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Audit commends light rail project delivery

By Michael Reid - 16 June 2016 36

light rail

Minister for Capital Metro Simon Corbell has welcomed the release of the auditor general’s performance report into the initiation of the light rail project between Gungahlin and the City.

The report found that Capital Metro Agency’s “governance, administrative and project management framework is sound and generally accords with better practice”.

It further stated that preparations to date had positioned the Capital Metro Agency to be able to “meet the challenges of implementing light rail in the ACT”.

“This report shows that this crucial project for Canberra is being delivered in a thorough, professional and transparent manner that is best practice and positions the project for success,” Corbell said.

“It is important to note that as contracts have been signed and financial close has now been reached that the final cost for stage one of light rail is now known and is lower than estimated in the full business case.”

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36 Responses to
Audit commends light rail project delivery
wildturkeycanoe 1:59 pm 17 Jun 16

So if the Australian dollars tanks down to say $0.50 US, the tram will cost us more like two billion dollars?? Scary indeed. But our exports will pick up immensely, things like coal, steel, aluminium…all those industries that went broke or are being propped up by the government till the clouds go away.

Acton 1:15 pm 17 Jun 16

An extract from today’s CT shows tensions between the Auditor-General and Barr.

“Her report said Mr Barr had told her that her analysis on the various iterations of the business case, including inputs by consultants and briefs from treasury, amounted to a review of Cabinet’s decision and therefore exceeded her scope as auditor-general. But Dr Cooper disagreed, saying the material did not fit the definition of deliberative information and was in the public interest to disclose.”

This screams political interference and cover-up.

Further on, indications the claimed benefits of the tram are simply voodoo economics, verging on fantasy:

“Commonwealth guidelines also urged caution, noting “serious measurement difficulties”, and Dr Geoffrey Clifton from the University of Sydney said such benefits had “traditionally not been included in economic impact analysis and they are still not uniformly included. She had, however, removed “some material” that could be considered to disclose a deliberation or decision of the executive.”

http://www.canberratimes.com.au/act-news/captial-metro-light-rail-auditorgeneral-fuels-doubts-about-gungahlin-tram-costbenefit-analysis-20160616-gpkjjs.html

The CT heading is: “Capital Metro light rail: Auditor-General fuels doubts about Gungahlin tram cost-benefit analysis”

devils_advocate 10:16 am 17 Jun 16

Laughable. I take it this just regurgitated the ACT govco press release. The audit report made it 100% clear that:
-the claimed non-transport benefits have not previously been included in cost-benefit analyses, and it is still not standard practice to do so;
-contingency costs were excluded, claimed benefits were highly variable, and
-the process involved (‘value engineering workshop’? lord have mercy) was designed to retro-fit the cost-benefit analysis to the desired outcome.

rommeldog56 8:39 am 17 Jun 16

greenbamboo said :

If the contract was signed in AUS.. We might already be in front. If the price is in Euro’s we’re behind.

The contracts for OS sourced items/finance will be based on a snap shop of the rate prevailing at the time – usually what the tender evaluation in A$ was based on.

The contracts will probably contain provision for annual exchange rate variations that will, usually retrospectively, adjust the contract prices by way of a one off payment to the contractor(s).

Either that, or the contracts will be fixed price (with CPI and/or passenger number adjustments to prices) which means that any exchange rate deterioration will be “sucked up” by the contractor. In that case, the contract prices will be higher to reflect uncertainty about variable exchange rates.

Of course, it can go the other way too if exchange rates improve. But ACT Ratepayers may never know what exchange rate adjustment mechanism is used unless the contract is made public and/or the amount involved is publicly disclosed (eg. in the budget papers). But, Capital Metro contract managers should know as a contract financial management issue.

chewy14 8:02 am 17 Jun 16

Paul Costigan said :

From page 1 of the ACT Auditor-General’s Report on The Initiation of the Light Rail Project –

“Benefits management needs to be given priority and a whole?of?government Benefits Realisation Plan, and associated documentation, developed and implemented to guide the management and realisation of the project’s benefits. This is important as considering only the project’s transport benefits the benefit?cost ratio is 0.49, with an estimated 49.3 cents in transport benefits gained for every $1 spent1; and considering transport benefits and wider economic benefits (including land use benefits), the benefit?cost ratio is 1.20, with an estimated $1.20 in benefits for every $1 spent. However, the benefit?cost ratio of 1.20 needs to be used with caution as there is a lack of an agreed methodology and robust data in Australia for calculating wider economic benefits (including land use benefits). In the 1.20 benefit?cost ratio approximately 60 percent of the project’s benefits are not transport?related. This is large compared with other transport infrastructure projects for which information was publicly available.”

From page 2 of the Report –

“The ACT Budget will need to accommodate the expected cost of the Capital Metro
Light Project of approximately $939 million (present value, January 2016) or $1.78 billion (nominal value) over 20 years.2 3 This does not include ACT Government agency costs for managing the implementation of the project. Revenue from fares will partially offset the costs of the Capital Metro Light Rail Project. The Full Business Case identified a total of $81 million in revenue from fares (present value, July 2014) over 20 years.”

Yep, and those are the main issues with the project. Enormous cost for very little benefit, when cheaper alternatives were available. Non transport benefits accruing to land holders along the corridor paid for by all other ACT taxpayers.

Fantastic stuff.

dungfungus 8:02 am 17 Jun 16

greenbamboo said :

gooterz said :

From what I heard on the news this morning, the Auditor-General was not very impressed with the underlying assumptions as to the tram’s pay back rate. They found that the transport component payback was massively negative ($0.49 back for each dollar invested) & there also seemed to be some doubt regarding the size of the real estate gain. It appeared to be significantly bigger than the yield claimed for similar projects elsewhere. I understand that the govt was told to keep the Auditor General informed with more up to date figures into the future.

Do not forget that the claimed payback of 1.20 is over the life of the contract, presumably 20 years, & that equates to around 1% per annum. Far less than inflation.

If the contract was signed in AUS.. We might already be in front. If the price is in Euro’s we’re behind.

Good point!
It is almost certain that the contract for the purchase of the trams will be in Euros but we don’t know if they are being purchased outright or leased. If it is the latter than most of the leasing companies are domiciled in Europe so it will still be Euros.
In fact, this needs to be publicly known as a highly likely drop in the AUD will dramatically increase the costs as most items in the blue sky tram project excluding the rolling stock will be imported, probably even the steel rails.

rommeldog56 8:02 am 17 Jun 16

greenbamboo said :

Damning with faint praise: “generally accords with better practice” rather than “consistently accords with best practice”…

And from page 66 of the report:
“Documentation associated with the Capital Metro Project Board’s endorsement of the Full Business Case is poor.    The meeting through which the Capital Metro Project Board purported to endorse the Full Business Case was attended by a minority of its members (although some of these members were represented by their identified proxies).  The meeting did not have a quorum, as the Project Owner (or their proxy) or the Senior Supplier (or their proxy) did not attend.   While the Project Owner has subsequently advised (January 2016) that they agreed at the time to the Full Business Case being presented to ACT Government decision?makers for approval, this was not documented at the time.”
(Report and media release linked from http://www.audit.act.gov.au/reports2016.htm )

“purported”!? Strong language from an auditor!

From the OP :

” “This report shows that this crucial project for Canberra is being delivered in a thorough, professional and transparent manner that is best practice and positions the project for success,” Corbell said.”

Funny, but not surprising, how the ACT Gov’t interprets and spins the ACT Auditor Generals comments…….

gooterz 10:53 pm 16 Jun 16

gooterz said :

From what I heard on the news this morning, the Auditor-General was not very impressed with the underlying assumptions as to the tram’s pay back rate. They found that the transport component payback was massively negative ($0.49 back for each dollar invested) & there also seemed to be some doubt regarding the size of the real estate gain. It appeared to be significantly bigger than the yield claimed for similar projects elsewhere. I understand that the govt was told to keep the Auditor General informed with more up to date figures into the future.

Do not forget that the claimed payback of 1.20 is over the life of the contract, presumably 20 years, & that equates to around 1% per annum. Far less than inflation.

If the contract was signed in AUS.. We might already be in front. If the price is in Euro’s we’re behind.

KentFitch 5:54 pm 16 Jun 16

Damning with faint praise: “generally accords with better practice” rather than “consistently accords with best practice”…

And from page 66 of the report:
“Documentation associated with the Capital Metro Project Board’s endorsement of the Full Business Case is poor.    The meeting through which the Capital Metro Project Board purported to endorse the Full Business Case was attended by a minority of its members (although some of these members were represented by their identified proxies).  The meeting did not have a quorum, as the Project Owner (or their proxy) or the Senior Supplier (or their proxy) did not attend.   While the Project Owner has subsequently advised (January 2016) that they agreed at the time to the Full Business Case being presented to ACT Government decision?makers for approval, this was not documented at the time.”
(Report and media release linked from http://www.audit.act.gov.au/reports2016.htm )

“purported”!? Strong language from an auditor!

HiddenDragon 5:28 pm 16 Jun 16

From page 1 of the ACT Auditor-General’s Report on The Initiation of the Light Rail Project –

“Benefits management needs to be given priority and a whole?of?government Benefits Realisation Plan, and associated documentation, developed and implemented to guide the management and realisation of the project’s benefits. This is important as considering only the project’s transport benefits the benefit?cost ratio is 0.49, with an estimated 49.3 cents in transport benefits gained for every $1 spent1; and considering transport benefits and wider economic benefits (including land use benefits), the benefit?cost ratio is 1.20, with an estimated $1.20 in benefits for every $1 spent. However, the benefit?cost ratio of 1.20 needs to be used with caution as there is a lack of an agreed methodology and robust data in Australia for calculating wider economic benefits (including land use benefits). In the 1.20 benefit?cost ratio approximately 60 percent of the project’s benefits are not transport?related. This is large compared with other transport infrastructure projects for which information was publicly available.”

From page 2 of the Report –

“The ACT Budget will need to accommodate the expected cost of the Capital Metro
Light Project of approximately $939 million (present value, January 2016) or $1.78 billion (nominal value) over 20 years.2 3 This does not include ACT Government agency costs for managing the implementation of the project. Revenue from fares will partially offset the costs of the Capital Metro Light Rail Project. The Full Business Case identified a total of $81 million in revenue from fares (present value, July 2014) over 20 years.”

dungfungus 5:24 pm 16 Jun 16

Mordd said :

“professional and transparent manner”
Any transparency on the costs associated with relocating services under Northbourne Avenue yet? Any transparency on how much more our rates will rise in order to balance the books after costs have blown out?

Don’t forget the cost off ActewAGL’s electrical head-works which appear to be “off balance sheet” too.

dungfungus 5:03 pm 16 Jun 16

One of Canberr’a foremost visiting websites highlights “the signature blue skies in Canberra”
https://visitcanberra.com.au/getting-here/international-visitors-to-canberra

There is a lot of “blue sky” in the Capital Metro Light Rail business plan as well.

wildturkeycanoe 4:54 pm 16 Jun 16

“professional and transparent manner”
Any transparency on the costs associated with relocating services under Northbourne Avenue yet? Any transparency on how much more our rates will rise in order to balance the books after costs have blown out?

rommeldog56 4:40 pm 16 Jun 16

gooterz said :

From what I heard on the news this morning, the Auditor-General was not very impressed with the underlying assumptions as to the tram’s pay back rate. They found that the transport component payback was massively negative ($0.49 back for each dollar invested) & there also seemed to be some doubt regarding the size of the real estate gain. It appeared to be significantly bigger than the yield claimed for similar projects elsewhere. I understand that the govt was told to keep the Auditor General informed with more up to date figures into the future.

Do not forget that the claimed payback of 1.20 is over the life of the contract, presumably 20 years, & that equates to around 1% per annum. Far less than inflation.

Arthur, Arthur, Arthur. Please don’t let the facts/negative vibes get in the road of the ACT Government’s positive spin!! And still ACT Labor/Greens will be voted back in…

Arthur Davies 4:24 pm 16 Jun 16

From what I heard on the news this morning, the Auditor-General was not very impressed with the underlying assumptions as to the tram’s pay back rate. They found that the transport component payback was massively negative ($0.49 back for each dollar invested) & there also seemed to be some doubt regarding the size of the real estate gain. It appeared to be significantly bigger than the yield claimed for similar projects elsewhere. I understand that the govt was told to keep the Auditor General informed with more up to date figures into the future.

Do not forget that the claimed payback of 1.20 is over the life of the contract, presumably 20 years, & that equates to around 1% per annum. Far less than inflation.

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