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

Melbourne Suburban Rail Link preliminary route

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 … 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. Our knowledge of how to create such precincts is thin, however, 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 what seems a disproportionate amount of time and money, and without 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, touching on two or three promising clusters of activity – notably Monash University – but also serving less knowledge-rich suburbs like Cheltenham, Heidelberg and Fawkner.

(As a world-scale project, the Melbourne Suburban Rail Loop has caught the attention of overseas commentators such as Reece Martin. In the video below, he does an impressive job of explaining its failings from the other side of the world.)

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

About David Walker

David Walker runs editorial consultancy Shorewalker DMS (shorewalker.net), editing and advising business and government on reports and other editorial content. David has previously edited Acuity magazine and the award-winning INTHEBLACK business magazine, been chief operating officer of online publisher WorkDay Media, held policy and communications roles at the Committee for Economic Development of Australia and the Business Council of Australia and run the website for online finance start-up eChoice. He has qualifications in law and corporate finance. He has written on economics, business and public policy from Melbourne, Adelaide and the Canberra Press Gallery.
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Kevin
Kevin
3 months ago

Interesting story. The SRL certainly appears to be a poorly thought through idea. And, as many have said already, adding to an already large number of megaprojects is just causing more price gouging in construction. No wonder Andrews’ Twitter image has him in hi-vis. It seems the only economic activity he does support is major project construction.

Chris Lloyd
Chris Lloyd
3 months ago

Amazing work Tony. Thanks. So, according to your figures it will cost $15,000 per Victorian head??? That is way more than Joe Biden’s infrastructure bill.

“Just what was he thinking?” Could it be politics? He rightly killed off the completely corrupt East-West link but then had to pay a billion dollars compensation when he promised that he wouldn’t. He needed a project that would be the ALP alternative. You have to cut ribbons and wear a hi-viz vest if you are going to be a long-lived polly.

I assume that the experts agree with the idea of radial transport? We already have radial freeways though. Would priority lanes for busses not be an feasible alternative? But, as you suggest, local transport networks focussed on several hubs are a completely different model for decentralising.

There are so many reasons to vote against Dan Andrews. I think that he is, without a doubt, the worst Premier in Victorina history including Heny Bolte. The problem is that O’Brien (the guy who bribed the East-West consortium) is even worse. Victoria is in a real funk atm.

Nicholas Gruen
Admin
3 months ago

Thanks for that David. Pretty depressing …

JJ
JJ
3 months ago

This excellent piece from the previous day explains the background of the Andrews Government and goes some way to explaining the context in which it is happening. My guess is that how far the loop goes depends almost entirely on how long Andrews survives – https://www.theage.com.au/politics/victoria/the-chosen-few-how-victoria-is-really-governed-20210803-p58fk4.html

Jerry Roberts
Jerry Roberts
3 months ago

Thanks David. Anne and I love Melbourne and regret that interstate travel in Australia is off the agenda. The Perth underground rail connection to the airport is a difficult engineering project but appears to make sense in the long term. In Melbourne the lack of consensus and consultation that you describe does not bode well.

Nicholas Gruen
Admin
3 months ago
Reply to  Jerry Roberts

I too have a soft spot for grand projects that don’t pass basic CBA — but not the ones such as this one which just look like they’re good on a map.

I’m thinking of the tunnels from Sydney CBD and the airport and the Channel Tunnel for which there seems like an obvious case with lowish discount rates which one might go about justifying on various grounds.

This thing just looks like a turkey — and the process by which it was arrived at should lead to the extinction of the government that did it. Sadly the only way to bring that about is to vote in something even worse.

Chris Lloyd
Chris Lloyd
3 months ago
Reply to  Nicholas Gruen

I agree Nick. I don’t know who to vote for. I consider DA just awful in almost every way. But with Michael O’Briens history, there is no way to vote for him either. I often vote for minor parties but in the lower house at least, your main decisino is which of these two clowns’ parties to out higher.
Perhaps the good old dick and balls vote?

Nicholas Gruen
Admin
3 months ago
Reply to  Chris Lloyd

No — it’s funny that we’re having this debate here, when I’m arguing similar things with Paul on another thread — in short how ‘consequentialist’ should one be.

I’m not very enamoured of consequentialism as a philosophy in my private life — for various reasons I won’t go into here — but in voting, I’ve always held myself to the standard of trying to choose the lesser of two weevils.

paul frijters
paul frijters
3 months ago

very interesting, thanks. And indeed, well done on the Age to do such an investigation. Journalism as we like to see it!

Game of Mates all the way, it seems. And a (self-inflicted) national disaster to provide cover as well.

Nicholas Gruen
Admin
3 months ago
Reply to  paul frijters

I’m not sure how much it’s Game of Mates as opposed to the cult of announceables.

John R walker
3 months ago
Reply to  paul frijters

That Canadian guy seems on the money :Australians love things that cost shirtloads. Perhaps it’s simply about status: the biggest most expensive, in the Southern Hemisphere?

Nicholas Gruen
Admin
3 months ago
Reply to  David Walker

Yes agreed, though you can offload the risk to the market if you can fix.

Ning
Ning
3 months ago
Reply to  Nicholas Gruen

Well low interest rates do mean more projects likely to meet CBA tests. Infrastructure Australia apparently still uses 7% real discount rate which seems ridiculous to me.

Harry
Harry
1 month ago

It was announced as a stunt on the same day Labor quietly sold the Vic Titles office. it was a distraction stunt. Heard it from several inside govt sources at the time. And it worked- sucked up all the media oxygen and the Titles office privatization sailed through.

Nicholas Gruen
Admin
1 month ago

Bizarre thing to privatise.

JJ
JJ
1 month ago

It is bizarre of course but not really too surprising when they’re desperate for any cash they can get. Just after Covid started, Stephen Mayne made the comment that Daniel Andrews would be caught out on the budgetary front following firies’ deals etc etc. But Covid seems to have postponed that day of reckoning. Remember hearing of Cain hospital sale dodgy deal clean up in the Kennett years (not that they didn’t need cleaning up too – just different types of dodgy deals).

Re the data, sorry don’t agree that the private sector will get more money for it is any form of justification. The key to how much you make is what privacy restrictions are put on it. My guess (without any knowledge) is that they took the restrictions off to maximise the sale price and that we will all pay in the longer term. Now that data is worth money, Governments don’t seem to worry so much about implications for citizens.

haxton
1 month ago

I heard from several people inside the Vic govt (Dept. of Premier and Cabinet) that the (very noisy) suburban rail loop announcement was brought forward to coincide with the announcement of the (very quiet) Titles office sale.

Obviously, both projects had been in the works for a while, but the announcement of the Suburban rail loop was deliberately timed to take all the media oxygen away from the disastrous Titles Office sale. And it worked. The media were totally distracted by the rail loop, and there was virtually no discussion of the titles office sale.

I’ve written a few other things about the dodgy Andrews govt privatizations here:
http://owlknot.com/uncategorized/andrews-govt-cons-media-as-usual/