Submission to Federal Parliamentary Committee on Infrastructure, Transport and Cities.

In the 2010 election voters became aware that the Australian population may double in the next 40-50 years. It became evident that they did not want population to increase because they feared loss of their precious liveability. The subject of population increase virtually vanished from public comment. Voters’ concerns did not disappear. If population doubles and congestion and pollution more than double and liveability is damaged, voters will be disgruntled. Even more so, if they realise that it need not have happened. This is the underlying context of transport policy. HSR can resolve and defuse the issue while making a good profit and not relying on government for funds.

Further, the extremely high cost of interstate road freight on the east coast is isolating the major cities from interstate competition. General freight is projected to more than double. What should be carried by sea is carried by rail. What should be carried by rail is carried by expensive road. Regular, dedicated, dual track Fast Freight Rail (FFR) can halve the cost and time of delivery of interstate freight. It would lower cost of living and increase competition, innovation, productivity and international competitiveness.

HSR and FFR can be constructed side-by-side at the same time at less cost than separately. HSR would contribute much value capture and FFR high profits to the railway consortium building both.

HSR/FFR would be a very viable project. It would transform Australia. It would create greater long-term prosperity and liveability.

The 2013 Government Study of HSR assumed the population would double. It implicitly assumed that the major city populations would double and few people would move to the regions. No comment was made about general freight. The main thrust was to protect the airline industry. The HSR route chosen avoided airports. It was government designed and not the most commercial route.

There is a great opportunity for Australia to distribute 10m of the 24m population increase to the regions between the major eastern cities by HSR and reduce freight costs by FFR. There is one best shot at redesigning the future of Australia for 48m people in the next 40-50 years and protecting liveability and prosperity. Neither road nor air can deliver mass transit for people living up to 200-300km to the nearest CBD in less than 60 minutes that HSR can. Road cannot cut interstate freight costs by 50% that FFR can.

Combined with application of these modern technologies is the opportunity to cover most of the capital costs of the railways through value capture of the value created by them. At the same time, interest rates are extremely low. The Interest rate on large long term loans from Japan for a HSR project in India this year was 0.1%. There may never be a more propitious opportunity as now to set Australia up for ongoing, world leading, prosperity, wealth and liveability.

In addition, it would be advisable to stimulate higher economic growth and job creation with large east coast railway investments now. The railways should be built now before population increases very much in order to gain the best effect.

The strategic objectives are clear: redistribute population increase and cut freight costs. The masterplan is to use HSR/FFR railways to achieve them. Value creation comes before value capture. Business is more skilled at value creation for customers. Government is more skilled at value capture for taxpayers. (See my previous two submissions to the Parliamentary Committee and my book.)

Clearly, private enterprise should design, build and operate the project, and government should supervise value capture. This is not the narrow definition of value capture where traditionally all infrastructure was government built and funded: government captures funds generated by government investment. More broadly, it is business capturing profit from value created by its investments. If government captures part of the private profit from private investment without contributing anything to value creation, it is a government tax, not value capture.

If business finances, builds and operates the project, that is, it creates the whole value added, then government does not need to find the funds for it, and/or, if it does not contribute value, it should not capture any value. If government facilitates business effectively, then it can capture some value in proportion to its value creation contribution, but not enough to destabilise the private project. If the private project is pushed towards or into failure by large government value capture, government would have to take it over and may risk losing through negative value capture. The same results if the private project is pushed into poor customer oriented design yielding lower value creation by government influence.

As the HSR/FFR project is interstate, a Federal body should oversee the arrangements with private consortia, the Commonwealth, States, and LGAs. It would supervise government value creation and value capture on infrastructure. It would arrange for distribution or further application of government value capture created by government. Value created by the private railway should go back to the railway to finance it. Government value created in association with the railway and captured should be reinvested in the railway and its associated activities to create further value. It should not go into consolidated revenue. Value captured by government on other projects that need no further investment should be held by government in a fund for other infrastructure projects.

If the funds gathered through value capture by government went into consolidated revenue at federal, state or local level, it would be a tax. If the funds were redirected to the railway or to associated facilities and services, then it would be an appropriate reinvestment and not a tax.

The Federal Government would take precedent over State Governments and LGAs. It would also ensure that value creation takes precedent over and exceeds value capture. This applies particularly to the HSR corridor/route. Value creation for customers is far greater on the eastern than the 2013 northern route into Melbourne (and so is the value capture). It is well beyond the extra capital cost, especially when another 1-2 million people in Gippsland connected by HSR is taken into account.

 The same applies to the proposed spur into Canberra envisaged in the 2013 HSR study, especially when doubling of the Canberra population is taken into account as a result of being within an hour of Sydney CBD by HSR. This also applies to the proposed spur to the Gold Coast and further south where another million people would live. Canberra and the Gold Coast should be near the mainline not spurs for best customer service and opportunities for growth. Each of these three new commercial routes achieve higher value creation that fits the overarching objectives and also yields greater value capture than the route chosen in the 2013 Labor Government study. The 2013 route may perhaps be the lowest cost, but the routes proposed here are the most customer friendly and commercial for private enterprise. It best fits the overall objectives. The sub-optimal 2013 route would be a mistake and may cause the project to fail and become government owned.

Further, the Federal level of government should prevent State or LGAs from blocking the interstate HSR project with sub-optimal projects of their own, eg the Victorian “SkyRail 1 and 2”. The “SkyRail” project is intended to increase the capacity of the Melbourne/Dandenong suburban train route from fringe areas and feed into the new Metro Rail system at Caulfield. It is billed as removing level-crossings before the next election. This project not only blocks HSR from the east, it is an unnecessary expenditure. Certainly some extra capacity is needed. This would be supplied when HSR cuts trenches for new higher capacity suburban rail from Dandenong to Melbourne. HSR would also remove all the level-crossings by trenches.

HSR would mean more people locating at its stations in the regions and lower growth on the outer Packenham line. There would be less stress for suburban rail from Dandenong to Melbourne and less need for Metro Rail and “SkyRail”.

The State Government plans assume that Melbourne will grow to 8m and the Melbourne to Dandenong rail corridor should cater for more outer fringe dwellers. It does not allow for HSR through Gippsland and a large distribution of Victorian population increase located there and to the west. It probably assumes that HSR will not happen and so it must act.

The Metro Rail and “SkyRail” 1 and 2 projects assume lack of access via Flinders Street Station which was built over 100 years ago. It has 12 platforms which were and still are train ‘parking stations’ between scheduled services and for driver change-over. Southern Cross Station has only 4 suburban platforms. Flinders Street platforms are excessive now as trains on busier schedules should only stand 2 minutes or so. This would make capacity available for many more services. The Flinders Street viaduct could increase capacity with higher frequency and a small increase in the still safe slow speed restrictions. Some 50% more trains would pass through to western suburbs.

With these adjustments to conventional wisdom or historical practise that cost nothing, the expensive Metro tunnelling system is unnecessary as is the “SkyRail” project. Many $b can be saved. Neither of these lend themselves to ready value capture anyway. They are of limited value creation compared to the simple, no cost alternative. South Yarra Station is a minor problem and expense compared to the Metro and “SkyRail”. They add nothing to the redistribution of the population of Melbourne. There is a route from Dandenong for HSR through Flinders Street, on a new viaduct to the terminal at Southern Cross Station and on to Tullamarine Airport and beyond to the west. It would redistribute the growing population to regions east and west. It would house many hundred thousand people above trenches in the inner-city instead of fringe suburbs. It creates huge value.

Similar issues apply in Sydney where extensive tunnels are envisaged in the 2013 study. Trenches were not considered. Other new proposals see the terminal located in sub-optimal Homebush away from the most customer friendly HSR terminal at Central in the CBD. The study planned for expensive tunnels into Central under regional platforms. The cost would be lowered by trenches and building terminating steel bridges for HSR above the regional platforms. Entry could be in part via Badgerys Creek Airport and Sydney Airport by loops from the shortest mainline express route direct into Central that retains the sacrosanct 3 hours Melbourne/Sydney to be competitive with airlines. If the mainline were diverted to a longer route, it would be uncompetitive and uncommercial. The airlines would win and HSR would have to be government owned, funded and subsidised, if ever.

There is no need for HSR to tunnel under the Harbour. The route north would be back out of Central through Strathfield and onwards in trenches. Imaginative, practical railway engineering is needed.

In Brisbane, the Cross River project would dig long tunnels under the river into the CBD. It would be far more expensive than trenching next to suburban rail to the river and building housing above as in Melbourne and Sydney. This would bridge over the river around to steel bridges for HSR above the Roma Street station suburban platforms. The river bridge would also carry extra suburban rail. Suburban trains would occupy Roma Street platforms for 2 minutes to accommodate the extra capacity. HSR would relieve pressure on the suburban system when more people live further out in the regions to the north of the airport and to the south of Brisbane.

With regard to the HSR proposal in my submission and my book (previously submitted), value creation is by HSR and FFR and value capture is largely greenfield and linear. HSR entry and exit to major cities is by trenches next to suburban rail also in trenches with buildings for sale above. Some brownfield would be extended beyond them. There would be circular greenfield value creation built around the city stations and certainly brownfield value created around that. Regional tracks do not attract value capture. Regional stations create high greenfield value around them as new city centres. The railway consortium would acquire large areas around them and build facilities for cities.

State Government funds saved from fringe suburbs not developed that no longer need government services, since people have located instead to the regions or above inner-city tracks already serviced, would be diverted to the new compact regional cities where more value is created.

Railways at grade in cities destroy property value next to the tracks. They cut towns in half.  “SkyRail” extends the destruction further out because of its height and its sound amplification and wider noise travel. Trains in trenches increase the value created nearby as they are out of sight and sound. They would have 30km by 100m of 4 story low rise housing above both into and out of the cities.  Above them would be footpaths, bicycle tracks and gardens at roof level to stations for access to jobs and facility. 3km² of new land would be made in each city. Enormous value would be created.

Mr. Jeff Kennett, the former Premier of Victoria, said recently that Victoria should borrow a billion dollars at today’s extremely low interest rates and dig tunnels for a new extensive Melbourne Metro system. A better use would be to cut trenches next to existing suburban railways and shift trains to the new tracks in the trenches and build over the trenches.  Many people would live over the trenches in inner-city suburbs. Huge value would be created and captured, unlike with tunnels. The cost of trenches may be much less than tunnels. Certainly, tunnels could be dug to areas not at present served by rail as a second priority. Value capture on trenches may finance the tunnels.

Huge indirect value would be created for the whole city population in the form of lower than otherwise congestion and pollution by a smaller population. This may be captured through a small increase in land tax re-applied as meaningful subsidy for daily HSR commuters to the CBD. It would be an incentive to live in regions. Railways do not favour commuters because they are unwilling to pay a fare high enough to be profitable. Subsidised commuter fares by operational value transfer from city landowners would be necessary. Suburban rail is heavily subsidised by government.

Regional stations would be in trenches on loops away from the mainline that takes the quickest, most direct route between capital cities which would bypass towns to achieve the 3-hour trip from Melbourne to Sydney competitive with air. Stations and new cities on the loops would avoid the sound of express trains. They would loop nearer to existing towns. They would form the nucleus of new towns and cities. They would not cut them in half at grade and destroy value. Indeed, the tracks and station in trenches would be built over and create much more value at the new city centre.

It is doubtful that existing LGAs have the skills to develop new, fast growing cities of up to 1m people and more with the necessary large city attractions for residents. New LGAs around stations may need to be staffed by people who would develop the amenities and facilities expected by potential residents from major cities who would have to pay higher prices for new housing than in the locale.

From this it can be seen that the value created by the consortium is real and is a tangible source of profit and value capture in the broadest sense. Certainly, users pay for rail services or operational benefit. Beneficiaries pay for the capital/asset benefit. The project should be largely self-financed.

The regional population increase aims for 10m out of 24m over 40-50 years. Many of these people would live in new cities around HSR stations that will eventually justify trams or light rail. Buses would serve until the population grows. Bus routes that convert to tram routes later would be part of advanced city design and planning. A government bus/tram buying consortium may be appropriate for the large scale of production/buying over the long term horizon.

Many regional centres exist today because their property is affordable. New large compact cities on the HSR route would have property prices akin to major city prices. These new cities would be centred on HSR stations at a distance from existing towns which may remain more affordable. They would be managed by existing LGAs. The original property price decline with distance from a major city to a regional HSR station would become less steep as prices rise around the station. A similar decline would then exist from the station to the more affordable towns at a distance around it.

FFR would save thousands of lives and many more injuries over the years of the project by taking interstate freight trucks off the roads. It would save many more lives as the population increases and Interstate freight more than doubles. This would also be a huge saving in costs to the economy and an increase in the productivity of the survivors.

The FFR could connect to general ‘freight airports’ along the east coast, eg Adelaide, Avalon, ((Tullamarine)), (Sale), Canberra, (Goulburn), (Winton), ((Sydney)), (Badgerys Creek), Newcastle, Coolangatta, ((Brisbane)), Maroochydore, and any other new airport built close to the HSR route. The HSR/FFR route cuts all the main rail and road routes from the inland to the coast. It should be possible to connect and get freight to and from airports and the Australian markets by FFR quickly.

The present broad gauge general freight from Gippsland passes along the Dandenong/ Melbourne suburban tracks through the CBD to the west. It disrupts passenger capacity and schedules. The alternative FFR route is an outer circle line around Melbourne within the electricity transmission line easements. It would connect the Port of Hastings to a new intermodal terminal at Hallam and the FFR from the east near Dandenong. It would circle Melbourne to the Tottenham intermodal terminal and the Port of Melbourne. Broad gauge freight would no longer be needed through the CBD.

The same route may accommodate a broad gauge passenger outer circle line that could connect many of the radial spokes of the suburban system and facilitate access to jobs.

There is a major consideration for the Committee in that the timing of the cash outflow for construction of railways and associated housing and facilities over the first few years is before the cash inflow from sale of property and value capture spread over 40-50 years. It would need substantial finance. If it were private, a government guarantee may be appropriate. This would be a contingent liability. It would not impact on government debt or budget or credit rating for such a project. It is unlikely that the Government would fund it directly. International investment may finance a large part at very low interest rates. The project could be refinanced by Super Funds.

With regard to a private consortium, including airlines, the one selected should finance, build and operate the railways and the project, not just build and walk away. For best results, the consortium should be a railway with development, not a developer with a railway. First, a thorough private feasibility study should be completed by the consortium to test viability of this imaginative and innovative commercial project.

May I re-emphasise the importance for the future of Australia of these issues and commend the Committee for its endeavours. It is a great enterprise to create this vision for Australia and the means to enable it being put into effect now. It will create outstanding value for the Nation.

PJK ©15.4.16

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