Audit commends light rail project delivery

chewy14 said :

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.

If they are leased then any variation in cost will be borne by the contractor.

If they are purchased then the cost may well vary, either way too.

You have apparently seen the “Commercial in Confidence” sections of the contract, JC.

dungfungus said :

Acton said :

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.

Economics 1.01: Production is the result of demand.
There is no increasing global demand for commodities so our commodity exports will stay in the ground no matter what the exchange rate is.
Similarly, the lowering of interest rates has not increased the level of borrowing but it has ruined the retirement of many baby boomers.
The blue sky tram will fail whatever else happens.

It isn’t that simple, countries are always buying steel and other products. If our dollar falls against other currencies, our exports become cheaper and more marketable. Basic supply and demand is not all that defines how much we can sell, but buyers can change suppliers if they get a better price. Best go back to school.

I did say “increasing” demand so, sure, counties are still buying steel but not from us.
In fact, soon we will not have a steel industry left.
We are competing against Brazil to sell iron ore and with the opening of the enlarged Panama canal China will be sourcing most of its iron ore from that country which is worse off than us so their sale price will be cheaper. You acknowledge that buyers can change suppliers if they get a better price.
I would like to go back to school but I fear I already know more than the teachers who are seem to be totally deficient in what is going on in the real world.

dungfungus said :

This has already been announced. There is an annual fee for running the line which is indexed through the life of the contract. Why you think it would have exchange rate variations is beyond me. The annual payment is to pay off the construction costs, which may vary over the construction period, but clearly not over the operating period. Plus the ongoing operating costs which will be in AUD anyway.

If there is an financing arrangement (which are mostly us$ or Euro based) and capital items such as the trams themselves are made OS, then there will almost certainly be exchange rate variation clauses in the contracts (which will also enshrine the exchange rate used). To think otherwise is naive. Where exchange rate variations exist, I can not see the tram consortia “sucking up” that risk/cost without building that component into the pricing. Certainly not over 20 years. Anyway, if they don’t publish the contracts, ACT Ratepayers will never know. The contracts should be made public.

dungfungus said :

And passenger numbers don’t count for anything as the operator does not see the income from fares. These are collected by the government not the operator.

Either way, ACt Ratepayers will be tipping in more $ if the numbers don’t meet targets. So, passenger numbers “don’t count for anything” ? I think not.

Acton said :

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.

Economics 1.01: Production is the result of demand.
There is no increasing global demand for commodities so our commodity exports will stay in the ground no matter what the exchange rate is.
Similarly, the lowering of interest rates has not increased the level of borrowing but it has ruined the retirement of many baby boomers.
The blue sky tram will fail whatever else happens.

It isn’t that simple, countries are always buying steel and other products. If our dollar falls against other currencies, our exports become cheaper and more marketable. Basic supply and demand is not all that defines how much we can sell, but buyers can change suppliers if they get a better price. Best go back to school.

I just seem to keep seeing more & more deception from the Barr government on this issue.

Why are they so determined to get this damn tram ? Who IS benefiting? It’s not the community, that’s for sure. Hopefully it’s not the government – unless people get too afraid to vote them out because they pushed the contract signing thru. It’s certainly not the ACT economy – whatever they may say. If it’s the developers, they’re predominently from out of town & will take any profits that MAY acrue out of town with them & most likely bring in many of their own staff.

So who?

And Mick, why are you putting forward Corbell’s spin on this very negative Auditors Report?

rommeldog56 said :

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.

This has already been announced. There is an annual fee for running the line which is indexed through the life of the contract. Why you think it would have exchange rate variations is beyond me. The annual payment is to pay off the construction costs, which may vary over the construction period, but clearly not over the operating period. Plus the ongoing operating costs which will be in AUD anyway.

And passenger numbers don’t count for anything as the operator does not see the income from fares. These are collected by the government not the operator.

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.

If they are leased then any variation in cost will be borne by the contractor.

If they are purchased then the cost may well vary, either way too.

In order to get to a current-day cost of less than $1B, Capital Metro have assumed an inflation rate over the next 20 years of 7.52% a year. This bears no relation to reality. Inflation will be more like 2% according to the Reserve Bank.

rommeldog56 said :

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

And I suggested an alternative heading: “Tram Scam – Derailing AG report finds cost blow-outs and political interference

Acton said :

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.

Economics 1.01: Production is the result of demand.
There is no increasing global demand for commodities so our commodity exports will stay in the ground no matter what the exchange rate is.
Similarly, the lowering of interest rates has not increased the level of borrowing but it has ruined the retirement of many baby boomers.
The blue sky tram will fail whatever else happens.

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.

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”

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.

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.

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.

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.

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 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.

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 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.”

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.

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.

“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?

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…

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.