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Sydney’s light rail blowout a possibility here?

By wildturkeycanoe - 4 December 2016 60

light rail

Looking at the news a few days ago, an article about Sydney’s South East Light Rail project caught my attention. Apparently the cost of the 12km long project, similar in length to ACT’s version, has blown out by over half a billion dollars.

From the Australian Financial review, 30th November 2016: “Some of this increase was due to scope changes and planning modifications, but the majority – $517 million – was due to mispricing and omissions in the business case,” the Auditor-General said.”

Knowing the details of our own business case it seems quite probable that this could possibly happen here. Also, so many other factors in the political and financial landscape may have adverse influence on the project, such as the re-introduction of the ABCC and increasing interest rates. Will the cost benefits of “value adding” along the corridor be as lucrative if our interest rates were to rise substantially over the next three or four years? Will a resulting slump in the housing market due to unaffordable units affect the promised returns to both the government and builders?

Of course the future is always unpredictable and investing in a project this size a gamble, but is Canberra so insulated from the rest of Australia that it can avoid a repeat of this situation, especially when the odds were so slim to begin with?

Sydney’s project had an original cost benefit ratio of 2.5:1 but with the additional costs  it reduces to around $1.90 in returns from a dollar invested. Should our tram cost blowout by half a billion dollars, returns would drop to 0.65:1, a net loss of 35 cents in the dollar.

We must also remember that these cost benefits are not solely generated from light rail but from the boost to the government indirectly from “value adding”.

With a double whammy of falling sales in housing and cost blowouts, this could be a very big hit to Canberra’s finances. I am of course not a financial expert so if anybody feels the need to correct any errors or my interpretation of the facts, in plain English so everybody can understand, please feel free to do so.

I am simply trying to use reason and the figures available to see if this is a possibility for Canberra’s tram project.

What’s Your opinion?


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60 Responses to
Sydney’s light rail blowout a possibility here?
1
JC 11:39 am
04 Dec 16
#

Compare the route in Sydney to Canberra and you might have your answer.

Hint Canberra it is mostly along a flat wide median strip not through the hilly streets of the CBD and Surrey Hills.

2
JC 11:49 am
04 Dec 16
#

And by the way we in Canberra are already beyond the point where the Sydney costs blew out. That happened between business case and signing. Where here in Canberra it actually went down slightly.

3
dungfungus 6:16 pm
04 Dec 16
#

JC said :

And by the way we in Canberra are already beyond the point where the Sydney costs blew out. That happened between business case and signing. Where here in Canberra it actually went down slightly.

Hallelujah !

4
ChrisinTurner 10:28 pm
04 Dec 16
#

Although, like most transport experts, I don’t believe Light Rail is suitable for Canberra’s distances and population density, I must say we are unlikely to see the cost blowout happening in Sydney. We are more likely to see the consortium go broke from penalties when they can’t achieve the stipulated 26 minutes journey time.

5
dungfungus 10:30 pm
04 Dec 16
#

Is the Sydney light rail project subject to the “CFMEU well-being surcharge” though?

6
JC 11:00 pm
04 Dec 16
#

dungfungus said :

JC said :

And by the way we in Canberra are already beyond the point where the Sydney costs blew out. That happened between business case and signing. Where here in Canberra it actually went down slightly.

Hallelujah !

Good you are on board.

7
rommeldog56 11:23 pm
04 Dec 16
#

JC said :

And by the way we in Canberra are already beyond the point where the Sydney costs blew out. That happened between business case and signing. Where here in Canberra it actually went down slightly.

Originally ACT Labor said Tram stage 1 would cost m$614. There was also some sort of “contingency” amount which pushed it to about m$780 from memory. I think construction costs are to be m$930 and final cost will be min. b$1.78 over the 20 year life of the contract.

I would say that m$614 to b$1.78 was a significant “blow out” with no doubt more to come especially if passenger numbers don’t make ACT Govt projections. But hey – who cares. Its just monopoly money anyway.

8
dungfungus 9:08 am
05 Dec 16
#

ChrisinTurner said :

Although, like most transport experts, I don’t believe Light Rail is suitable for Canberra’s distances and population density, I must say we are unlikely to see the cost blowout happening in Sydney. We are more likely to see the consortium go broke from penalties when they can’t achieve the stipulated 26 minutes journey time.

I would be interested to see the actual penalty clauses in the contract relating to time/distance.

Do you have the details, JC?

9
dungfungus 11:47 am
05 Dec 16
#

JC said :

dungfungus said :

JC said :

And by the way we in Canberra are already beyond the point where the Sydney costs blew out. That happened between business case and signing. Where here in Canberra it actually went down slightly.

Hallelujah !

Good you are on board.

You know very well I was being sarcastic.

My comment was akin to that famous John Howard one about there being “5 minutes of economic sunshine”.

10
GCS14 12:33 pm
05 Dec 16
#

rommeldog56 said :

JC said :

And by the way we in Canberra are already beyond the point where the Sydney costs blew out. That happened between business case and signing. Where here in Canberra it actually went down slightly.

Originally ACT Labor said Tram stage 1 would cost m$614. There was also some sort of “contingency” amount which pushed it to about m$780 from memory. I think construction costs are to be m$930 and final cost will be min. b$1.78 over the 20 year life of the contract.

I would say that m$614 to b$1.78 was a significant “blow out” with no doubt more to come especially if passenger numbers don’t make ACT Govt projections. But hey – who cares. Its just monopoly money anyway.

Ah. Here we see the difference between construction costs and running costs. SO no, not quite what you stated.

11
rommeldog56 1:51 pm
05 Dec 16
#

GCS14 said :

Ah. Here we see the difference between construction costs and running costs. SO no, not quite what you stated.

Yes – but a “blow out” none the less because the true cost (including running costs) was never mentioned or quantified in 2012 election promise. ACT Labor/Greens must have known what the running costs estimate would have been – there are examples all round the world about that. Regardless, construction costs went from m$614 to m$938. Pretty big increase.

But its a moot point, it doesn’t matter now.

12
JC 7:23 pm
05 Dec 16
#

rommeldog56 said :

GCS14 said :

Ah. Here we see the difference between construction costs and running costs. SO no, not quite what you stated.

Yes – but a “blow out” none the less because the true cost (including running costs) was never mentioned or quantified in 2012 election promise. ACT Labor/Greens must have known what the running costs estimate would have been – there are examples all round the world about that. Regardless, construction costs went from m$614 to m$938. Pretty big increase.

But its a moot point, it doesn’t matter now.

Umm construction cost has not gone to $938m. Construction cost is $707m, the $938m figure you just used is the total value of the contract including 20 years of running and finance expressed in today’s terms. Massive difference.

And as for not being announced previously, the whole method of finance and running hadn’t been determined, the costs were only ever for CONSTRUCTION and then when the PPP option was selected the cost was contract costs which included construction, finance and running over 20 years.

Oh and that $614m cost was an estimate before any actual design and scoping work had taken place. After the scoping works the estimate came to around $780m and dropped to $707m on signing of contracts.

13
dungfungus 8:24 pm
05 Dec 16
#

dungfungus said :

ChrisinTurner said :

Although, like most transport experts, I don’t believe Light Rail is suitable for Canberra’s distances and population density, I must say we are unlikely to see the cost blowout happening in Sydney. We are more likely to see the consortium go broke from penalties when they can’t achieve the stipulated 26 minutes journey time.

I would be interested to see the actual penalty clauses in the contract relating to time/distance.

Do you have the details, JC?

Penalty clauses JC??

14
creative_canberran 11:15 pm
05 Dec 16
#

rommeldog56 said :

Originally ACT Labor said Tram stage 1 would cost m$614. There was also some sort of “contingency” amount which pushed it to about m$780 from memory.

Yes, a contingency is a sound part of project budgeting. The government had 3 contingency options, they chose the middle one which leaves a 25% chance of the budget going wrong.

I’m not privy to the details of the Sydney project latest developments, but it is a much more difficult project than Canberra. You have a multitude of historic infrastructure, disruptions to the activities of hundreds of thousands during construction. But in Sydney, so great is the benefit, and so dire the cost of inaction where you physically have no further capacity for traffic growth, that the “blow out” is largely hot air headlines being pushed by media editors and the backward NSW brand of the ALP.

15
gooterz 10:15 am
06 Dec 16
#

JC said :

rommeldog56 said :

GCS14 said :

Ah. Here we see the difference between construction costs and running costs. SO no, not quite what you stated.

Yes – but a “blow out” none the less because the true cost (including running costs) was never mentioned or quantified in 2012 election promise. ACT Labor/Greens must have known what the running costs estimate would have been – there are examples all round the world about that. Regardless, construction costs went from m$614 to m$938. Pretty big increase.

But its a moot point, it doesn’t matter now.

Umm construction cost has not gone to $938m. Construction cost is $707m, the $938m figure you just used is the total value of the contract including 20 years of running and finance expressed in today’s terms. Massive difference.

And as for not being announced previously, the whole method of finance and running hadn’t been determined, the costs were only ever for CONSTRUCTION and then when the PPP option was selected the cost was contract costs which included construction, finance and running over 20 years.

Oh and that $614m cost was an estimate before any actual design and scoping work had taken place. After the scoping works the estimate came to around $780m and dropped to $707m on signing of contracts.

This is just the PPP costs, so anything else like road alignments changes to ticketing logos etc isn’t covered? Was moving in ground services paid for by the PPP?

Who will pay to have buildings upgraded where they cant handle the rattle of the tram?

614m or not its clearly never been mentioned recently.
How are we going on the mandated stage 2?

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