Friday, July 18, 2014

Gaps in Transit Review - riposte to sloppy analysis from a CT reader

An excellent riposte to the sometimes misleading and sloppy analysis on light rail costs and benefits, published recently in the Canberra Times, in a letter from a reader. This letter is in the 'Letters to the Editor' page of the July 18 edition of the Canberra Times, and also online.

Gaps in transit review

I write as an outsider but frequent visitor to Canberra. I think the heading in your article ''Light rail poor value: report'' (July 15, p1) was misleading.

The Productivity Commission has criticised the process of moving to a go-ahead for Capital Metro from the point reached in a submission to Infrastructure Australia in 2012.
That does not necessarily imply they conclude the project is of doubtful validity. I sense they are instead criticising a gap in the decision-making logic without actually having the data to finally judge the project options. The submission in 2012 for preliminary funding showed better benefit-cost ratios for Bus Rapid Transit options than Light Rail Transit Options because of the lower capital cost of the former.

However, the two types of projects would not be equal on other grounds, and I think this is where the gap in economic and business cases has not been filled (at least in terms of public disclosure). Light rail will be better for value capture in relation to property development, based on overseas experience. The economic benefits of densification along transport corridors, and so-called agglomeration productivity benefits, are areas where our local experience in cost-benefit analysis is perhaps at the learning stage, but that is not to say that one cannot judge that they will be valuable.

In addition to the projected fare revenue and the lower operating costs of trams versus buses, I understand the ACT government had previously pointed to car parking revenues and this relatively new area of ''value capture'' as two key prospective financial benefits.
No one has yet done justice to analysing these factors in a publicly available study. The Nairn report for the ACT Liberals, which claimed the Capital Metro project would be unviable, seems to me to have a few major holes in terms of financial analysis. A long-term project was evaluated over less than its effective economic life, using 100 per cent debt funding paid off over 15 years, but assuming that the project was worthless after repaying the debt.

To assume a project is worthless in 15 years' (or even 30 years') time would necessarily pre-condition the result of such an analysis and make it a misleading exercise. And that is not to criticise Bob Nairn's transportation knowledge - it just says that the financial analysis (as distinct from his analysis of the transport issues) could not have been complete and must, to that extent, be unsound. I can't tell how this might have affected the end result, as I don't have all the data.

However, Mr Nairn's table of figures seems to project a stabilised fare revenue of only $2.2 million per annum. Simple arithmetic says that at an average light-rail trip fare of circa $4.50, this revenue estimate implies only about 1300 paying passengers per day, or six to seven full vehicles. Unless I am misinterpreting his analysis, that seems ridiculously low and would be a second doubtful element in terms of reaching a sound conclusion as to project viability.

I hope I am not being too unfair to Mr Nairn, but what I read didn't convince me that we have the full picture as yet. And, as a visitor, I cannot understand why the parliamentary and government offices area south of the bridge would not be a viable future route.
It is not just locals one should provide for, because if Canberra Airport goes international, future tourism potential is another major beneficial factor.

Ian F. Bell, Sydney, NSW

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