The cost/benefit ratio (total benefit divided by total cost), or more simply the cost/value created ratio, is the generally accepted measure for judging the value to the people of a government project. If it is too low, it should not go ahead.

The Victorian Labor Government terminated the contracts to build the East/West project on the grounds that the cost/benefit ratio of 0.48 was too low. It paid over $1b to escape these contracts, creating a negative cost/benefit that does not disappear and cannot be ignored.

The $1b cost should be apportioned across all the Government projects to be funded by the ‘saving’ from the East/West project. It would reduce the aggregate cost/benefit ratio of these projects and make it more difficult to reach the higher level needed for acceptance. Or for simplicity and practicality, it may be allocated wholly to the largest project to insure it will have an acceptable ratio high enough to offset the loss.

The Victorian Government has taken $1.6b of the funds that will not be spent on the East/West project to be spent on building SkyRail to remove level crossings between Caulfield and Dandenong, before the next State election in 2018. The Government has not published the cost/benefit ratio for the SkyRail project. Does this indicate that it is less than for the East/West project? If the $1b were allocated to SkyRail, the total cost would be $2.6b. The normal hurdle cost/benefit ratio for acceptance would be higher. The actual ratio would almost certainly become a large negative and so the project should be abandoned.

On the Government’s own principle, the SkyRail project should not go ahead. At the least, the Government should publish the cost/benefit ratio for the people to check the figures and to judge the project. The Government should explain why it is actively engaged in a project which apparently has a grossly negative ratio.

By its nature being a railway viaduct, SkyRail destroys value of property all along its tracks: trains are more visible, sound carries further and diesel fumes of more freight trains spread wider. Add to this the inability to create value by building above the viaduct. Trains at ground level are less destructive of value. Trains in trenches create value by being out of sight, sound and fumes. Further, they create huge extra value when extensive housing is built above them. The additional value may be captured to pay for the cost of the project. SkyRail is an expensive choice. The benefits are questionable.

Unfortunately, the Victorian Government is not thinking big in the face of big issues. Indeed, SkyRail will prevent the possibility of thinking big for the longer term, large positive cost/benefit projects. The Federal Labor Government’s HSR Study in 2013 for HSR between Melbourne, Sydney and Brisbane has a cost/benefit ratio of 2.3 which is regarded as good for a government project. Self-funded private HSR projects being considered now no doubt have ratios well above this.

With innovative engineering the VFT2 HSR project (see Peter J Knight: High Speed Rail for Australia Now, 2015) envisages putting HSR in trenches next to suburban rail also in trenches the whole way from Dandenong to Melbourne CBD, removing all level crossings and building inner-city, low rise housing above the 30km of trenches. The same concept would apply to Sydney and Brisbane. Sale of the housing would pay for the whole HSR project and suburban rail capacity expansion. It is also aimed at locating some 10m of the 24m population increase in the next 4-5 decades in the regions outside the major cities to protect their liveability from being destroyed by congestion. These people would live 2-300 km from major cities and commute to CBDs in less than an hour by HSR. In Victoria it is foreseen that another 1m, maybe 2m of the 4 m increase in Melbourne’s population will live in Gippsland to the East instead of in Melbourne. This would create enormous value: the project would have a very large cost/benefit ratio.


By contrast, SkyRail only caters for an extra couple of hundred thousand more people on the outer fringes of Melbourne in Cranbourne, Berwick and Pakenham. It will take them around an hour to the CBD by suburban rail. It will destroy value. It will add to Melbournne’s congestion. Removal of level-crossing will only redistribute it.

Unfortunately, once SkyRail, with its negative ratio, is in place, it will make it impossible to build positive ratio HSR to the CBD via Dandenong and distribute the population increase into regions effectively.

The small, short horizon, negative SkyRail should be deferred until the big, long term, positive HSR project is clarified, despite the 2018 election.

This is a serious, significant matter for consideration for the benefit of present and future Victorian people.

PJK© 2 September 2016

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