Westgate Bridge risks stand) – Transurban is gearing up again, taking more risk, and they can’t borrow as cheaply as Govt, so why are they allowed to creep towards a monopoly? Sounds wrong in basic financial and/or economic terms…

  3. Glenn

    “For these valuable privileges, Transurban will pay only one-third of the construction cost.”

    False.

    I also have absolutely no problem with user pays on the road – NONE. Especially if it means the government gets to spend its money on public transport.

    • david collyerMEMBER

      Oh really.
      1/3 from the federal government – taxpayers funds
      1/3 from extending the broader concession – future value capitalized and no doubt heavily discounted
      1/3 from Transurban equity
      For which Transurban gets to charge full market rates on the new tollroad they only paid 1/3 of.

      And I have plenty of problems with ‘user pays’, a rentier nostrum that needs a wooden stake through it.
      The users are workers and businesses doing useful economic activity. The efficiency benefits of faster roads are captured by the toller and (lucky or prescient or just present) landowners.

      The better economic path and superior nostrum is ‘beneficiary pays’. The Andrews government muttered sotto voce ‘value capture’ in the state election campaign. Here is the solution – recycle SOME of the uplift in land values through State Land Tax.

      Further, if a flagship government project does not add up financially, land values will not rise and nor will the government’s tax take – what could be more market-friendly and disciplined than that.

      • Rod77

        David this has nothing to do with market discipline or cost benefit or anything else. This is a Robbery ! 21st Centuary style.

        Much like in Putin’s Russia where $50B was spent on Winter Olympics, Most of that would have lined his mate’s pockets through massively inflated contracts.
        As we learned with the TARP bailout. If the crime is gigantic and in front of people’s faces they actually cant believe its happening.

      • david collyerMEMBER

        It is only a crime if the Andrews government takes the bait and signs away Victoria’s prosperity. Plenty of glittery beads all over the gift; hope they can smell the turd inside.

  4. Researchtime

    UE – bloody hell mate, are you comparing apples with apples.. How can you make such a stupid statement that the cost-benefit’s are even remotely comparable without testing assumptions and see how the models are built????