The strange origins of Melbourne’s $100bn Suburban Rail Loop

Melbourne Suburban Rail Link preliminary route

I spent some time last year planning a piece for a commercial media client about the Melbourne Suburban Rail Loop, a planned underground rail tunnel through Melbourne’s eastern suburbs and then out, partly above-ground, to the west. I had to drop the piece when my client’s funding drained away under the pressure of COVID. At the time, my digging had produced a few pieces of the story, most of them not sufficiently confirmed to warrant publication. If you’re one of the people who wasted time talking to me about it, on or off the record … sorry. Your sole reward is this Troppo post.

Anyway, now three journalists from The Age, led by the dogged Timna Jacks, have published a long and detailed story about the project’s strange origins that outstrips what I would likely have produced. This 3000-word article jibes with what I was told, while revealing far more detail than I could gather. It must have taken a long time to write, and my assessment is that it’s very well sourced. It’s good to see The Age pursuing this sort of journalism under editor Gay Alcorn. I really recommend you read it, not just as a story of Melbourne but as an account of modern governance.

Poor bang for the buck

I’ve long been sceptical about the Melbourne Suburban Rail Loop. That’s not just because the Loop doesn’t match any of the work done on Melbourne’s transport needs over the past 30 years, but also simply because it seems to offer poor bang for the buck.

Often when I do a detailed investigation of a project, some of my initial scepticism subsides as I see new aspects of the problem it’s trying to solve.

In this case, my scepticism long ago turned to amazement that Victorian premier Daniel Andrews had tied himself to such an oddly-conceived project. More than once I sat back and wondered to myself: just what was he thinking?

The obvious problem: tunnelling under Melbourne’s spread-out middle suburbs to create just 15 stations gives us an unreasonably small population catchment, at enormous expense. One planning consultant, Alan Davies, has described the proposal as “preposterous” and “cynical”.

But I was told off the record by three separate sources that Andrews “just loves it”. People who talked seemed mostly convinced that his enthusiasm, more than anything else, has driven the Melbourne Suburban Rail Loop.

Poor governance

Here’s something even odder: the initial outline of the Melbourne Suburban Rail Loop was designed not in Victoria’s Transport Department, but in a government housing authority, Development Victoria. The tiny project team was led by a bright young former ALP staffer, Tom Considine, and a veteran ALP-connected business figure, James MacKenzie. This is why I described it above as “oddly-conceived”.

Among the oddities reported by The Age:

• Most Cabinet ministers were “kept in the dark” about the project until its announcement.
• The director-general of the Major Transport Infrastructure Authority had to sign a non-disclosure agreement that required him to conceal the project from his boss, Department of Economic Development, Jobs, Transport and Resources secretary Richard Bolt.
• Bolt and the head of transport, Gillian Miles, both left soon after the announcement of the Loop.
• The first mention of the project in Development Victoria board correspondence was the morning of the announcement.
• Consultants suggested a lengthy planning and consultation process for a 2026 start; Premier Dan Andrews decreed construction would start in 2022 instead.

The Melbourne Suburban Rail Loop seems intended, like several schemes before it, to promote “precincts” or clusters of expertise at some distance from Melbourne’s CBD. That’s a potentially worthy aim. But our knowledge of how to create such precincts is thin, and government precinct-creation successes are rare. None of those uncertainties deterred Considine and MacKenzie.

A huge price tag

Nor were Considine and MacKenzie deterred by cost. The initial price tag at the announcement was “up to $50 billion”. In truth, though, the commonest figure I heard in association with the project was “more than $100 billion”. Since academics studying the area tend to find that rail projects suffer greater cost blowouts than any other project type, this is not surprising. Project promoters intentionally underestimate the costs to muster the support of politicians.

In a 2014 book, Bent Flyvbjerg – one of the world’s best-known infrastructure project management experts – quotes a former San Francisco mayor, Willie Brown, on how this process usually goes:

“In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big there’s no alternative to coming up with the money to fill it in.”

“The cost blowout on that thing will be monumental,” said one person I spoke to. To my knowledge, Daniel Andrews no longer cites the $50 billion cost figure.

In other words, this is now potentially a $100 billion-plus project. Even if the cost somehow remains controlled, it will be the biggest infrastructure project in Australian history.

Short on city-building expertise

Remarkably, despite that huge price, the Melbourne Suburban Rail Loop has been conceived without real city-building expertise.

Melbourne is doggedly monocentric. Its suburban precincts are far less developed than those of, say, Sydney. There’s a reasonable case – though not a fully-formed one – that this needs to change as Melbourne’s population grows beyond five million. So the Rail Loop might be worth considering if the project team could call on a deep pool of transport, urban and financial expertise and get strong benefit-cost estimates.

But none of that seems to have happened before the announcement, and it’s not clear that it has happened yet – or that it ever will.

What Victoria has right now is a scheme to bring the smallest possible number of people to what are so far relatively small middle-suburban precincts, using a disproportionate amount of time and money, and without any independent confirmation of the scheme’s merits. The project is not part of any integrated transport plan; as Jacks’ fellow reporters Chip Le Grand and Paul Sakkal have reported elsewhere, the state has none. The government’s infrastructure assessment body, Infrastructure Victoria, appears to have been sidelined from any review of the project. There’s been no federal funding application yet that would trigger an Infrastructure Australia review. “It looks ridiculous, really,” one person familiar with the proposal told me.

It’s ridiculous not just on classical cost-benefit grounds, but also as a city-shaping initiative. If you really wanted to build up suburban business and knowledge precincts, you’d concentrate on delivering transport to them from the surrounding ten kilometres, using trams and buses and roads and cycleways. Instead, the government wants to build a huge underground railway which will have perhaps 15 stations along its 90-kilometre length. This railway will touching on two or three promising clusters of activity – notably Monash University and the built-up area of Box Hill – but also serve less knowledge-rich suburbs like Cheltenham, Heidelberg and Fawkner.

Hard numbers

Now, somewhere in Melbourne, a team of people is trying to turn this idea into what the premier calls an “investment case”. It will probably require a huge amount of state government money, well above what passengers will pay to use it.

If you had $100 billion to develop Melbourne’s promising suburban precincts, you could actually do quite a lot. But the Melbourne Suburban Rail Loop won’t do much of it. And it will mean borrowing a truly huge amount of money. For comparison, Victoria’s annual gross state product is around $470 billion.

Now that COVID-19 has blown a hole in the state’s finances, the whole mess looks less likely to be completed. COVID actually gives Andrews the perfect opportunity to call it off. But he shows no signs of doing so. That task seems more likely to fall to a successor.

Update 1, 24/11/2021: The business case has now been delivered. It might best be described as “fragile”. More by me here.

Update 2, 4/4/2022: The Victorian Ombudsman will investigate whether the state’s public service has been undermined by the hiring of former political staff for non-political positions.

Update 3, 10/2/2023: Victoria’s Parliamentary Budget Office has estimated the cost of building the first leg of the Melbourne Suburban Rail Loop will be $33 billion. At a 7% discount rate, the PBO estimated the benefit-cost ratio for the first leg at between 0.6 and 0.7 – which is to say that the benefits are far less than the costs.

Update 4, 12/9/2024: Belated, I know, but a December 2023 report by Victorian Ombudsman Deborah Glass tended to confirm the problems described above. She said the Loop was created with ‘excessive secrecy’ and the public could ‘reasonably question’ whether it was the best use of taxpayers’ money.