Introduction
There are two serious issues facing Australia at present that need to be brought to the foreground: population increase and high cost of transport. There is a subsidiary issue of how to fund the cost of resolution.
The solution lies with railways. These are viable means to an end, not the end in themselves. The ends are to transform the negative impacts of the two main issues. The objective for the railway project means is to make it low cost, highly profitable and above average ROI, to ensure that it stands on its own feet. It is also to ensure that the indirect economic benefits from it far exceed the costs. These are achievable and intended to provide the most effective resolutions of the ends.
The reason for addressing the issues now is that investment in their solution would stimulate the slow economy to higher growth that is needed for more jobs, greater government revenue and readier budget repair. Their resolution would also further stimulate higher growth.
The approach taken is to maximise value added by the railway project and for the beneficiaries of the value added to pay for much of the cost of construction of the project, making it largely self-funding. The underlying principle is greater connectivity of people and goods.
The proposed infrastructure project would be subject to a thorough commercial feasibility study into the viability of the railways and their effectiveness in providing the desired economic benefits in resolving the main issues.
Two issues
Population increase
The Australian population is projected to double in the next 4-5 decades. It is likely to continue to increase strongly. It will influence the shape of the county’s future. Major cities are in danger of doubling from 4 million to 8 million people. The situation is pressing as the increase may approach I million more in Sydney and in Melbourne, and similarly in Brisbane, in the next 10 years. Most of these people will live in fringe suburbs. The undesirable consequence, if unaddressed, is exponential growth of congestion, some say hyper-congestion, that seriously damages highly prized liveability. This is to be avoided by redistributing much of the population increase into regions connected by High Speed Rail (HSR). In addition, HSR would increase the amenity of more people living in inner-city suburbs rather than in the outer, fringe suburbs as city population increases. None of these benefits can be provided by road or air.
HSR would increase the convenience, reliability and comfort at competitive fares for the growing interstate passenger market. There would be very large additional economic benefits to Australia as a result of HSR.
Transport costs
Transport costs in Australia are unduly high. The American transport system is regarded as the most efficient and low cost in the world. Its transport industry value added as a proportion of GDP is 4.4%. Australia’s proportion is 11.3% of GDP. Some experts estimate that it is closer to 14.5%. Transport is much the largest industry in Australia. It is high cost. It needs to be more efficient and productive.
Australian interstate transport is seriously distorted. What interstate freight that should be carried by sea is carried by rail. What should be carried by rail is carried at excessively high cost by road.
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Sea freight is constrained by industrial matters. Rail is constrained by out of date, antiquated infrastructure that needs modernising. High cost road freight dominates the east coast interstate freight market. Fast Freight Rail (FFR) as well as HSR is needed.
Isolation of industry from interstate competition in the major cities is caused by very high road freight costs. With this ended by FFR, there would be increased competition in Australian industry which would under-write the international competitiveness of Australia. Greater competition as a result of FFR would stimulate innovation and further improve productivity yielding more economic benefits.
Innovative concepts
The approach taken in designing the proposed HSR/FFR project is to seek new innovative concepts that create greater value added, resolve the major issues and make the railways a more attractive investment to finance in solving them. Ultimately, the innovations are intended to make the railway project largely self-funded by the beneficiaries of the project. The project is explained in further detail in the book: Peter J Knight High Speed Rail for Australia-Now, 2015. The overall objective is to create greater value added than any other railway built. The innovative concepts are discussed below.
Private project
The HSR/FFR would be a private project. Government projects are built to lowest cost, utility/austerity considerations. Value added is constrained as it risks higher costs and needs more funding. Government projects are subject to time and budget over-runs that exceed the advantage of lower government interest rates. Private enterprise builds to value added for customers. It better meets time and budgets. The consortium company envisaged would have members with the capabilities to construct and operate the railways successfully. Freight and airline companies would be included. The private HSR/FFR project would create very large direct and indirect value added.
Propensity to travel
Sufficient patronage for a HSR project is not in doubt. Indeed, it turns out that the recent Government HSR study estimate of patronage in its base year 2011 was 20% higher than the original VFT Project 1990 projection for the same year. Population growth would increase HSR capacity utilisation over time. There is another factor that is positive for HSR. It has been found by the airline industry that there is a marked increase in future propensity to travel by the Australian people. In other words, the same population travels more often, probably as it becomes more prosperous. This would also increase the capacity utilisation of HSR and its profitability without any further expansion of capacity. This would be an increase in value added for the project.
Customer relations
For passengers, the stations and trains are the face of HSR from the start. The railway must ensure that its face, first seen in the form of facilities and operations, provides the highest value added and the best experience possible in order to bind customers to it continuously. The third face is the staff. They would be highly trained, skilled and caring, imbued with the desire for passengers to have a good experience.
This opportunity to build brand would direct the corporate culture of the railway company. It would be put into practice by employing first class, innovative design and training people. More value added.
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Technology
The railway technology that would be adopted would be wheel-on-rail, not mag-lev. The reasons are that mag-lev would be inordinately expensive on the long distances require in Australia. It is difficult enough to arrange finance for a wheel-on-rail project. The other reason is that mag-lev does not suit general freight. The more flexible design of mag-lev tracks as they cross undulations and tighter curves in the landscape would not work adjacent to less flexible wheel-on-rail freight train tracks. Freight rail would have to be built separately at higher cost.
Clearly, HSR technology would be sourced from overseas. It would be obtained from private enterprise, not a government controlled supplier. The latest technology in operation, not cutting edge untried technology would be sought. A long term relationship would be established with the supplier that undertakes on-going R&D into future innovations and additional value added by HSR and FFR as part of the agreement. This would also give financiers more confidence. More value added.
Terminal stations
Most big cities in the world developed before railway technology arrived. Their terminals are generally outside the city CBDs. In Australia, HSR railway terminals are conveniently right in the CBDs. This added value would increase as road congestion worsens. Growth in property development over the next decades would see terminals embraced more closely by CBDs as more high rise buildings are constructed above and around them. The railway company would build on this advantage for passengers and create more value added.
The quality of all stations, especially terminals, would equal or exceed airport standards. Associated businesses would provide convenient goods and services for travellers at stations which add more value for passengers.
At terminals, it is important to load HSR trains quickly and conveniently without stress when maximum capacity of the tracks is 16 trains/hour and the maximum train turnaround time allowed is 15 minutes, including unloading. There would be 16 trains at 4 platforms, 4 trains per platform per hour for 15 minutes. A passenger assembly walkway from the terminal gate-lounge would be built above trains to take passengers about to board. (72 per car x 16 cars= 1,152 people per train.) 16 numbered escalators would connect these walkways calmly and comfortably in time to the platform below directly to the right door to their carriage. More value added.
Booking system
An advanced on-line booking, rewards scheme and checking-in system that is sensitive to customers’ travel needs, incentives, willingness to pay and departure convenience would be employed like airlines. Few international HSR have such systems. All computer systems would be backed-up and duplicated off-site for greater security. More value added.
Sparse land
Australia has large areas of sparsely populated land for HSR to traverse. In Japan, the population is densely settled and property prices are high. It is cheaper for the new Japanese mag-lev railway project to tunnel hundreds of km through mountains than to buy land at grade. There would be plenty of sparse Australian land that would be much cheaper to buy than the expensive fringe outer suburban land where people would live if there is no redistribution of population to the sparse regions. Cheaper land and housing is a major incentive for 1 million to live conveniently in new, low cost, compact cities connected by HSR instead of old cities. More value added.
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Route
The recent Government study of HSR proposed three areas of the route that are lower value added than alternatives. It proposed entry to Melbourne from Albury in the north rather than from Gippsland in the east. The value added of the eastern entry via Dandenong is more than the northern entry. Also the likelihood of 1 million people living in a new city 300km inland at Albury is small compared with in Gippsland near the sea and beaches. The north route would cost Melbourne 1 million higher population and more congestion.
The proposed spur line to Canberra is low value added. HSR tracks should come from the south via Canberra Airport where there would be a HSR station. Express trains would pass through the aircraft sound envelope extending both sides of the airport and minimise HSR sound disturbance. Canberra passengers would have access to more stopping trains per hour than spur line trains.
There is plenty of room at the airport for high rise buildings and large carparks, unlike in the spur line terminal proposed for the city centre. Carparks would be needed for the doubling of the Canberra population living within 60 minutes by HSR of the Sydney CBD and the growing south coast population. Many south coast residents already drive via Canberra to Sydney. They would catch HSR to Sydney to save 3-4 hours off their full journey by road. Canberra connected by HSR would be the airport for the 1 million people in a new city between Canberra and Sydney flying domestic and international routes. Alternatively, a new airport would be built at Goulburn on the HSR line.
The proposed spur line to the Gold Coast is low value added. It would be an extra expense. The route should be from the south through to Brisbane. It would serve the growing population of I million people that would be redistributed to the south and live in the region. They would be served by more stopping trains per hour than a spur line.
The private inland freight project route supported by the Federal Government travels inland from Melbourne to Brisbane and by-passes Sydney. FFR follows HSR via Sydney and saves some 1-200km compared to the inland route. More value added.
Airports
HSR would link all major east coast airports. It would give ready access for the growing regional population to airports as redistribution takes hold. As regional populations grow to I million or more around new cities they would require that local airports be expanded or new ones built connected by HSR. These airports and HSR connecting them all would ease the demand on major city airports with their limited scope to increase capacity, such as Kingsford Smith. More value added.
City entry
The Government HSR study proposed many km of tunnels to enter and exit the capital cities. These are expensive compared to surface trenches. They do not allow any value capture of the value added by building above and around HSR entry tracks and stations. Such tunnels reduce value added and value capture. The value added solution is to enter by trenches and capture value. More value added.
Trenches
It is envisaged here that the project would cut surface trenches into and out of the cities.
The railway between Melbourne and Dandenong, an outer suburban hub, is an example of the value added and value capture by private HSR. It would be applicable also in Sydney and Brisbane. Entry of HSR to Melbourne would be from the east via Dandenong where there would be a HSR station. The distance to Melbourne CBD is 30km.
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A trench would be cut next to the existing suburban railway and new higher capacity suburban tracks and stations built in it without disturbing train operations. It would remove 10 railway level crossing. When complete, trains would be diverted to the new tracks. Then a new trench would be cut for HSR under the old suburban rail tracks.
Low rise housing would be built above the tracks. Higher rise commercial building would be above stations. At Dandenong and Melbourne terminal high rise hotels, apartments and offices would be built plus car parks, supermarkets and adjacent housing.
There would be a 30km roof level walking and cycling track and gardens between Melbourne and Dandenong like the “High Line” on disused elevated railway tracks in New York. This would give ready access to inner suburban stations, to facilities and particularly to jobs by public transport. The value added would be substantial and desirable to home buyers. It would attract people to live where government services have already been provided, rather than in the new, higher cost, poorly serviced, more remote outer fringe suburbs. Government funds for new outer services not needed would be saved for new, low cost compact regional cities and towns.
With 30km of HSR in the east and extended west via Tullamarine 30km towards Geelong in trenches, some 7-900,000 of the projected 4,000,000 increase in population in Melbourne in coming decades may be housed conveniently in inner-city suburbs.
It is envisaged that substantial new inner-city land would be created by the railways. For each entry to a capital city there would be a 30km trench by 100m wide. This would make 3 square km of new land. There would be another 3 square km for exit, making 6 square km in each city. For three cities there would be 18 square km of new land, plus some 3 square km of other land, a total of 21 square km of new inner-city new land. All would be built over by low, medium and high rise property for sale. This would be extremely valuable. More value added.
Suburban railways
Increased capacity of mainline suburban railways in the major cities would be built when trenches are cut for entry of HSR. This would be done free in exchange for free rail air rights over the tracks. More value added.
Regional stations
All regional stations would become the centre of new cities and towns around which development coalesces. They would be in trenches to enhance property value added. The trenches would be built over. Trenches avoid destroying value added through the inconvenience of physically cutting the city and urban area in half at ground level, as in other countries. More value added.
Six new cities
It is envisaged that over time six new cities of I million or more would be developed within 2-300km of the major cities. There would be one on either side of Melbourne, Sydney and Brisbane. Population increase would be redistributed to these away from the main cities. They would be connected by HSR. Commuters would travel to CBDs in less than 60 minutes by HSR. More value added.
More innovation
The many small cities create as much of the innovation as the few large cities in America. More new cities in Australia would increase innovation and competitiveness.
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The HSR/FFR project is an opportunity in itself. It would also offer many opportunities for others to create new businesses. More value added.
Property
There is value created by HSR through connectivity and convenience that is added to property developed over and near terminals, inner-suburban tracks, outer hub stations, regional cities and regional towns and to surrounding land. The railway would build much of the property and buy much of the land. The enhanced value of property would be captured by the railway company in order to reduce total capital cost and lower net investment. This would increase project ROI.
Value capture on property is the key to the viability of the project and resolution of the issues. More value added.
Freight
It is envisaged that a new, dedicated, dual track FFR would be a central element of the private HSR/FFR project. It would be built next to and at the same time as HSR. Cost of construction of FFR would be less than if built separately. FFR would halve the cost and time of delivery of interstate road freight.
The time from Melbourne to Brisbane would be cut to around half a day, compared to one day by the inland freight route. Interstate freight is projected to grow faster than population. The single track inland route may run out of capacity in the next 50 years. FFR dual tracks would have far more capacity for longer. Dedicated dual tracks make FFR intrinsically more reliable.
FFR would create immense value added. Half of the value would be captured by customers. If they passed on part of the cost savings, food would be cheaper and fresher and other goods would cost less in the hand of consumers. Cost of living would be reduced. Cutting costs would increase competition, innovation and further increase value added. FFR would be very competitive and profitable in its own right. It would contribute to the railway company.
FFR would end interstate competitive isolation of the major cities caused by high road freight costs and reduce the distortion of interstate transport. More value added.
Freight tracks
FFR tracks would be built adjacent to HSR tracks. They would cost less than if built separately. FFR tracks would have the same gentle inclines and 7km radius of curves as HSR which would enable it to travel faster over long distances. This would occur nowhere else in the world. The inland freight project would be single track with passing sidings over old tracks and old route, rather than the FFR dual tracks on the new route. It is by construction slower and maybe less reliable. More value added.
Freight yards
FFR would separate from adjacent HSR tracks in capital cities and connect with the main intermodal freight terminals. In the regions, it would be uneconomic and unnecessary for stopping FFR to follow stopping HSR through trenches to stations in the centre of new cities and towns to expensive land for yards. FFR would separate from HSR and enter and exit at grade around the 1km wide sound buffer zone between the edge of the city and the by-passing express HSR and FFR tracks. There would be a freight yard on this ultra-cheap land where industry would also be located. More value added.
Freight trains
FFR trains would be double-stacked on long bogey container wagons. They would travel at an
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average speed of 125-150km/h compared with 70km/h for road semi-trailers. Each driverless, electric, general freight train would carry the equivalent of 150 semi-trailers. These speeds over long distances are not reached anywhere else in the world. The inland trains would be driver and diesel. FFR would be faster, more efficient in energy use and lower in operating cost. More value added.
Maintenance
In Japan, 16 HSR trains of 16 cars each per hour operate at full track capacity. Track maintenance costs per km are high. In Australia, full HSR capacity would not be reached for many years. There would be maintenance cost savings in earlier years of operation, especially when needed. More value added.
Environment
The electric HSR/FFR project would substitute a small amount of electrical energy for a large amount of petroleum fuel energy for cars, trucks and planes. The energy requirement of electric rail is far less than equivalent cars, trucks and planes, so co₂ production would be substantially reduced. Electricity is cheaper than petroleum fuels which gives rail a competitive advantage on far more efficient usage.
The energy source for rail would become renewable in time. The small incremental increase in electricity demand by HSR/FFR would be less than the large incremental increase in supply of renewable electricity, so the project in effect would become totally green. More value added.
Construction time
The Government HSR study in 2013 did not appear to take into account the doubling of the population over the next few decades and the possibility of redistribution to the regions. It proposed staged construction of HSR over 3½ decades. Over these 35 year the population would increase 70% or 16.8 million of a 24 million doubling in 50 years. It seemed to accept that most would live in the major cities. Congestion would increase more than 70% and liveability would fall significantly. Construction, even in stages, would be too late for sufficient impact on redistribution on these assumptions.
The Chinese have built HSR of this sort in 18 months, admittedly under an authoritarian government. In the 10 years between 1830 and 1840 in England, railways equalling twice the distance from Melbourne to Brisbane were built by pick and shovel. In the 20 years from 1830, 6200 miles of track were built, almost 7 times the distance from Melbourne to Brisbane. Surely, it is possible to build it today in less than 35 years with modern equipment, technology, finance and project management?
The original VFT project planned in detail to construct HSR between Melbourne and Sydney in 5 years. It is proposed here, with redistribution in mind, that Melbourne to Sydney HSR would still be built in 5 years. Sydney to Brisbane would also be built in 5 years. It would be treated as a larger project and so the two sections would be built in the same 5 years. It would be completed before population increased too much. The impact on redistribution would be large. City congestion would be constrained and liveability protected. More value added.
Beneficiaries
10 million people of the 24 million population increase over coming decades would be living in houses built by the railway company above inner-city HSR tracks, and above and around new city and town HSR stations in the regions. This housing would be sold. Other interests would buy the commercial property built by the company. The 10 million people would rely on the HSR.
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These are the main beneficiaries of HSR. They contribute by buying property and paying fares to travel on HSR. They permit value capture on the property sales. The funds raised form sale of assets would be used to reduce net investment in the project by repaying loans for construction.
This would go towards the long term viability of HSR for the 10 million and increase its viability for financiers.
The 10 million people would not be living in the fringe suburbs of the major cities. Congestion would be less than otherwise and liveability would be sustained. The indirect HSR beneficiaries are city dwellers. They could afford to pay a small amount each to be transferred by government as a meaningful incentive for people to live in the regions, for businesses to set up and create jobs there and for commuters to travel to CBDs.
The beneficiaries of FFR would be freight customers who find their interstate freight costs halved and those other indirect customers who find part of the cost saving passed on to them. Final customers would have their cost of living reduced. The FFR would be profitable. FFR and HSR results would be combined in one company.
Overall, the company would be highly profitable and financially viable. Value capture would reduce net investment to more manageable levels. More value added.
Finance
Government is reluctant to invest in such large projects as HSR/FFR as it does not have the funds, or if debt were used, it would increase government debt and interest expense uncomfortably. It is also reluctant to take the risk on what it sees as a low value added, low profit and low ROI government project.
The proposed private HSR/FFR project would create far more value added, be very profitable and have a higher than average ROI. It should be backed.
The opportunity cost of not going ahead with the private project is a lower economic growth than would be achieved if it did go ahead. This would mean fewer jobs created, more unemployment in the next recession and greater difficulty in budget repair. It would mean a gross loss of value added and competitiveness for Australia.
The total construction cost, including property for sale, may be up to $200 billion. After recovering property cost and value capture, the net investment may be cut to around a manageable $30 billion.
Finance for the private project is available at low interest rates overseas of close to 1%. Finance from Japan for the Indian HSR is at 0.1%. It needs some accommodation of the financial risk, which is less with the proposed innovative high value added approach to the railways. The Government could guarantee private finance for the project. This would share financial risk. A government guarantee would be a financial innovation. It would be a contingent liability, not a debt. It would not affect the budget or government debt. The Government credit rating would not be affected negatively. It would suit the fiscal situation. Later, the successful project would be refinanced by the Superfunds, which would relieve the Government of the guarantee. Ultimately, property would be sold, value captured and a large part of capital costs would be paid for by the beneficiaries of the value added.
The value captured on sale of assets by the railway company would be used to reduce net investment, not to distribute to shareholders as profit. This would increase ROI and the attractiveness of the project to financiers. More value added.
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Value capture
The basis for value capture from the enhanced value added by the project is solid, sound and realistic. It is a crucial contribution to the success of the project and creating the very large benefits over costs of resolving the two major issues of population increase and high transport costs.
Taxation should not be levied on value capture or on capital gains of the HSR/FFR project as it would be a serious disincentive to the project going ahead. (See submission to the Parliamentary Committee Inquiry into Value Capture.)
Conclusion
It is clear that a large proportion, some 10 million people, of the population increase of 24 million over the next few decades can be redistributed to the regions or live in the inner-city over tracks, thereby reducing the pressure of congestion on the main cities. Liveability of the cities would be maintained. It would be achieved by building HSR between Melbourne, Sydney and Brisbane.
It is also clear that interstate freight costs can be halved, interstate competitive isolation of cities ended and the Australian road transport distortion removed, thereby reducing the cost of living and increasing competition, innovation and productivity. It would be achieved by building FFR along the east coast together with HSR.
There are enormous benefits for Australia from resolving these two issues that are far beyond their costs. The ends are extremely worthwhile. They far exceed concerns about taxation of the project.
The private HSR/FFR project is an effective means of achieving the desired ends. Integrated together in one company to resolve the two issues, HSR and FFR would be very profitable and have an above average ROI. There would be a high probability of success, with very little risk that the Government would have to take over the railways should they fail. This is reinforced by the drive for innovative concepts to create more value added to ensure viability of the project. Value added would be more than other railway projects elsewhere. The project’s success is also under-written by beneficiaries paying for much of the cost of building the railways through value capture. The railways would be financially viable in their own right.
The innovative Government guarantee of private finance for the project is a practical way to build the railways without calling on more government debt or affecting the budget. The guarantee is highly unlikely to be exercised because of the success, stability and profitability of the project. It would be imperative for government, business and unions to cooperate to achieve success. The guarantee would be extinguished through refinance by Superfunds and paid for by beneficiaries.
Value capture would be essential to success of the project. Beneficiaries would pay back loans for the total capital cost of the project, including capital cost of FFR, and thereby reducing the net investment to around $30 billion. It would not be distributed to shareholders as profit.
There is a strong case to build the HSR/FFR project now. It would stimulate more growth. The economy would reach a higher than average growth from a below average rate at present. It would in turn stimulate other non-mining investment on the east coast. Economic growth from the project initiated soon would forestall or modify the damaging effects of the inevitable recession that is coming. Greater growth would permit easier budget repair.
The strength of the project and the size of the benefits justifies Infrastructure Australia confidently backing HSR/FFR to the commercial feasibility study stage and giving it a high priority status.
PJK ©8.1.16
