nsw long term transport masterplan - april 2012

TRANSPORT FOR NSW

NSW LONG TERM TRANSPORT

MASTER PLAN

SUBMISSION BY

SMART INFRASTRUCTURE FACILITY

27 APRIL, 2012

Contact Details:

Garry Bowditch

Chief Executive Officer

[email protected]

Ph: +61 2 4298 1241

mailto:[email protected]


SUBMISSION │ NSW LONG TERM TRANSPORT MASTER PLAN

Contents

1 Executive Summary……………………………………………………………………………………………..3

2 What can a NSW Long-Term Transport Master Plan achieve? ………………………….. 6

3 Setting Transport Infrastructure Performance Benchmarks...................................23

4 Better Integration and Planning …………………………………………………………………………34

5 Better Governance and Regulation…………………………………………………………………….46

6 Lessons for Congestion Charging ……………………………………………………………………….63

7 Public Transport…………………………………………………………………………………………………68



Executive Summary

It is critical that the NSW Government, in undertaking a long term transport master plan, uses the opportunity to give clear and concise commitments to the people of NSW that its passenger and freight transportation task will see a continual improvement over the period of the next 20 years. To do that, there is a need for the Government to do what no other government has been prepared to do in the past, and that is commit to a series of benchmarks that measure the performance of the transport system and report on it every year of the plan. Without clear benchmarks of performance and a concrete commitment to deliver against them, the process of reform will run the risk of being directionless and consume huge resources without knowing if it is for the betterment of the transport system.

Regardless of what Transport for NSW does, if there is an absence of objective performance indicators, then the agency and its actors simply will not know where they are in the process of change. It is imperative that the NSW transport system adopt a clearer minded and purposeful reform process, and anchors its activities day to day and year to year to its objectives and performance metrics. Without these mechanisms, choosing where to invest and in what becomes little more than relying on chance or luck to achieve outcomes. Matters of importance like transport investments conducive to better international competitiveness, improved liveability for the community and enhanced resilience must be central to the reform process.

The SMART Infrastructure Facility recognises and commends the NSW Government commitment to do transport planning better and their acknowledgment of the centrality of the customer in this process. At the same time, Australia and its global city of Sydney is not a large city compared with the major centres of East Asia, and our place within it is not assured. Across nearly all metrics relating to the road, rail, aviation and maritime systems of transport, Sydney has deteriorated in recent decades as the population has grown and the intensity of economic activity increased. Sydney’s high quality workforce that connects us to the world spends more time commuting than ever before, as the system struggles to deal with congestion and lost productivity and amenity.

The Master Plan must build the analytical tools to anticipate and address congestion. In particular, understanding where and when the emerging tipping points of the transport system will be and what can be done to avoid dysfunctional performance is an essential part of the new toolkit needed to manage Sydney for the rest of this century.

Chapter 2 develops the proposition that performance benchmarks are an essential stepping stone to higher levels of accountability in the management of the transport system in NSW. We attempt to start the conversation on this important and sensitive area, and in doing so establish that NSW should set its performance aspirations on at least the levels achieved in OECD equivalent jurisdictions.

The transition to global best performance will take time, and we recognise that policy makers must have clear milestones to know if continuous improvement is occurring and to use these benchmarks to reassure the public that the program of capital expenditure and maintenance are directed and purposeful towards these benchmarks. A number of benchmarks are outlined in the chapter however with a particular emphasis on identifying the key transportation routes across the modes and setting out the travel time



performance improvement that should be achieved at milestones in the 20 year planning horizon.

SMART is calling for the NSW Government to commit to a reduction in road and rail travel times along principle routes by 30 per cent by the end of the 2042. For example, a train journey from Parramatta to Sydney would be complete in 19 minutes (rather than 26 minutes currently), and a car journey from Campbelltown to Sydney Airport in 46 minutes (rather than 63 minutes currently). These are tangible and purposeful objectives that must anchor the Master Plan process as a legitimate and meaningful exercise in the eyes of business and the community.

The importance of better long-term integrated planning is examined in Chapter 3. It is argued that where the community and business experience high quality urban planning there is an increased likelihood to a more positive predisposition for investment, growth and ultimately accommodating larger populations. Larger urban populations coupled with increasing density can reduce the per capita costs of infrastructure services. The Master Plan can be reasonably certain that it will have to accommodate a population of at least 7 million people in Sydney by 2050; leading to 500,000 new jobs, tens of millions of square metres of new commercial space, and a doubling of passenger kilometres travelled each day. The enduring disconnect between transport and urban planning is unacceptable and a root and branch reform is required to achieve a more integrated approach to meet these known challenges.

As a community we must expect a higher level of planning about the future of NSW, and its place in Australia and the world. Chapter 4 examines the five key principles of good governance that should drive all future deliberations of integrated transport planning and management. These are:

i) whole of government planning and coordination; ii) enhanced accountability; facilitated by iii) independent review; iv) increased transparency; and v) better information and analytics as we know very little about the system of

infrastructure, and if a change is in fact an improvement.

The remainder of Chapter 4 is committed to the importance of setting in place a regime and culture for outstanding cost benefit analysis to inform better evidence based decision making. Much needs to be done in NSW in improving the quality and consistency of cost benefit analysis to shift old mind sets and culture and, ultimately, achieve better outcomes.

Congestion is the new tobacco for infrastructure and the Master Plan will need to be front footed in managing it. Chapter 5 sets out the principles and lessons of other jurisdictions in their endeavours to address the impact of congestion and supporting the enhanced performance of the transport system.

Finally, we reflect on the tale of three cities about how Vancouver, London and Zurich all had relatively difficult journeys in planning and delivering on long term transport plans for their cities. The lessons from these cities are set out to inform ourselves and set realistic expectations, however the enduring one for Sydney is that it is important that the community is consulted and engaged in a very meaningful way. The mandate of



governments to change transport systems will always be difficult and Sydney must find its own unique way of managing the winners and losers and also be clear minded on what it will compromise on and what it will not. In the end, it’s always about the trade-offs at play in these cities, and Sydney will need to rise to the challenge of doing the same in a mature, thoughtful and informed way.

Key Recommendations

- Where projects involve large amounts of government funds, say over $100 million, such reviews should be conducted in a transparent manner by national or state auditing offices, the Productivity Commission (if Australian taxpayer money is involved), or IPART.

- As a general target, NSW should aim to have the best public transport system in Australia by 2020, and be in the top five OECD countries by 2025.

Roads

- NSW should commit to a target of increasing average speeds at peak AM and PM times on the 100 busiest arterial roads by 15% by 2022 and a further 15% by 2032.

- Reduce the absolute number of road fatalities and halve the road fatality rate by 2020.

Passenger Rail

- NSW should commit to reducing passenger rail travel trip times by 15% by 2022 and a further 15% by 2032.

- NSW should commit to increasing the frequency of trains per hour on major routes by 10% by 2022, and a further 10% by 2032.

Passenger Bus

- NSW should commit to reducing passenger bus travel times by 15% by 2022 and a further 15% by 2032.

- NSW should commit to increasing the frequency of bus services on major routes, in particular connecting new growth areas to the existing train network, by 20% by 2022, and by a further 20% by 2032.

Active Travel

- NSW should aim to double the proportion of Active Travel (walking and cycling) for trips less than 3 km in each of the next four decades, from around 3 per cent currently to around 50% by 2050. This commitment aims to reduce traffic congestion, improve human health by lowering obesity and reduce energy consumption and pollution.

Rail freight

- NSW must commit to separating the passenger and rail freight network in the Sydney basin as soon as practicable in order to maximise the use of efficient rail freight transport options and reduce road freight on Sydney’s major road transport routes.



Chapter 1 What can a NSW Long-Term Transport Master Plan achieve?

You cannot escape the responsibility of tomorrow by evading it today.

Abraham Lincoln

The NSW Government has released a discussion paper on the development of a long-term transport master plan for the State (Transport for NSW, February 2012).

The discussion paper poses dozens of important questions about the future of transport infrastructure for Sydney and regional NSW in relation to customer (commuter) service, planning, integration of the modes of transport, public transport quality, governance issues, and funding.

The release of a discussion paper has been an important step in developing the Master Plan because seeking input from the wider NSW community is essential to securing widespread and long-term public support. As the COAG Reform Council has noted:

This issue highlights the importance of governments seriously and genuinely engaging the community and stakeholders in strategic planning so that these visions may be durable, should governments change. [COAG Reform Council, 2012, p.97].

The discussion paper defines ‘long-term’ as a ‘20 year challenge’. SMART supports a long-term focus, but considers a 20-year timeframe at the lower end of what would be an effective timeframe for the Master Plan. In SMART’s view, a more appropriate timeframe for establishing the framework and implementation of the Master Plan is 30-40 years, from 2013 to 2050.

This is not to say that every new road, bridge and rail track that needs to be built between today and 2050 should be known today and listed and costed to the last shovel full of gravel in the Master Plan. It would, obviously, be unrealistic to expect the population in 40 years’ time to accept such a detailed plan made today. And it is near impossible to predict transport technology four decades into the future. There are also demographic uncertainties (discussed in Chapter 3). However, what is critical, is to set a clear planning framework for this long timeframe to better manage the existing asset base and subsequent additions to the transport capital stock in an integrated system-wide manner over the next four decades.

The NSW Government has committed to releasing the Master Plan before the end of the year.

The discussion paper is customer focussed in terms of the questions it seeks to answer, which is a subtle, but important and welcome change, in the NSW transport public policy framework. SMART believes that a greater focus on innovation is required to ensure the Master Plan is more soundly based.



The benefits of transport infrastructure

An underperforming transport system means an underperforming economy and a frustrated, time-pressed society. A bad transport system costs time and money. But marginal improvements to the transport system can lead to significant economic and social gains. A healthy transport system is as vital to society as healthy blood vessels are to the human body. But, like medicine, we need to better understand our transport system in order to diagnose and prioritise problems, and find cures.

A key benefit of transport infrastructure, is the reduction in transport costs, largely the result of time saved. Better transport infrastructure, as well as directly benefitting travellers, helps create new markets for goods and services, and realize the benefits of agglomeration. This clustering of businesses fosters competition, spurs innovation, lowers prices and raises productivity, leading to an increase in living standards.

That said, the benefits from transport investments need to be large to exceed their often enormous costs. But if done right, infrastructure investment can improve the economy and benefit NSW’s residents. On the other hand, there is also the potential for massive waste. If done wrong, infrastructure investment could weaken the economy rather than improve it.

Unfortunately, infrastructure investment in Australia has often failed to maximise social benefits, or even generate benefits that exceed its costs. The influence of special interests in the political process can tip the political scales in favour of bad projects.

We must remember that, even though Australia is a rich, developed country, it is by no means immune from getting poor or negative returns to public or private infrastructure investment.

SMART welcomes the opportunity to submit to the discussion paper.

Asking the right questions

Why does NSW need to plan its transport infrastructure requirements so far into the future? Why is it better to plan than to react to the immediate needs of the community? After all, community needs and transport preferences are unpredictable and subject to unknown future demographic, economic and social development. There is, therefore, potentially an enormous cost to investing billions of dollars of today’s resources in transport infrastructure that either may not be required in the future or not suit future transport preferences. How can we ensure that taxpayers get value for money, well into the future, from investment decisions made today? How should these large investments be funded – taxpayer or directly user-funded?

The answer to the overarching question, ‘what can a long-term transport master plan achieve?,’ comprises the basis of this submission.



SMART Infrastructure Facility │ Addressing the challenges of the future

Infrastructure in our cities and regional areas, both public and private, faces serious challenges.

There are competing calls for new infrastructure; congested ports, roads and railways stations; stressed energy and water systems; agreed needs to reduce carbon emissions; and shortcomings in how projects and systems are being procured, implemented and managed. There is an urgent need to respond to the increasing volatility of our modern times, make better use of the existing infrastructure and undertake long term planning of these vital systems.

With such a line up of risks and demands there is an obvious and critical need for research into how infrastructure systems and society’s players interrelate and connect.

To address this matter of national significance funding was provided by both the Australian Government ($35M) and NSW RailCorp ($10M) to establish SMART. SMART has set out to provide the research, knowledge and tools required for executing evidence based public policy and investment decision-making.

Our aim is to be a relevant and compelling intellectual partner in the development of infrastructure in Australia and abroad. SMART has established Australia’s first Professorial chairs in infrastructure governance, infrastructure systems, infrastructure modelling and simulation, and appointed a professor of infrastructure economics.

A modern and sustainable four storey facility has been established at the University campus, housing 30 integrated laboratories, simulation and modelling hub, rail logistics research centre and 200 higher degree research students. SMART is one of the largest facilities of its type in the world.

SMART is working collaboratively with all the University of Wollongong’s faculties, ranging from engineering to law. That collaboration takes the form of various endeavours from joint academic research to the placing of higher degree research students from various faculties into the SMART Infrastructure Facility.

Our infrastructure modelling, simulation and visualisation capabilities are assisting industry and government organisations to better understand their planning and management options.



What is Transport Infrastructure1?

Transport infrastructure is defined as relatively long-lived physical assets such as the road network (including bridges and tunnels), the rail network used for freight and passenger rail transport, shipping ports and airports, that provide the means or physical support on which most economic and social activities rely. A second common characteristic of transport infrastructure is that any addition to the existing stock is expensive, potentially costing in the hundreds of millions or billions of dollars. Third, although investment projects typically focus on individual links, their consequences depend on how they affect what is a highly meshed transport network, making assessment of those wider effects crucial to rational decision-making.

Despite these characteristics, investing in transport infrastructure is no different to investing in any other physical asset. Ultimately, it is a cost like any other, even though the stream of benefits generated by that investment is exceptionally durable. There is no virtue in having more infrastructure rather than less; rather, the crucial issue is that the costs associated with infrastructure be incurred efficiently, that is, in a way that maximises the net benefits they provide to society. This requires efficiency in the selection of infrastructure projects, in their financing, deployment and operation, and where user charges are imposed, in the level and structure of those charges (see chapter 4 of this submission for further discussion).

It is crucial to get transport infrastructure investment right because, generally, market forces cannot by themselves repair incorrect decisions. Many transport assets are extremely expensive and difficult to replicate by the private sector (for example, tunnels and bridges). Some assets are natural monopolies (for example, some geographically isolated ports or the public road network).

This means that any under-investment (or over-investment for that matter) in transport infrastructure does not self-correct via market forces: alternative sources of supply will not develop, or develop efficiently, if the existing supplier (i.e. the State Government) is prevented (by a lack of funds for example) from engaging in timely and efficient capacity expansion. The resulting bottlenecks are therefore likely to impose particularly severe constraints on economic growth, such as congestion.

1 This discussion is based on Ergas (2011), Better Use Measures, Infrastructure Funding and Project Prioritisation, SMART Infrastructure Facility, University of Wollongong.

The infrastructure task in NSW today

NSW is Australia’s largest state by population and economic output. Its capital Sydney is a mid-sized global city of 4.5 million people. Sydney’s importance is derived from its position as Australia’s largest city and the ninth largest city in the South-East Asian and the South-Western Pacific region, as the NSW State capital, a significant global gateway for trade and tourism, and a sporting and cultural capital in the Australasian context.

The growth of Sydney to a global gateway

Without Port Botany and the rail freight network, the Sydney International Airport, the Sydney Harbour Bridge and the motorway network, Sydney could not be the size it is today nor carry the economic and cultural significance that it has in its region or globally.



Sydney has grown into its role fairly consistently over the past 100 years, although with significant transport infrastructure projects allowing capacity and productivity to reach ever higher levels.

At Federation, NSW was Australia’s largest state by population and Sydney Australia’s largest city1. But Melbourne was unarguably Australia’s most important city. In Australia’s first decades Melbourne boasted a larger population than Sydney, was home to the Australian Parliament and Government, and managed the largest share of Australia’s international trade through the Port of Melbourne. At least until the Melbourne Olympic Games in 1956, Melbourne was considered to be Australia’s greatest city and the gateway to the world.

How did Sydney catch up and then overtake Melbourne? The short answer is via the provision of significant and productive transport infrastructure capacity such as the Sydney Harbour Bridge and Port Botany.

In 1901, the horse was still the main form of transport for both people and freight in Sydney. In fact, horse manure was a major health problem in Sydney and many inner city suburbs were rife with disease and even suffered from outbreaks of plague. Australia had 2.5 million horses by 1918, and there were quite possibly more horses than people in metropolitan Sydney in the first decade of the twentieth century. At Federation, the John Sands Sydney Directory listed 122 retail saddlers and harness makers, 211 coach, carriage and buggy proprietors, 114 coach builders, and 51 livery stables2.

From Federation until the Depression, Sydney relied primarily on ferries to get across the Harbour. For example, by 1904 ferries were carrying 19 million passengers each year. By comparison, 131 million passengers were carried by tram and 30 million by train. The use of ferries reached a peak in 1927, by then carrying 47 million passengers annually. With the opening of the Sydney Harbour Bridge, ferry traffic fell rapidly to 20 million annually. Private and public bus, and tram patronage increased dramatically following the opening of the Bridge in 19323.

Sydney grew steadily after 1945 adding suburbs in the west and south-west along the Hume and Great Western Highways. Expansion also continued along the Great Western Highway towards Penrith. By 2000, when Sydney hosted the Olympic Games, the NSW capital had become an economic and cultural powerhouse in South-East Asia and the South-Western Pacific and the centre of trade, financial services, government, culture and sport in the state of NSW.

NSW suffered a post-Olympics slump and spent most of the first decade of the twenty-first century in the economic slow lane compared with the other ‘big four’ states of Victoria, Queensland and Western Australia (Table 1.1).

1 The 1901 census enumerated the population of NSW and Victoria at 1.4 million and 1.2 million respectively.

The most common estimates of the populations of metropolitan Sydney and Melbourne in 1901 are between 450,000 and 500,000.

2 http://www.boardofstudies.nsw.edu.au/archives/ozid/federation1901_4.html 3 This discussion draws on NSW Board of Studies material, accessed at:

http://sydney-harbour-bridge.bos.nsw.edu.au/

http://www.boardofstudies.nsw.edu.au/archives/ozid/federation1901_4.html

http://sydney-harbour-bridge.bos.nsw.edu.au/



Between 2000-01 and 2010-11, the NSW economy expanded by $77 billion, or 22 per cent, well below long-run trend growth. This expansion compares poorly to the expansions in Queensland ($84 billion, 50 per cent), Victoria ($80 billion, 35 per cent), and Western Australia ($68 billion, 57 per cent). Overall, the Australian economy expanded by $345 billion over the decade, or by 35 per cent.

In part, slower growth in NSW reflected a hangover from the pre-Olympics infrastructure investment in the 1990s. A broader reason was the convergence of per capita income levels within Australia, aided by the removal of barriers to interstate trade in the late 1980s and 1990s4.

As well, the mining boom expanded opportunities in Queensland and Western Australia, encouraging the flow of resources to those states. But NSW Government policies also played a part, acting to restrict economic expansion in the Sydney basin during the first decade of this century. It can be argued that, as a result of NSW Government policies in relation to infrastructure during this decade, constraints in transport and energy infrastructure began to bind as the decade advanced.

Table 1.1 Comparison of decade-average State and Territory GSP growth rates, 2000-01 to 2010-11

Source: ABS 5220.0, Table 1.

Nevertheless, in September 2007, Sydney proudly hosted the APEC Leaders meeting, attended by the American, Chinese and Russian Presidents, and several other heads of state and government. The political and security decision to host the Leader’s Meeting in Sydney was partly driven by logistics. The fact was that there were (and still are) critical infrastructure limitations in the nation’s capital Canberra – most notably at Canberra’s small domestic airport and in the quantity and quality of 5-Star hotel accommodation services to securely host 21 world leaders and their enormous entourages.

4 Although free trade between states is a cornerstone of the Australian constitution, many factors acted to

prevent more interstate commerce prior to the 1990s, such as the high cost of air transport, the poor condition of national highways (often winding single lane tracks outside of major cities), binding constraints on interstate electricity interconnectors, and relatively limited credit availability preventing costly interstate migration.

0

10

20

30

40

50

60

WA QLD NT VIC ACT SA TAS NSW

State and Territory decade average GSP growth rates,

%



The previous year, in 2006, Melbourne hosted the G20 meeting of Finance Ministers and Central Bank Governors. This meeting was a logistical success and similar in scale, if not importance, to the APEC Leaders Meeting. The choice of Melbourne may have been the result of the fact that the then Treasurer Costello’s home town is Melbourne. However, the choice of Sydney to host the APEC Leader’s Meeting was probably more to do with Sydney’s status as Australia’s leading city than the fact that the Prime Minister’s home town was Sydney.

Sydney in global and regional context

Over the past decade, Sydney has consistently rated in various lists of the top ten most liveable cities in the world. Criteria generally includes the quality of the private and public transport system, as well as safety, hygiene, culture, environment, recreation and political stability. Cities in Sydney’s peer group in terms of liveability include Melbourne, Helsinki, Geneva, Vancouver, Vienna, Zurich and Toronto.

Metropolitan Sydney covers an area of about 2,800 square kilometres. Geographically, Sydney is a large city for its population size by world standards. A plausible candidate for the ‘centre of Sydney’ could be the industrial and freight distribution hub at Wetherill Park adjacent to the Prospect Reservoir, which is about 30 km from Penrith in the west, Richmond in the north-west, Campbelltown in the south-west, and about 35 km to Long Bay (near Port Botany) in the south-east.

Although not technically a ‘conurbation’, the proximity of Newcastle and Wollongong (including their ports) add to Sydney’s economic productivity by reducing costs (via economies of scale) in transport and utility (electricity, gas and water) services. More than three-quarters of the NSW population (around 5.5 of 7.4 million people) live within the triangle made by connecting Newcastle and Wollongong via Sydney’s coastal edge, and Penrith on Sydney’s western edge at the base of the Blue Mountains. The ‘height’ of this triangle, or the distance between Glenmore Park and Vaucluse, is about 70km. The base of the triangle, the distance between Newcastle and Wollongong, is about 185 km. The area of the triangle is 6,500 square kilometres.

In terms of population, Sydney is not a large city by world standards, coming in at about 50th in terms of the metropolitan (or ‘built-up’) population. Compared with Asian cities to the north, Sydney is dwarfed by the mega-cities of Jakarta, Hong Kong, Seoul, Tokyo, Shanghai and Beijing.

Table 1.2 illustrates that Sydney is not a particularly large city in the South-East Asian and South-Western Pacific region. The two dominant cities, measured by built-up metropolitan area, are Jakarta and Manilla with populations in excess of 20 million residents. A further six cities in ‘our region’ are also larger than Sydney, including Bangkok, Thailand (8 million) and Kuala Lumpur, Malaysia (7.2 million).

Undoubtedly, Sydney is a significantly richer and more amenable city than these megacities to the north. However, this may not always be the case and will depend on several factors including the quantity and quality of transport infrastructure investment over the coming decades.



1.2 Largest Cities (metropolitan areas) in South-East Asia, above 1 million residents

Rank Metropolitan Area Estimated Metropolitan

Population

1 Jakarta, Indonesia 21,000,000

2 Manila, Philippines 20,000,000

3 Bangkok, Thailand 8,000,000

4 Bangdung, Indonesia 7,414,560

5 Kuala Lumpur, Malaysia 7,239,871

6 Ho Chi Minh City, Vietnam (Saigon) 6,700,000

7 Hanoi, Vietnam 6,500,000

8 Surabaya, Indonesia 5,622,259

9 Sydney, Australia 4,541,849

10 Yangon, Myanmar (Rangoon, Burma) 4,348,000

11 Singapore 4,200,000

12 Medan, Indonesia 4,144,583

13 Melbourne, Australia 4,079,629

14 Cebu, Philippines 2,619,362

15 Davao City, Philippines 2,274,913

16 Phnom Penh, Cambodia 2,234,566

17 Brisbane, Australia 2,047,105

18 Haiphong, Vietnam 1,884,685

19 Perth, Australia 1,718,645

20 Johor Bahru, Malaysia 1,463,800

21 Palembang, Indonesia 1,535,592

22 Auckland, New Zealand 1,486,000

23 Makassar, Indonesia (Ujung Pandang) 1,334,090

24 Adelaide, Australia 1,205,529

memo

Wellington, New Zealand 393,400

Canberra, Australia 361,814

Port Moresby, New Guinea 307,643

Newcastle, Australia 288,732

Hobart, Australia 218,657

Wollongong, Australia 205,847

Dili, Timor Leste 193,563

Townsville, Australia 191,329

Cairns, Australia 150,920

Darwin, Australia 131,209

Sources: ABS 3222.0, United Nations Population Information Network, and Wikipedia. Note: South-East Asia and the South-Western Pacific is defined as including Australia, New Zealand, PNG, Fiji, Western Samoa, Tonga, New Caledonia, Philippines, Vietnam, Laos, Cambodia, Myanmar (Burma), Thailand, Malaysia, Singapore, Timor Leste, Brunei and Indonesia. The definition excludes Taiwan, China (Hong Kong) and Bangladesh.



The stock of transport infrastructure in NSW

The stock of transport infrastructure in NSW includes the state and local government road network, the federal highway network, the passenger rail network, the rail freight network, the ports and airports. The NSW taxpayer owns most of the public road and rail networks across the state. The Australian taxpayer shares funding responsibility for federal highways.

The National Accounts provide estimates for capital stock by industry, for the whole country. Unfortunately, the State Accounts do not provide similar capital stock estimates. Table 1.3 shows the estimated national capital stock for the Transport, Warehouse and Postal industry. At year-end 2010-11, the capital stock in this industry was just under $330 billion.

Table 1.3 Australian Transport, Warehouse and Postal Capital Stock (year-end)

Year $ billions Description

2009-10 (year-end) 316,541 Year-end capital stock

2010-11 31,700 Investment (GFCF)

2010-11 18,690 Consumption (Depreciation)

2010-11 (year-end) 329,551 Year-end capital stock Source: ABS 5204.0, Table 58. Note: GFCF is Gross Fixed Capital Formation, meaning investment.

Based on this data, a first-pass estimate of the transport capital stock in NSW, based on an allocation of state GSP shares (ie. state shares of GDP), can be made. In 2010-11, the NSW share of national GDP was 32 per cent, implying a transport, warehouse and postal capital stock of $105 billion. However, this estimate may not be accurate because states have different transport capital requirements depending on geographic size and industry structure.

Based on total road length relativities across the states (i.e. using road length as an allocator), the estimated share of the national capital stock would change, with NSW having a lower share relative to its GSP because of the longer road lengths required in Queensland and Western Australia to serve larger geographic areas.

Based on AustRoads data (Road Facts 2005), NSW share of total Australian paved road length is 22%, which is equal to Queensland’s share. AustRoads estimates Victoria’s share at 19 per cent and Western Australia’s share at 18 per cent. Based on this information, the value of the NSW transport capital stock is estimated to be around $73 billion. However, this figure is well below the sum of publicly available estimates of the transport infrastructure capital stock in NSW (see Table 1.4).



Table 1.4 Replacement value of NSW transport infrastructure

Transport Mode Stock

Value of the stock of transport infrastructure

($b)

(estimate)

Public road network

(including value of land under roads)

180,000 km of roads

Of which:

Local 160,000 km

State 13,500 km

National 4,300 km

5,000 bridges

22 tunnels

86.0

Passenger rail network

(SYD-NEW-WOLL)

3,300 km track

1,700 carriages

Over 300 train stations

1 million passenger journeys/day

12.5

Rail freight network 6,300 km track 7.0

Ports 4 large ports

2 regional ports 10.0

Inter-modal freight terminals

5 1.0

Total (estimate) - 116.5

Source: RMS, SMART estimates.

What is the return we get for the stock of transport infrastructure assets?

It is important to recognise where Sydney stands today in terms of the efficiency of the transport network, in order to develop plans for Australia’s largest and most significant city across the coming decades.

Road network

Based on RTA data, average morning peak speeds in Sydney have generally declined (worsened) over the decade, although there was a marginal improvement in 2009 and 2010 to 31 km/h across the seven routes from a decade low average of 30 km/h in 2007 and 2008. The low point in 2007 and 2008 is driven by significant slowdowns in the M5/Eastern Distributor, from 44 km/h in 2006 to 34 km/h in 2008.



Table 1.4 Morning Peak speeds in Sydney, 2004 to 2010

Morning Peak Speeds (km/h)

2004 2005 2006 2007 2008 2009 2010

F3/Pacific Highway/F1 39 35 38 35 35 35 34

M2/LCT/Gore Hill Freeway

36 34 36 38 31 36 40

M4/Parra Rd/City W Link

33 32 31 25 28 29 28

M5/Eastern Distributor 45 39 44 40 34 41 35

Pittwater Rd/Military Rd/F1

28 27 25 27 26 26 25

Princess Highway 31 28 28 28 28 30 31

Victoria Road 29 22 23 22 23 21 26

Combined seven routes

34 31 32 30 30 31 31

Source: RTA (2008 and 2011).

SMART examined average commute times in Sydney and London utilising the real-time Google Maps traffic applications. The average speed study is based on morning peaks, for the whole trip not just average speeds on major arterial roads, with commutes averaging 60 km across 12 trips, with individual trips ranging from 10 km to 180 km.

Based on this analysis, average commute speeds for Sydney, for trips generally into Sydney Airport or the CBD, was 40 km/h for the average trip length of 60 km. Average London speeds were, on average, 54 km/h for the same average trip length of 60 km. Based on this analysis, London morning peak speeds are 35 per cent faster than Sydney morning peak speeds (Tables 1.5 and 1.6).

Table 1.5 Sydney morning peak

Source: Google Maps and SMART analysis.



Table 1.6 London morning peak

Source: Google Maps and SMART analysis.

International data can be difficult to compare as standard methodologies differ across countries. A study by Texas A&M University compared average traffic speeds in US cities by freeway and arterial road. Freeway speeds across mid-size and large US cities ranged from the mid-60 to mid-70 km/h. Expectedly, arterial road speeds were lower and range between 40-45 km/h. Despite methodological differences, it would seem that US city traffic speeds are higher than in Sydney (see table below).

Table 1.7 US Cities traffic speeds, Texas A&M University estimates

HILDA data (Household Income Labour Dynamics Australia) indicates that Sydney workers spend more time commuting than workers in other Australian capital cities and the situation in Sydney is worsening over time. For example, in 2002 the mean commuting time for a full-time worker in Sydney was 5.4 hours per week, or 32.4 minutes per trip to and from work. By 2006, the mean commuting time had increased to 5.8 hours per week, or 34.8 minutes per trip. While some of this increase may be the result of people changing to a more distant job or home, most of the increase is likely to be caused by increased congestion.



While the increase of 2.4 minutes per trip does not, at first, seem alarming, when multiplied over the millions of trips taken daily in Sydney, it is plain to see that the cost of additional travel time could be in the tens of millions of dollars annually.

Table 1.8 Mean commuting times of full-time workers by location (hours), HILDA data

Source: HILDA.

AustRoads compiles weighted aggregate speed data for a sample of arterial roads and freeways in the major Australian cities and publishes the data by state. Figure 1.1 illustrates the morning peak speeds across states from 1998-99 to 2008-09. The data reveals a clear worsening trend in traffic speeds in Australia’s major cities over the decade. NSW began the decade is last place and finished the decade in last place, showing no relative improvement in traffic speeds compared with other states.



Figure 1.1 Australian states weighted aggregate speed for sample of arterial roads and freeways in major cities (km/h) - morning peak

Source: Austroads.

Passenger Rail trip times

A sample of Sydney passenger rail commute times were sourced from the CityRail timetable (see Table 1.9 below). The times are ‘as scheduled’ or the ex-ante times that presume no stoppages due to maintenance failures or other problems. SMART has found that, on average, Sydney rail journeys are 4 km/h faster than road times, saving commuters a little over 2 minutes on an average 30 km journey.

However, this analysis does not account for walking or driving time from home to station and from station to work, potentially adding another 10-30 minutes to the commute, nor does it take account of the constraints imposed on travellers by rail schedules (which may not align with their preferred travel times). These considerations can often make rail travel a poor option in terms of time for many commuters. And it hardly needs saying that all public transport commuters value their time.



Table 1.9 Sydney passenger train travel, morning peak

Source: CityRail and SMART analysis.

The most significant transport infrastructure issues in Sydney in 2012

Most Sydneysiders of 2012 would agree that Sydney suffers from chronic and increasing congestion, particularly at the entry points into, and out of, the CBD and Sydney Airport.

Some studies (BITRE 2007) have estimated the economy-wide cost of Sydney’s traffic congestion at $3.5 billion a year (2005 estimate) and this figure is predicted to grow to $7.8 billion by 2020 if present infrastructure is not better managed and new infrastructure well integrated5. BITRE estimates the ‘avoidable’ cost of congestion, where the net costs of congestion are positive. Clearly, some amount of congestion would be, overall, beneficial to society since the infrastructure cost of completely eliminating congestion would be excessive.

Based on these congestion cost figures, most Sydneysiders would likely argue that there is a clear case for increased spending on infrastructure.

While the case to tackle congestion might be clear to the commuter heading into the CBD at the Monday morning peak, it is far from clear where to allocate the next billion dollars in an attempt to reduce the economy-wide costs of congestion.

The options to address Sydney’s chronic congestion are numerous. Sydney’s Eastern Distributor (the M1), the M5 East Motorway and the Concord to Lapstone section of the Western Distributor (the M4), are all congested 13 or more hours a day (RTA).

5 For comparison, BITRE (2007) avoidable congestion cost estimates for Melbourne ($3.0 billion in 2005;

$6.1 billion in 2020), and Brisbane ($1.2 billion in 2005; $3 billion in 2020) we lower than Sydney.



Moreover, most of the main Sydney links – the Harbour crossings, the M5 and the M5 East, Southern Cross Drive and the M7 – average over 20,000 vehicles per lane daily, which is close to or exceeds theoretical carrying limits, and other major links (such as the Eastern Distributor, the M2 and the M4) are not far behind. Yet projections (again, controversial) are that traffic on the M5 will double by 2031, while traffic generally in the Sydney area will rise by around 80 per cent (Ergas 2012).

Themes of SMART’s submission

SMART has explored five primary themes in this submission. The five themes are:

- Infrastructure performance benchmarks, transparency and accountability (chapter 2) - Integrated networks and planning (chapter 3) - Infrastructure governance, regulation and economic efficiency (chapter 4) - Congestion pricing (chapter 5) - Public Transport (chapter 6)

All of these themes are directed towards answering the overarching question – what can a long-term transport master plan achieve?

SMART submits that the overarching objective of the NSW Long-Term Transport Master Plan should be to contribute to the maintenance and improvement of the quality of life of NSW residents. Ideally, government spending on transport infrastructure should promote the public interest. Infrastructure investment is a vital determinant of our state’s productivity and, ultimately, the standard of living of its residents. Choosing how to use limited resources; how much to spend on infrastructure and how to spend it, is no easy task for governments. Investment options tend to involve complex forecasting and funding issues, long planning horizons, inherent risk, and conflicting interests.

In other words, at SMART, we believe that the Master Plan must be about finding ways to ensure that the marginal transport infrastructure dollar is more wisely invested, based on reliable infrastructure benchmarks, integrated network-wide planning, and a consideration of economy-wide wellbeing and customer needs. A unified strategic plan is essential to integrate the often disparate road, passenger rail and rail freight, and port strategies with population growth forecasts and land use planning.

A related but secondary objective should be to maintain and improve Sydney’s status as a global city and an Asian economic, political and cultural powerhouse, so long as the first objective is not compromised by the second. In practice, achieving the first objective is an excellent way of promoting the second.

Table 1.8 sets out the concordance between questions raised in the Transport for NSW discussion paper and SMART’s submission.



Table 1.8 Concordances between Discussion Paper and SMART Submission

Discussion Paper questions SMART Themes Section in this

submission

What should the Master Plan be trying to achieve?

All themes All chapters

The 20-year infrastructure challenge

Integrated networks and planning Chapter 3

Sydney Integrated networks and planning

Public Transport

Chapter 3

Chapter 6

NSW regions - -

Freight transport Port Botany Chapter 3

Chapter 4

Funding issues Economic efficiency, funding &

pricing Chapter 4



Chapter 2 Setting Transport Infrastructure Performance Benchmarks

An efficient and extensive transportation system reduces the cost of nearly everything in the economy and enhances the trade, industry, labor, and urban sectors, which greatly enrich the standard of living in modern society. By increasing frictions, however, an inefficient transportation system – just like poorly functioning financial institutions – can cause economic activity to collapse.

Winston (2011)

An efficient and extensive transportation system reduces the cost of nearly everything in the economy and enhances the trade, industry, labor, and urban sectors, which greatly enrich the standard of living in modern society. By increasing frictions, however, an inefficient transportation system – just like poorly functioning financial institutions – can cause economic activity to collapse. Winston (2011)

How would we know if the NSW transport system, both as a network as well as the compartment transport modes of road, rail, ferry and air transport, is improving and to what target. How would we know whether the stock of transport infrastructure is at the right level? Or whether the administering government bureaucracy is the right size or shape? In SMART’s opinion, the Master Plan should address these issues.

The concept of economic efficiency relates to how society uses scarce land, labour and capital resources to best maximise community wellbeing6. In relation to government expenditure, efficiency is generally about achieving value for money on behalf of the taxpayer. Its achievement relies on carefully assessing the costs and benefits of public expenditure, on a project by project basis.

The theme explored in this chapter is that it is less likely that economic efficiency, or taxpayer value for money, can be achieved without knowing a great deal about the inputs (land, labour, capital) and outputs (km travelled, time taken per trip), and the resulting costs (expenditure) and benefits (reductions in congestion costs, value-added of goods and services transported), of transport infrastructure at a network or system-wide level.

It is certainly true that there is voluminous published time series data on road and rail infrastructure (both stock and flow measures), trip times for private and public transport by route, freight network data etc. But how these data are compiled and interpreted in an integrated system is critical to the quality of analysis of the NSW transport system. Ultimately, the question for state treasurers and transport ministers should be where to spend the next (or marginal) infrastructure dollar to maximise community wellbeing.

6 Economic Efficiency is discussed in detail in Chapter 4 of this submission.



This question cannot be answered without both a ‘helicopter’ and ‘grassroots’ view of the transport system. Good information, reasoning and analytics, therefore, are vital to achieving efficiency in the provision of transport infrastructure.

We feel that a dashboard of key infrastructure benchmarks can benefit politicians, policy-makers, industry players and academics to maintain a consistent focus on agreed long-term objectives using a consistent language.

Only with better metrics comes improved learning about the transport system. Only with better benchmarks can we define and agree on the problem we are trying to solve before undertaking often complex modelling and policy development.

Good benchmarking also requires an understanding of the needs and values of multiple communities of interest so as to keep all stakeholders engaged. Research needs to be developed in line with common and agreed national, state and local priorities.

A lack of coherent system-wide datasets is a real impediment to the advancement of transport infrastructure knowledge and intelligent planning in NSW and Australia more generally. The advantages are numerous and significant and include, for example, the potential to develop a better understanding of asset management or to better understand the characteristics of the Sydney commuter.

SMART recommends that this important work should be undertaken collaboratively and, at least initially, some of the more data intensive work is often best undertaken by independent academic research bodies away from the day to day hustle and bustle of government departments.

From benchmarks to accountability

Setting transport benchmarks for NSW is one thing; holding government agencies and, ultimately, politicians to account, is another. Experience in the field of economic regulation has shown a general resistance within government to subject government policies to regulatory impact statements and rigorous cost benefit appraisal. But where some independent review has been applied, policies have been better at achieving the government’s objectives for a minimum use of scarce community resources. No less important, rigorous, public and transparent evaluation helps avoid the worst mistakes: Sydney’s Cross city Tunnel contract, for example, would have faced greater obstacles had proper evaluation of that contract been in the public domain. And last but not least, it can assist in resisting the pressures that come from rent-seekers and from self-serving demands.

There needs to be a movement towards greater accountability in transport infrastructure investment and performance but this cannot happen until better system-wide benchmarks are developed and agreed to by all stakeholders.

Having agreed benchmarks against which governments hold themselves accountable, means a more results (outputs) oriented system, rather than the current input-focussed system featuring, for instance, multi-billion dollar announcements that simply assume they will solve congestion or other transport problems.



Better data, a better market

SMART believes the NSW Government must do more to actively and explicitly shape the infrastructure market according to its public policy objectives. For instance, the NSW Government can do more as a ‘market maker’ meaning that it can enhance efficiency via better connecting market agents, acting as an information broker, which increases information efficiency in the same way that higher liquidity levels can lower transactions costs in financial markets. In this way, more and better information will assist in the creation of a more durable NSW transport infrastructure market.

What this means in terms of government action is to commit to a detailed and fully-funded long-term transport infrastructure plan, rather than just project lists, and articulate strategic and enduring objectives for NSW transport.

For Government that means:

- Establishing transport infrastructure benchmarks

- Committing to a long-term infrastructure plan, not just project lists

- Articulate strategic and enduring objectives

- Define infrastructure by outputs not inputs

Together these will help shape the culture and behaviours of the infrastructure market with much greater clarity and support a deeper engagement from all actors in the infrastructure market, particularly from private sector funding pools.

Sanctions

SMART supports specific sanctions if transport benchmarks are not achieved.

For government, the ultimate sanction is the ballot box. For this sanction to work, voters must be informed. All transport metrics and benchmarks must be made publicly available.

For the private sector, financial penalties for non-performance must become the norm for public-private partnerships, so that risk is shared more appropriately between the private sector and the NSW taxpayer (discussed further in chapter 4).

SMART Benchmarks

SMART recommends that the NSW Government set accountable benchmarks to the achievement of international best practice in private and public transport and freight transport. In other words, the role of public administration needs to be about more than just identifying good performance benchmarks, the system needs to perform to those benchmarks.

Future NSW governments must be prepared to clearly articulate the ‘required outcomes’ of transport infrastructure. These objectives must be strategic, high level, enduring for decades ahead, insightful and anticipate customer needs.



For example, the Sydney passenger rail network will be at peak saturation in 2012-2013. How we deal with this problem is dependent on the benchmarks that we set for ourselves in the long-term. Is the 90 minute train trip from Wollongong to Central Station good enough, or should we aim to cut that time by 50% to 45 minutes? And if so, by when should this objective be achieved?

Another example relates to passenger and freight transport. NSW needs to continue to work towards the separation of freight and passenger services within NSW, so long as economic and social benefits exceed costs. The separation of the freight and passenger tasks can potentially increase the rail freight market share in the Sydney conurbation by between 30-50 per cent. But without a clearly articulated benchmark for rail freight and a deep understanding of the system-wide impacts of rail freight bottlenecks, we can’t be sure why, when or how this objective should be achieved.

A final example relates to Active Travel. In SMART’s opinion, the NSW Government should target an ambitious share for Active Travel (cycling and walking) among transport modes. This is where innovation and enterprise of the community can be important in finding low cost solutions to the so called ‘last mile’ problem of infrastructure provision. Targeting a doubling of the share of Active Travel for trips under 3 km in each of the next four decades from the less than 4 per cent proportion today. Importantly, this target will need to be supported by increased investment and maintenance of a safe and efficient city-wide active travel network and appropriate metrics and benchmarks with which to measure success. It would be impossible to pursue this objective without the appropriate metrics and benchmarks to engage the community and government in an open and transparent debate as to the costs and benefits of supporting more Active Travel.

A dashboard of transport benchmarks

SMART has developed a dashboard of proposed transport metrics to function as benchmarks for the NSW transport system. We believe that a publicly available suite of performance benchmarks, committed to by successive NSW governments and widely available as an easy-to-read dashboard, would contribute significantly to advancing transport infrastructure policy in NSW.

SMART will commit resources to developing a transport infrastructure dashboard to promote transparency and forward-planning in transport.

The NSW Government already publishes an extensive array of data on transport performance. The extracted tables below illustrate some of the information available to commuters, industry and government.

The first figure is an extract from RMS and shows trip times and average speeds on major NSW arterial roads across the AM and PM peaks. This data is published quarterly. The second figure is also an extract from RMS (RTA) and shows the top ten (of one hundred) busiest roads in NSW that the government is specifically targeting to improve performance.



Figure 2.1 Trips times on major NSW roads, RMS data

Figure 2.2 Top ten busiest roads in NSW, RTA (now RMS)



While all of the data produced by NSW government agencies is useful and, indeed, essential, this does not go far enough. These metrics need to be transformed into target benchmarks so the NSW transport policy has a vision and a pathway to improved productivity.

Tables 2.1 (Road benchmarks), Table 2.2 (Rail benchmarks) and Table 2.3 (Bus benchmarks) summarise SMART’s proposals for transport benchmarks against which government agencies, politicians, private sector providers and, ultimately, the NSW community should measure the success of transport policy.

On all measures, an overriding aim is that NSW should be the leading state in Australia by 2020, and by 2025 achieve the average of the 5 best OECD countries on each measure.

The focus of the benchmarks in the tables below is on transport infrastructure delivering better outcomes in support of the NSW economy and community wellbeing. Higher operational (productive) efficiency is a key focus.

The mode-specific measures focus on four key elements: attractiveness, efficiency, quality and safety.

The attractiveness of travelling is very important to commuters. Travel is a universal lifestyle activity and its attractiveness should reflect the current living standards, not the lifestyle of 20 or 30 years ago for example. In relation to public transport, the more relevant and attractive the mode and ease of switching between modes, the more modal shift may occur.

Efficiency is the absolute key to controlling infrastructure costs. Getting the most out of the existing stock of infrastructure is the first step towards the transport sector fostering higher living standards. Efficiency benchmarks are aimed at increasing productive efficiency, reducing per capita or per km travel costs. Efficiency is particularly important in the context of the current, mainly taxpayer, funding model. There is considerable political reluctance to decrease the significant subsidy to public transport, which constrains large additional capital expenditure.

An effective and efficient rail system is the priority for improving public transport in Sydney. However, capital and operational effectiveness needs to be significantly improved so that the quality of service delivery and price can compete with the car.

There is a need for clarity of strategic purpose for public transport authorities that is about the customer and that they expect the system to accommodate and work with (not against) the private motor vehicle.

Improved service quality focuses on improving system reliability whether on roads, rail or buses. The benchmarks here look to reduce failure rates such as road closures, cancelled trains and broken down buses.

Ensuring high levels of safety is an absolute pre-requisite for advanced developed societies. Transport safety levels in NSW transport should aim to be the best in the world in terms of the lowest number of fatalities and serious injuries caused by system breakdown.

These benchmarks aim to introduce the concept that Australia should try to achieve performance equal to the average of top tier OECD countries.



We have kept the number of benchmarks to a minimum because having a large number of measures and developing measures to high granularity often works against improvement as it increases the ability avoid the really tough improvements.

Table 2.1 Proposed System-Wide and Road Benchmarks

Performance Measure

Road Key Performance Indicator Benchmark

Attractiveness Average speed

Travel time

- Increase the average speed of the 100 busiest roads in NSW, at peak, by 15% in ten years (2022)

- Increase the average speed of the 100 busiest roads in NSW, at peak, by a further 15% in twenty years (2032)

Quality Ride quality - Decrease proportion of roads in poor condition by 10% by 2020

Target lowest proportion of poor roads in country

Efficiency Value for money - Increased capital or operating expenditure improves attractiveness, quality and safety metrics against benchmarks

- Efficacy of modal interchange (ease of switching between modes whether by distance or time)

Road safety Fatalities and serious injuries - Reduce the absolute number of deaths per year

- Halve the fatality rate by 2020 (deaths per 100,000 trips)

- Target top 5 OECD countries



Table 2.2 Proposed Rail Benchmarks

Performance Measure

Rail

Key Performance Indicator

Rail

Benchmark

Rail

Attractiveness Travel time

Average Speed

- Rail trip travel times, at peak, to decline by 15% in 10 years (2022)

- Rail trip travel times, at peak, to decline by a further 15% in 20 years (2032)

Frequency - Increase number of trains per hour by 10% by 2022

- Increase number of trains per hour by a further 10% by 2032

Quality Reliability - Reduce failures per passenger km by 20% in 10 years

Complaints - Halve the number of complaints in 5 years

Efficiency PT market share - Reduce subsidy per KM travelled by 50% in 20 years.

- Efficacy of modal interchange (ease of switching between modes whether by distance or time)

Rail Safety Fatalities and serious injuries - Reduce the absolute number of deaths per year

- Halve the fatality rate by 2020 (deaths per 100,000 trips)

- Target top 5 OECD countries

Table 2.3 Proposed Bus Benchmarks

Performance Measure

Buses

Key Performance Indicator

Buses

Benchmark

Buses

Attractiveness Travel time

Average Speed

- Bus trip travel times, at peak, to decline by 15% in 10 years

- Bus trip travel times, at peak, to decline by 15% in 20 years

Frequency - Increase number of buses per hour on major routes by 20% by 2022

- Increase number of buses per hour on major routes by a further 20% by 2032

Quality Reliability - Reduce failures per passenger km by 20% in 10 years

Complaints - Halve the number of complaints in 5 years

Efficiency PT market share - Reduce subsidy per KM travelled by 50% in 20 years. - Efficacy of modal interchange (ease of switching

between modes whether by distance or time)

Bus Safety Fatalities and serious injuries

- Reduce the absolute number of deaths per year - Halve the fatality rate by 2020 (deaths per 100,000

trips) - Target top 5 OECD countries



What the Master Plan should seek to achieve (Road and Rail examples)

Table 2.4 Examples of Road Performance Targets

Roads:

Increase the average speed of the 100 busiest roads in NSW, at peak, by 15% in ten years; and a further 15% in 20 years

2012

Minutes

2020

Minutes

2030

Minutes

Penrith to Sydney Airport 85 72 61

Newcastle to Sydney Airport 165 140 119

Wollongong to Sydney Airport 94 80 68

Campbelltown to Sydney Airport 63 54 46

Inner City:

Sydney Airport to CBD 31 26 22

Parramatta to CBD 58 49 42

Parramatta to Epping 32 27 23

North Ryde to Manly 53 45 38

Table 2.5 Examples of Rail Performance Targets

Rail:

Increase the average speed on the busiest rail

lines, at peak, by 15% in ten years; and a further

15% in 20 years

2012

Minutes

2020

Minutes

2030

Minutes

Penrith to Central Station 58 49 42

Newcastle to Central Station 165 140 119

Wollongong to Central Station 91 77 66

Campbelltown to Central Station 73 62 53

Inner City:

Parramatta to Central Station 26 22 19

Cabramatta to Central Station 50 43 36

North Ryde to Central Station 40 34 29

Cronulla to Central Station 50 43 36



Figure 2.6

Figure 2.7



Figure 2.8

Figure 2.9



Chapter 3 Better Integration and Planning

Demography is destiny.

Auguste Comte

The transport planning challenge

It is widely accepted that the way in which transport infrastructure is planned in NSW, and many other jurisdictions, is well below best-practice. Transport infrastructure planning needs to be undertaken in a more integrated way to address future constraints that might work to reduce efficiency and limit productivity growth. This is particularly the case in significant economic zones such as Port Botany where road, rail, maritime and aviation networks that service the precinct are approaching binding constraints well below peak demand needs.

These types of issues need to be addressed in a comprehensive, system-wide, as well as timely manner. This is why it is vital for the NSW Government to move further towards addressing planning needs across all relevant departments and, indeed, the three tiers of government.

It is now widely accepted across OECD countries that, in order to maximise taxpayer value for money, public and private transport infrastructure investment needs to be better coordinated, better integrated and investment options better evaluated. Further, governments need better tools to ‘look over the horizon’ and understand community infrastructure needs decades into the future.

In the Australian context, long-term planning between the three levels of government needs improvement. Recent COAG reforms and the formation of Infrastructure Australia and Infrastructure NSW are good reforms, but further gains can still be achieved via instituting better planning processes across all modes of transport.

Demography is destiny

The often quoted catchphrase demography is destiny is as relevant to NSW as any other advanced stable democracy. Relatively constant fertility rates, very low and stable infant mortality, and continued access to advances in life-extending medical technology means that it is possible to accurately project population levels and distributions decades into the future.

However, in addition to this comfortably narrow band of demographic uncertainty, there is a wider band of uncertainty, caused by unpredictable overseas and interstate migration flows, which are dependent on domestic (federal and state) and foreign economic and social policies that in turn influence relative incomes and migration patterns.



Based on ABS demographic projections7, Australia’s population could nudge 40 million people by 2050. Under Series A (the higher migration and fertility scenario), Sydney’s population would pass 6.5 million in 2040 and be over 7 million residents by 2050. Assuming continued investment in critical energy, transport and social infrastructure, it is highly likely that Sydney will remain Australia’s most important city throughout this century.

The population of NSW is projected to grow by 1 million in each of the next four decades, reaching 8 million by 2020, 9 million by 2030, 10 million by 2040 and 11 million by 2050. Sydney’s share of the total NSW population is projected to remain relatively constant at just below two-thirds, while its share of the total Australian population is projected to only marginally decline from its current share of one in five residents (Table 3.1).

Table 3.1 ABS Population Projections, 2012, and 2020 to 2050 by decade (series A)

Population 2012 2020 2030 2040 2050

Sydney 4,597,949 5,084,611 5,762,506 6,456,613 7,186,862

Balance of NSW 2,705,991 2,977,704 3,328,166 3,651,593 3,958,056

Total NSW 7,303,940 8,062,315 9,090,672 10,108,206 11,144,918

Australia 22,874,044 26,098,377 30,499,959 34,961,511 39,607,981

Sydney / NSW 63% 63% 63% 64% 64%

Sydney / Australia

20% 19% 19% 18% 18%

NSW / Australia 32% 31% 30% 29% 28%

Source: ABS 3222.0 (Excel data cube) Tables 3 and 4. Population at year ended 30 June. Series A (the high series) assumes a fertility rate of 2.0, net overseas migration rate of 220,000 per year and life expectancy at birth (in 2056) of 93.9 years for Males and 96.1 years for Females. Net interstate migration is assumed to be a constant outflow of 29,000 per year over the projection period, comprising an outflow of 48,000 per year from Sydney, but an inflow of 19,000 per year into the Balance of NSW.

Federal Treasury’s 2010 Intergenerational Report (IGR) was released in January 2010, 15 months after the release of the ABS projections and a year after the end of the surge net overseas migration.

The IGR projections fall between the ABS high and medium population scenarios (Series’ A & B) and projects Australia’s population to be 35.9 million people in 2050. Based on ABS geographic distributions, this implies a NSW population of 10 million residents and a Sydney population of 6.5 million residents in 2050. The Treasury projections are reasonably conservative and, in fact, assume a reduction in the rate of population growth compared to the last 40 years, from 1.4 per cent to 1.2 per cent per year. And Treasury’s projection of net overseas migration, which is based on an average ‘absorption rate’ of 0.6 per cent of the resident population, is well below recent experience (Table 3.2).

7 ABS 3222.0, Population Projections, Australia, 2006 to 2101, released 9 April 2008.



Table 3.2 Population Projections Assumptions, ABS Series A (2008) and IGR (2010)

Australia 2012-2050 ABS Series A (2008) IGR (2010)

Fertility rate (births per woman) 2.0 1.9

Net Overseas Migration Constant number at 0.6% of resident

population

2012 220,000 138,000

2020 220,000 154,200

2050 220,000 215,400

Life Expectancy at birth at 2056 at 2050

Men 93.9 87.7

Women 96.1 90.5

Population growth rate Rate in year Chart 1 IGR (interpreted)

2012 1.7 1.4

2020 1.7 1.3

2030 1.5 1.2

2040 1.3 1.1

2050 1.2 0.9

Average growth rate 2010-2050

1.5 1.2

Source: ABS 3222.0 (Excel data cube) Table 1 and IGR 2010 Chart 1 and Section 1.3. Population at year ended 30 June.

The IGR 2010 demographic projections are likely to prove low given Australia’s relative global economic strength and political and social stability. Moreover, the much improved opportunities to exploit Australia’s resources endowments over the next several decades (as a result of the Asian demographic ‘super-cycle’) will require a continued strong demand for overseas migrant labour.

Because of Australia’s abundant natural endowments in terms of land and resources, and our relatively very high standard of living, labour demand is likely to remain strong over the next several decades to maintain this high living standard.

Hence, based on these considerations, we feel that the ABS high series is the most prudent set of projections on which to base the NSW Long-Term Transport Master Plan, primarily because the (higher) net overseas migration figure will prove to be the most accurate of all recent projections.

The Master Plan should, therefore, embrace this demographic destiny and facilitate (rather than discourage) strong population growth, particularly in the Newcastle-Sydney-Wollongong-Canberra region to reap the benefits derived via increased economies of scale, agglomeration, knowledge accumulation, cultural diversity and national security.



Is a Big NSW a bad idea?

Population growth and the idea of a ‘Big NSW’ and in turn a ‘Big Australia’ currently have a bad rap, despite the potential for a larger population to address a number of our current infrastructure problems (such as high utility service costs per capita and a relatively low tax revenue base per square kilometre of inhabited land), and provide wider benefits in terms of national security (such as maintaining a larger and better equipped military to protect Australian values).

The populist belief that a larger population spells a decline in urban living standards via more congestion and higher living costs, has come about, first as a result of significant underinvestment in energy and transport infrastructure in the 1990s (thus leading to dramatic declines in service quality), and second, by a significant but misdirected overinvestment in energy and transport infrastructure in the 2000s (thus leading to dramatic price rises in the case of energy infrastructure, and further declines in service quality (more congestion) in the case of transport infrastructure).

The squeezing of the NSW transport infrastructure lemon in the late 1990s and early 2000s led to community unrest in Sydney by the end of the first decade. This is unsurprising as governments failed to keep pace with transport demand and cost of living pressures (such as electricity and water bills) seemed to be correlated with strong growth in population (Ergas 2011).

Throughout the period of significant underinvestment in transport infrastructure, the NSW Government also attempted to use regulatory instruments to reduce urban sprawl and, thus, avoid increased outlays for new suburban roads and rail lines. However, it didn’t work. And unfortunately, the costs of these regulations hurt lower income groups disproportionately because the supply of cheaper housing on the urban fringe contracted as a result of government planning policy (Ergas 2011).

There is nothing inherently undesirable about urban sprawl. Indeed, SMART is not against extending Sydney’s urban fringe so long as citizens face the true incremental cost of their decisions and are prepared to pay that full cost. And there is also nothing inherently desirable about forcing higher density living against the preferences of most residents (Ergas).

Australia is endowed with an abundance of land and Australian settlement patterns have reflected this fact. A ready supply of land on the urban fringes combined with historically poor planning and weak local governments unable to voice the concerns of their local community, has exacerbated the costs of urban sprawl because the incidence of these incremental costs has fallen on the whole taxpayer base, rather than new residents at the urban fringe. Thus, under this policy, new residents get a good deal, and everybody else is worse off.



Policy distortions leading to urban sprawl1

While SMART is not against urban sprawl, there could be an inefficiently high level of urban dispersion as a result of existing policies that distort habitation incentives.

The first and probably most important factor is the tax preferences to owner-occupied housing, which amount to a sizable subsidy to land use as land is a large part of the purchase price of housing. Second, under-pricing of goods and services that are complements such as local public goods (schools) and the absence of congestion charges on roads, which add to the social cost of congestion. Third, institutional structures such as constraints on local government rates which means there is no incentive for locals to support increased density which may raise rates revenue.

Given these factors, it is not necessarily inefficient for government to ―lean against‖ urban sprawl, but the way it‘s done is inefficient. The way governments have pursued denser settlement patterns has not been ideal. For example, using urban growth boundaries, such as those implemented in Sydney, may avoid inefficient commuting, but it only does so at the expense of inefficient use of capital, moreover urban growth restrictions distort the aggregate supply of housing and shifts the composition to higher cost, higher quality homes. Cost of policy falls disproportionately on low income houses. Overall, there is a substantial risk that current policy promoting densification will waste capital and increasing local congestion in the areas rezoned to denser settlement.

1 This discussion is based on Ergas (2011), Better Use Measures, Infrastructure Funding and Project Prioritisation, SMART Infrastructure Facility, University of Wollongong.

Australian cities have not resolved the ‘big’ versus ‘sustainable’ population debate. And it not at all surprising that residents and commuters do not currently accept the sustained population growth that the large Australian cities experienced during the 2000s. Quite rightly, residents of Sydney want to see the payoff from an ever increasing population.

While we have argued here that demography is destiny, SMART believes that the immigration lever, at least outside of recessions, needs to remain at fully-enabled. In our view, that means an immigration rate of at least 200,000 and rising to 300,000 over the next four decades needs to be contemplated in order to maximise the productivity gains from large metropolitan conurbations.

For example, better transport and retail productivity is achieved with a denser population via economies of scale (PC 2007, Can Australia Match US Productivity Performance). Further, per household electricity, gas and water costs can be reduced with larger urban populations. Finally, large efficient metro rail systems usually exist internationally in cities with populations of 5 million residents or greater (such as in London, New York, Paris and Santiago).

A broader reason favouring a larger population is that more people of working age can address the fiscal gap identified in the IGR 2010. And the evidence suggests that immigrants are complements to high-skilled workers, which is Australian policy to develop a nation of highly skilled workers.



The alternative of a stagnant or declining population creates significant economic and social problems. For example, countries with low growth or declining populations must address more extreme ageing challenges, with greater demands for publicly funded social services, but a reduced ability to meet these challenges. There are growing concerns about the fiscal sustainability of some of these countries, such as Italy and Japan.

Thus, even though population growth puts pressure on infrastructure and services, it can be socially and environmentally sustainable provided governments plan and invest, well ahead of time, for a larger population.

Magnitude of the infrastructure task

Much of Sydney’s capacity to accommodate population increases while supporting productivity growth will be dependent on the adequacy and efficiency of its transport and energy infrastructure, and its housing stock.

All things being equal, given the expected population growth in NSW (from 7.3 million to 11.1 million people) and in Sydney (from 4.5 million to 7.2 million people) between 2012 and 2050, the stock of transport infrastructure in NSW either has to expand, by 52 per cent in regional NSW and 60 per cent in Sydney, or the productivity of transport infrastructure must improve by a similar magnitude, or a combination of both.

Because of the size of the transport infrastructure task, simply improving the productivity of the existing capital stock by 1-2 per cent per year will not cut into the expected increases in urban congestion over the next four decades.

The population of metropolitan Sydney will be over 7 million people by 2050. Based on current rates of household formation, this increase would equate to the requirement for well over 1 million new home sites in Sydney and the Central Coast-Lower Hunter region. The space to site around 500,000 new jobs equates to tens of millions of square metres of new commercial, industrial and retail floor space. Like today, these new workers must commute to new jobs, potentially requiring a doubling of passenger kilometres travelled annually from 45 billion today to over 90 billion passenger kilometres by 2050. And with the ‘super-cycle’ demographic and economic growth of China, India and Indonesia, we can expect significantly increased passenger growth at Sydney Airport (based on Mrdak, CEDA speech).

A further reason why planning is increasingly important, is that the lifespan of major transport infrastructure in NSW is in the decades rather than years. This means of course that planning must be ‘in decades’ rather than years. Hence, the relevant timescale for the Long-Term Transport Master Plan is 30-40 years (ie. from 2012 to 2040/2050), rather than the shorter “20 year challenge” flagged in the Discussion Paper.

Better Land Use Planning

The Master Plan as a comprehensive and integrated one should explicitly address how land use planning can play a fundamental and complementary role in improving transport planning and provision of infrastructure. This is important because a better understanding of the impact of land uses and of ensuring travel patterns should mean that the transport planners can have more confidence in identifying appropriate and enduring solutions.



Similarly, a coordinated approach to forecasting land use and transport over an extended period of time, such as 20 to 40 years, should assist greatly in the delivery of cohesive proposals across local and strategic boundaries and the impact of changing demographics and physical environment.

It could be argued that planning to reduce the need for travel is subtly different to planning to reduce travel. Up until recently, there has not been a real understanding or a conceptual model of how land use or transport planning can do this. Whilst the two are intrinsically linked, in the simplest of terms, it could be suggested that reducing the need for travel falls within the remit of land use planners, whilst reducing travel per se spans both land use planning and transport planning. Therefore, examining how improving land use predictions might help to reduce the need for travel may only reveal part of the answer. In order to gain a more rounded view of the issue it is also necessary to consider how land-use predictions and transport planning can better inform land use planning activities.

Whilst it may seem unusual, planners and transport professionals do not, intuitively, work together; and have not done so over the decades. Although this situation is improving, transport matters are considered to be material to master planning and broader spatial aspirations, they are however just one of several influences on the planning process. The same is true of the transport planning discipline, where much work is undertaken with limited involvement of land use planners. This long established ‘silo based’ approach to land use and transport does not encourage joint working either in principle or process. This separation introduces a very real barrier into genuinely useful integrated infrastructure planning and management.

On the surface it would seem that, even though the time frames may be different, the information required by transport planners should be consistent with that used by land use planners. However, a fundamental difference is the definition of land use between the two processes. Whilst land use planners are concerned with forecasting different types of land use, transport planners are usually concerned with forecasting land using activities. This means that though the same sources are used to inform both processes, the data is used and interpreted in significantly different ways. This difference can and does make effective land use and transport modelling difficult and, at worst, can make it ineffectual.

A land use (LU) model (illustrated in Figure 3.3) can effectively be seen as a system which takes given economic and demographic scenarios for the region modelled, and planning policies for the zones within that region, and produces forecasts of land use by zone for a future year or years. They do not take account of transport changes, but can be used to provide inputs to transport modelling.



Fig 3.3: Land Use Modelling

As an extension of this, land use/transport interaction (LUTI) models (illustrated in Figure 3.4) are effectively land use models linked to transport models; overall, they take the same inputs as land use models plus information on transport supply changes (infrastructure, services, pricing etc.) and forecast both land uses and the demand for transport, taking account of the influence of transport on land use.

Both require base year data and work to establish the relationships or processes which they represent. As with LUMs, LUTIMs forecast what is expected to happen under specified scenarios and chosen policy inputs, and it is for the user to draw policy conclusions from this information; the models themselves do not output any such conclusions.

Figure 3.4– Land Use / Transport Interaction Modelling



There is increasing interest in extending these models to consider how transport (and potentially land use) policies will affect total economic (and hence demographic) change, i.e. how policies will affect the overall scenarios which have conventionally been taken as fixed in such modelling. This implies feedback from the modelled outcome for the area (illustrated in Figure 3.5) to planning policies, recognising (as most planning documents do) that in the medium-to long-term, planning policies will be reviewed and modified to take account of changing circumstances within the area.

Figure 3.5 – Land Use / Transport Interaction Modelling with Feedback to Scenarios

The SMART – TfNSW Partnership

Researching Integrated Land Use & Infrastructure Provision

The SMART Infrastructure Facility has a deep and purposeful partnership in jointly developing a flexible and adaptable analytical platform to better understand the dynamic infrastructure requirements of Sydney. SMART has developed a model called “Shaping the Sydney of Tomorrow’ that seeks new and strategic insight into the composition and timing of new transport infrastructure in Sydney over the long term in line with figure 3.5. This undertaking sponsored by Transport for NSW acknowledges that there is an imperative to develop planning tools that have spatial and temporal elements to understanding emerging feedback effects of individual and collective preferences for transport and infrastructure use in the context of changing population scenarios. In examining these matters, the process of structural change of preferences and behaviours are endogenous of the model, rather than an input to the model.



It is in this context that the SMART Infrastructure Facility has developed a methodology based around Agent Based (AB) modelling. This approach allows for detailed analysis of decision parameters affecting economic and social choice in the community. By taking a disaggregated approach to the various agents of which human systems are composed and using significant computational power there is the potential to be more sophisticated, subtle and faithful to the complexity of these phenomena than traditional modelling methods such as econometrics and game theory. In essence, AB models provide encouragement to those who seek to reflect more fully that human systems are complex, non-linear and exhibit emergent behaviour with respect to changes in the transport and land use system including the impact of congestion.

Hence, we need to truly think about the NSW transport system as a whole system such that the widening of an arterial road in inner Sydney has impacts not just on the immediate area but on the whole of Sydney’s transport system, however minor those impacts might be, across the metropolitan area.

The NSW Transport system must be treated as one system in order to ensure the best investment and maintenance decisions are made and economic and social welfare is maximised. Every part of the NSW transport system, from the suburban road outside the home to the office in the CBD to the Port Botany precinct, to the Tugun bypass on the border with Queensland, is connected.

Such a complex system can hardly be left to run independently in bureaucratic silos, only occasionally demanding more centralised consideration at the Cabinet table. A smarter approach would be a whole of government approach, but this requires cultural and governance changes and, most importantly, better transport metrics – a dashboard so to speak, to allow for better coordination of decision-making.

This is why there is an urgent need for better coordination across transport modes and a deeper understanding of the interaction between the freight, public transport and private transport tasks in the Sydney conurbation. In arguably more successful jurisdictions, policymakers have sought to establish public transport systems that are better integrated with land use regimes and where modal choice with respect to buses, light rail, heavy rail, ferries etc are rigorously synchronised and coordinated to ensure deep complementarity across the modes, including with the private motor vehicle. This is what is required in Sydney - an integrated public transport approach, which is broadly indifferent to modal choice, that will build patronage on public transport and benefit the community by offering choice of modes to best fit their needs and purpose at any point in time.



SMART is developing a national synthetic data set to assist policymakers gain new insights into the complex interplay of infrastructure, land use and liveability.

This research acknowledges the critical aspect of how infrastructure interacts with and affects the population it is

meant to serve.

SMART is researching how we can better use modelling and simulation to manage large scale challenges and

‘whole of region’ planning.

This modelling and analysis can assist policy makers make better decisions through investigation of possible

interactions and identifying the unintended consequences of changes or additions to infrastructure.

Agent based modelling can be used to examine complex socio-technical systems such as the interplay between

society, business, government and the infrastructure. This sophisticated approach, by using different scenarios

concerning infrastructure and population, is effective at capturing emergent behaviour.

SMART’s inaugural Professor of Infrastructure Systems, Peter Campbell, is a world authority on agent-based

modelling. He is the former Director, Advanced Computer Applications at the Argonne National Laboratory in

Chicago, USA. Professor Campbell is playing a key role in shaping a strong interdisciplinary and collaborative

culture at SMART and providing project leadership on commissioned research areas.



SHAPING SYDNEY’S FUTURE

The complexity of global cities such as Sydney makes transport and urban planning challenging. There is an urgent need for new and evolving tools to improve the process of policy and project decision-making. Increasingly transport and land use planners require sophisticated insights on the interdependencies of systems.

Critically there is also a societal need to promote participatory processes in research and decision making so that communities and stakeholders can be confident with evidence based decision making.

Professor Pascal Perez and Senior Research Fellow Matthew Berryman have been working on the development of a ground breaking decision making assistance tool funded by Transport for NSW, based on the Sydney precinct of Randwick and Green Square, that extends the science of modelling and the involvement of community participation.

Advances in computer simulation technology allow researchers to create massive models of infrastructure systems, embedding thousands or even millions of social agents representing users, planners and managers. These models have been applied with some success to transport or energy distribution research. In the past the adaptive capacity of these agents has been constrained or limited due to various reasons. SMART wants to overcome these limitations and will extend and evolve present modelling standards.

SMART’s work on the Shaping Sydney’s Future project is applying a case-based approach that can collect social-agents and processes that can be re-used in subsequent projects. The project is building a ‘realistic’ population of around 150,000 agents for the City of Randwick. Then this population needs to evolve over a 20-year simulated period.

To be realistic the baseline population has matched the distribution of individuals and households as per the demographic information from the Australian Census. Beyond the statistical validity, the artificial society should also display decisional and behavioural patterns – based on individual perceptions of liveability – consistent with empirical evidence.

The Shaping Sydney’s Future project is implementing an interactive model that implements a participatory process that will involve transport and landuse planners as well as local residences. On completion of this project, the methodology in place will allow the research team to use the same approach for the whole greater metropolitan region of Sydney.



Chapter 4 Better governance and regulation

Good governance, transparency and accountability must be central to the Long Term Master Plan.

SMART

Introduction

Better governance and regulatory processes need to be established for transport infrastructure to ensure that NSW taxpayers get value for money today and into the future. Public investment decisions in transport infrastructure can range in the tens of billions of dollars and commit future taxpayers to hundreds of millions of dollars in maintenance. At the extreme end, for example, is the HSR proposal, where estimated costs are in excess of $100 billion. For projects of this size, good governance is critical to successful outcomes.

We assert that there are significant weaknesses and pronounced inefficiencies in the management of the NSW transport system. Further, there are major deficiencies in the selection of major infrastructure projects. And, thus far, the jury is still out on PPPs even though, they appear to support better on-time and on-budget outcomes.

There is an urgent need for improved transparency and accountability – better governance. Some of the greatest gains in the efficiency of NSW transport infrastructure and land use management, and hence the ability to meet the needs of a growing population, could come from aligning taxing and spending decisions to the level of government that is best equipped to make these decisions.

The former Chairman and now Member of the SMART Advisory Council, Hon. Nick Greiner, recently observed that there has been a breakdown in public trust in infrastructure policy and planning in NSW and that to restore this trust a bipartisan, long-term approach to policy and planning is required. This approach must be ‘whole-of-government’, to remove silos within and between governments, and demonstrate intellectual leadership rather than isolated funding. Greiner also indicated that the human dimension of infrastructure must be understood, and that research must focus on the behaviour of users rather than treating infrastructure solely as an engineering exercise.

SMART can help foster better governance

Dr Ken Henry, the Chairman of SMART, has defined the purpose of SMART as making a positive impact on how we consider, view, procure, design and manage infrastructure systems.

SMART seeks to provide a national and collaborative perspective, taking a network and systems approach to infrastructure, including modelling and cost benefit analysis. Maintaining independence and transparency will be critical if SMART is to help shape the infrastructure agenda, particularly in issues requiring whole of government approaches.



Australia needs to develop closer links between research and policy through a clear sense of national purpose and long-term vision for infrastructure. There are many new infrastructure problems to be solved requiring new research, new science and real innovation including a methodology for prioritisation of infrastructure projects as well as new funding and business models. Data is key to evidence based decisions and planning – research has an important role to play in rigorous data collection and analysis.

The SMART Infrastructure Facility is a catalyst for fostering a culture of collaboration that breaks down silos and establishing an agenda to build a strong analytical research ethos to meet the long-term challenges confronting infrastructure related public policy in Australia.

This chapter sets out SMART’s recommendations to achieve better regulation and governance processes in NSW, ultimately to ensure value for money and better decision-making for public infrastructure investment. There is public concern about the integrity of the interaction of the government and large scale private sector infrastructure providers. Hence, good governance, transparency and accountability must be championed.

Governance and regulatory structure of NSW Transport

With recent machinery of government changes, progress has been made on integrating the decision-making processes in NSW Transport with the department Transport for NSW playing a coordinating, planning and policy setting role (Table 4.1). But this reorganisation does not guarantee that better decisions will be made.

Table 4.1 Ownership and governance structure in NSW transport

Transport mode Owner Operator Governance/Regulation

Roads Local taxpayer

NSW taxpayer

Australian taxpayer

NSW Roads

State Transit

Authority (buses)

Private toll road

companies

Transport for NSW

- RMS

National Heavy Vehicle

Regulator

INSW

Rail – passenger NSW taxpayer CityRail

CountryLink

Transport for NSW

INSW

Rail – freight NSW taxpayer

(below rail)

Private operators

ARTC

Transport for NSW

IPART

INSW

Ports NSW taxpayer

Australian taxpayer

Private operators Transport for NSW

- RMS

IPART

INSW

Sources: NSW Government websites.



Principles of good governance

There are well established principles of good governance. We believe there are five key principles of good governance in relation to the efficient and effective delivery of transport infrastructure in NSW, which are summarised in figure 4.2 and discussed below.

Figure 4.2: SMART’s Five Key Governance Principles for Infrastructure

1. Whole of Government approach

Transport planning has failed, in a practical sense, to embrace a multi-mode approach using whole of government resources and data. Further, as discussed above, transport planning and land-use policy has been, by and large, disconnected.

Transport planning has been focussed on emergency bottleneck management, responding to infrastructure choke points, with less than appropriate focus on system-wide planning.

There are too many state government agencies with transport responsibilities, sometimes with conflicting objectives. These agencies have recently been brought under the umbrella of a mega-department Transport for NSW acting the lead agency of the NSW transport portfolio. The ‘vision’ is for a single integrated agency, which drives better transport outcomes for the NSW community.

While this structure is supported by SMART, time will tell if this machinery of government restructure proves more effective than previous models. Hopefully, in time, various NSW state government transport agencies, such as the the State Transit Authority, the Sydney Metro Authority, RailCorp, the RTA and the ports authorities will successfully integrate into the larger entity to provide more integrated and better panning outcomes for the NSW community.

Whole of Government

Approach

Accountability

Independent Review

Increased Transparency

Better Information &

Analytics



There needs to be a faster and more comprehensive movement towards a customer responsive culture, supported by greater innovation and tapping the knowledge of the commuter. This would entail the development of customer charters in respect of times, reliability, safety and a commitment to keep travellers informed about changes.

2. Accountability

A key area of focus for better governance is in the accountability of decision-makers of transport infrastructure projects. We believe that decision-makers should be held accountable to agreed benchmarks.

Unfortunately, the political pressures from proponents of projects often subvert the accountability process. This lack of accountability can aid special interests, promote poor policy and even promote the careers of consultants.

In the transport infrastructure field we too often see poor project evaluation, with project planners and promoters deliberately and strategically overestimating benefits and underestimating costs when forecasting the outcomes of projects. The result is cost overruns, benefit shortfalls, and the systematic underestimation of risks. This is the result of a lack of accountability for project decisions.

The recent NSW Commission of Audit found that “NSW does not have a formal system for prioritising budget-funded projects. While this is meant to occur as part of Budget deliberations, it has not happened in any meaningful analytical manner. Instead, capital expenditure has been influenced by historic rates rather than any assessment of objective needs. Their linkage to the former State Plan or the State Infrastructure Strategy is not always apparent, and even links to agency TAM plans are inconsistent”.

The Audit Commission also found that agency asset and infrastructure planning has also tended to be “siloed”, with limited integration across sectors or agencies.

The Commission has a more fundamental concern in that infrastructure projects have not always been fully developed prior to receiving approval. “A significant number of capital proposals have not been supported by a proper business case or a Gateway review.” And it “agrees” with the Lambert (Treasury) Review “that rigorous and holistic asset planning in NSW is sometimes absent and tends to follow, rather than lead, the commitment to an infrastructure investment”. Notably:

some specific infrastructure projects have been pursued for their own sake with little

consideration to their objectives or the outcomes they actually deliver. The supporting

evidence base for projects has sometimes been inadequate and anecdotal in nature

an emphasis is placed on providing new fixed infrastructure over addressing some of the

demand drivers, or maintaining and improving the utilisation of existing assets

projects were not always subject to rigorous evaluation or detailed studies before they are

announced publicly. This includes financial and economic cost-benefit analyses which are

sometimes treated as a ‘compliance’ exercise, rather than being genuinely used by agencies



to identify and evaluate optimal service solutions. Announced cost estimates are often much

lower than actual delivery cost

there is a general lack of prioritisation and coordination of new infrastructure within and

across sectors

a failure to strategically prioritise needs within realistic future funding limits set by reference

to the fiscal capacity of the State.

These failures are manifest through flawed project prioritisation and selection, feasibility or integration problems, cost blow-outs and policy reversals. For example, NSW set out seven, sometimes conflicting, transport plans between 1998 and 2010. Many of these prematurely announced projects have not been delivered.

Independent review

One solution to these problems is to enforce an independent outside view in the planning of new projects combined with better governance structures with incentives that reward accurate estimates of costs and benefits and punish inaccurate ones.

A key recommendation from SMART is that all forecasts, methodologies, CBA’s and business cases should be made subject to independent peer review.

Flyvbjerg (2009) has argued that technical explanations, such as imperfect forecasting techniques, inadequate data, honest mistakes, inherent problems in predicting the future, lack of experience on the part of forecasters etc, and psychological explanations, such as what psychologists call the planning fallacy and optimism bias, can account for cost overruns and benefit shortfalls. But because the estimates have not improved over time and are systematically biased, Flyvbjerg puts the causes of this state of affairs in terms of pressures from special interests to justify the project, pressures which hired consultants find difficult to resist. Political-economic explanations see project planners and promoters as deliberately and strategically overestimating benefits and underestimating costs when forecasting the outcomes of projects.

Why is it that, often, ex ante estimates of transport infrastructure project costs and benefits are often very different from actual ex post costs and benefits? Is cost-benefit analysis, as performed for infrastructure projects, inherently inaccurate and/or biased?

Biased CBA’s are largely caused by perverse incentives that encourage promoters of infrastructure projects (and their consultants) to underestimate costs and overestimate benefits in the business cases for their projects in order to gain approval and funding8.

Misinformation about costs, benefits, and risks is the norm throughout project development and decision-making, including in the business case. The result is cost overruns and/or benefit shortfalls during project implementation. Cost overruns in the order of 50 per cent in real terms are common for major infrastructure, and overruns above 100 per cent are not uncommon. Nine out of ten transportation infrastructure projects have cost overrun and the cost estimates have not improved over time. Demand and benefit forecasts that are wrong by 20–70 per cent compared with actual development are common.

8 Many of the ideas presented in this discussion have been raised by Flyvbjerg (2009).



One approach to solving this problem is to require an independent assessment of new projects so as to encourage rigorous CBA and economy-wide prioritisation of new projects. Infrastructure NSW could play a significant role along these lines. SMART supports this type of role.

Underestimated costs + overestimated benefits = funding…promoters have the incentive to lie.

Flyvbjerg

Increased Transparency

In SMART’s view, all reviews of infrastructure proposals in NSW must be made completely public. Transparency and public scrutiny increases the incentives for professionalism from all stakeholders.

NSW Government spending on transport infrastructure should promote the broad public interest. Transport infrastructure is a key determinant of the public interest, in the same way that the quality and quantum of health infrastructure and energy infrastructure is a key determinant of living standards in NSW or any other community.

Governments face a difficult task in choosing how to use limited resources: how much to spend on transport infrastructure and how to spend it. Infrastructure projects can be extremely expensive, involving expenditures of hundreds of millions, and even billions, of dollars. Moreover, they tend to be complex, often unique, involve long planning horizons, many decision makers with conflicting interests and are inherently risky.

The benefits from these investments need to be large to exceed the enormous financial costs. If done right, infrastructure investment can improve the economy and benefit NSW’s residents. But there is also the potential for massive waste. If done wrong, infrastructure investment could weaken the economy and lower community living standards rather than improve it.

Infrastructure investment in Australia has often failed to maximise social (or economy-wide) benefits, or even generate project-specific benefits that exceed its costs. One problem is the influence of powerful special interests in the political process can tip the political scales in favour of bad projects. Here, there can be a potential conflict of interest between the proponents of a project and the rest of society. The benefits of a project are often concentrated on a small portion of the population, who will be strongly in favour of it.

Worse, there are also pressures for projects from within government – with departments and agencies generating projects. Although they may view the proposals as serving the general interest; that does not guarantee the projects are socially productive.

We believe increased transparency is the key to preventing bad project decisions caused by the perverse incentives discussed above.

Therefore, a key recommendation from SMART is that where projects involve large amounts of government funds, say over $100 million, such reviews should be conducted in a



transparent manner by national or state auditing offices, the Productivity Commission (if Australian taxpayer money is involved) or IPART.

All CBA’s should be released along with Infrastructure NSW’s appraisal of it.

Major CBAs should be subject to independent analysis.

SMART

Another issue related to transparency is contract writing. In our view, improved contract writing skills will promote transparency and protect the taxpayer. A critical part of a strong governance framework is the ability to protect taxpayers from uncovered risk with strong contract-writing skills9. These skills are critical to safeguard the interests of the broader community and enforce accountability on contractors. In turn, the directors of the contractor organisation must be held accountable for any cost overruns, benefit shortfalls, faulty designs, unmitigated risks, etc. that may occur during project planning, implementation, and operations.

The making of contracts in infrastructure is an important issue. There is a fundamental asymmetry in experience with, and resources allocated to, contract writing that so often applies in the client (taxpayer) – proponent relationship for such projects. Clients (government agencies on behalf of the taxpayer) will enter into infrastructure contracts far more infrequently than the three or four major infrastructure construction firms in the Australian market. These contractors, therefore, typically know much more than their clients about the ins and outs of projects and contracts, including the many risks and pitfalls that apply, plus which lawyers, bankers, and consultants to hire to safeguard their interests most effectively. This asymmetry has brought many a client (and, hence, taxpayer) to grief.

A possible way to bring more symmetry into the client–contractor relationship would be for government to establish a central contract-writing unit at the state or national level, which would be in charge of negotiating, on behalf of local and other branches of government, the types of major contracts they do too infrequently to gain real experience. This would concentrate a larger number of contracts in one place, allowing experience—and the negotiating power that comes with it—to accumulate. (Flyvbjerg p.360-1).

Ex-post analysis

Another way to promote increased transparency is to undertake ex post analysis of project proposals and outcomes to review the accuracy of all assumptions to informed the original cost-benefit appraisal. For a given major infrastructure project, this would constitute a kind of empirical due diligence test, something that is rarely carried out today. This process would also increase the incentive for an accurate CBA in the first place.

9 This discussion is based on Flyvbjerg (2009), pp.359-361.



Finally, an important aspect of promoting increased transparency is the auditing or checking function. Infrastructure NSW has been established as a statutory authority under the Infrastructure NSW Act 2011. It is headed by an independent Board, and Chairman, that report to the Cabinet Infrastructure Committee chaired by the Premier.

SMART strongly supports the role of functions of Infrastructure NSW

SMART

3. Better information and analytics (Cost Benefit Analysis)

Well-designed infrastructure facilitates economies of scale, reduces costs of trade, and is thus central to specialization and the efficient production and consumption of goods and services. It is a vital ingredient to economic growth and development, which is the key to raising living standards.

Henckel and McKibbin (2010)

Knowledge development for broader Australian infrastructure market

Data collection, sharing and access is critical for infrastructure planning and there is a clear need to have a national ‘best in class’ research focus for infrastructure. At SMART, our mission is to apply research to infrastructure beyond traditional modes and asking new questions for Australian infrastructure. An example of this new approach is to focus on understanding of the human dimension of infrastructure, for example on the role and preferences of the commuter. In addition, the ways in which to deal with the quality of the stock of infrastructure across the nation need to be addressed. Above all, collaboration and integration must be signature features of the SMART Infrastructure Facility.

We believe what is needed are project evaluation procedures to examine the effect of the project on the whole of society, to avoid mistaken choices and defend the general interest.

That is what cost benefit analysis (CBA) does. Cost benefit analysis measures the efficiency or resource allocation effects of a policy or project. Put simply, economic efficiency is about maximising the size of the pie (the overall economy). We add up the dollar value of costs and benefits of a change across all of the people affected. The estimation of costs and benefits are based on a willingness to pay framework: how many dollars individuals would a person, if necessary, pay to obtain (or avoid) the change in question, which could be positive or negative, depending on whether the change makes them better or worse off. If the sum is positive, the gainers gain more than the losers lose, and efficiency increases. The net benefit of the policy is positive and it increases wealth, defined as the aggregate monetary valuation of the community’s resources.



Efficiency versus Equity

The costs and benefits of a particular project to all people are added without regard to the individuals to whom they accrue: a one-dollar gain to one person cancels a dollar loss to another. This ‘a dollar is a dollar’ assumption enables resource allocation to be separated from distribution effects; that is, efficiency from equity effects. That does not mean distributional considerations are unimportant or should be neglected. It means that they should be brought into account as a separate part of the overall analysis of the policy proposal in question, which may be more important than the resource allocation assessment, but it should be distinct from it.

This separation of efficiency and equity is very useful because we can never expect to achieve a general consensus about the weight that should be attached to the welfare of different groups. By contrast, the efficiency or resource allocation effects of a policy have a precise meaning and can, in principle, be objectively measured.

Dollar values of willingness to pay can be estimated from observed behaviour. Wherever possible, money values of benefits and costs should be based on tradeoffs that individuals would make in markets. Market behaviour often reveals people’s valuations, or is at least a guide to them.

A further reason why it is important to focus on ‘efficiency first’ is because infrastructure provision not a good instrument for pursuing equity objectives, especially as its ultimate incidence and distributional consequences are often extremely unclear. As a general matter, it is more efficient to redistribute income through explicit tax-transfer policies than through instruments such as infrastructure policies.

It can be argued that it is the overall impact of public projects — that is, the impact of the portfolio of public infrastructure projects taken as a whole — that we should be concerned with in considering issues of income distribution, for it is that overall impact that determines the pattern of gains and losses that explicit redistributive interventions might then want to correct.

A policy of adopting projects that have monetary benefits that exceed their costs, and adopting projects with the greatest net benefits, will thus tend to make all individuals better off, as well as providing efficiency gains that can fund programs that address serious disadvantage.

A practical advantage of the efficiency approach is that it focuses attention on compensation. We can think of CBA as a first step in policy evaluation. If it passes, then we know there is some way of undertaking the project and making everyone better off. The next step is to consider alternative ways of introducing the project.

If a project fails the cost benefit test, then we know there is no way to introduce the project and make everyone better off. The project can reasonably be described as “special interest legislation". To make a case in favour of a project that fails the test, one would need to argue that implementing this project and paying for it with a special tax scheme is likely to achieve redistributive goals that for some reason could not be more efficiently achieved through the tax-transfer system.



The cost and benefit estimates should involve a comprehensive and systematic evaluation of all the impacts of a project, accounting for all the effects on all the people in society: not just the immediate or direct effects, not just financial effects, and not just the consequences for one group. All of the effects of a policy proposal that are considered desirable by those affected are benefits, all undesirable effects are costs. Cost-benefit analysis requires analysts to identify explicitly the ways in which the proposal makes individuals better or worse off. The relevant costs and benefits are not limited to financial or pecuniary benefits, but are all social benefits including cultural, environmental and other non-market losses and gains. Sometimes non-monetary benefits are difficult to identify and evaluate, but they should not be ignored.

In sum, the cost-benefit analysis uses the economic efficiency criterion to work out what changes are desirable when everyone’s interests are taken into account.

Maximum social benefits can be realised if projects and new investments are rigorously evaluated and judged, and provision and pricing decisions made, on the basis of economic efficiency. A project’s financial failure often leads to a contingent liability coming due at the expense of a public body. For a project with contingent liabilities should not be undertaken unless it is clear that its economic benefit exceeds its economic cost.

Quantifying the impact of government policies in a standard manner promotes comparability, the assessment of relative priorities, and consistent decision making.

SMART

It is a useful way to summarise information and helps decision makers to compare the favourable and unfavourable effects of proposed policies and better understand the implications of a decision. It draws attention to the likely impacts of policies, provides an analytical framework for making consistent decisions and makes assumptions explicit and reasons for decisions clear.

It forces the government to adopt a community wide perspective – encouraging them to take account of all the positive and negative effects of a regulation, and discouraging them from making decisions based on the impacts of a single group within the community. It can help defend the general interest against special interest pressures.

CBA can capture the various linkages between the infrastructure project and other sectors of the economy (for example, increased safety may reduce health care costs), helping decision makers maximise net benefits to society and to discover cost-effective solutions to policy problems by identifying and measuring all costs.

There is an interaction between cost benefit analysis and policy making. The process of quantifying costs and benefits encourages policy makers to come up with better ways to achieve their objectives. The earlier the cost benefit analysis begins, the greater the influence it can have helping the development of, and choosing between, different options.



For example, estimating future risks and their effects encourages policy makers to think about risks and likely scenarios. Scenario development could improve strategic planning to minimise and deal with risks and uncertainties the regulation creates.

Moreover, the process of trying to describe and measure costs and benefits is valuable in itself. By examining what determines the costs and benefits and how they are likely to vary, policy makers are encouraged to consider different approaches and determine the best way to achieve objectives. Identifying and measuring costs and benefits encourages close examination of the factors that influence them and assists in minimising costs and maximizing benefit, helping decision makers increase net benefits to society.

CBA makes clear and transparent the assumptions and judgements that are made, even when it is difficult to estimate some costs or benefits with precision. There is a further gain to having decision makers explicitly consider, and justify, their assumptions.

The way in which costs and benefits are distributed among various groups, and over time, can also be important to decision makers. While CBA cannot resolve equity issues, it can draw attention to them by quantifying the impacts of proposed policies on different groups. If the information is available, a CBA can identify potential winners and losers and the magnitude of their gains and losses. It is then up to decision makers to decide whether distributional impacts or equity issues are important and need addressing.

Finally, a CBA clarifies the trade-offs when comparing alternative policy proposals, such as how much income may need to be sacrificed to achieve the largest net present value (NPV) if it has significant adverse equity impacts. The reasons for this decision should then be made explicit.

CBA is, therefore, the ultimate public policy-makers tool.

Cost–benefit analysis and other types of ex ante appraisal should be shifted from promoters to more neutral ground, for instance with the Treasury, in order to reduce risks of agency problems.

Flyvbjerg (2009, p.359)

Common errors in CBA

Probably the most common error in undertaking cost benefit analysis is to evade rigorous analysis by conducting something else. Although CBA is the most comprehensive of the economic appraisal techniques, often the ‘lesser’ techniques of cost effectiveness analysis and multi-criteria analysis (MCA) are used.

A cost effectiveness analysis is not a CBA. It compares the costs of different initial project options with the same or similar outputs. It does not value the benefits of the project and so cannot be used directly to compare projects with different objectives.

A multi-criteria analysis is not a cost benefit analysis either, especially one that justifies the project based on its ability to satisfy fully the Government’s objectives’ (Fuelwatch RIS). That just rationalizes what the government was going to do and doesn’t check whether it improves efficiency – which is still worth knowing.



MCA, rather than seeking an overall monetary valuation of project effects, identifies salient elements of those effects (be they costs or benefits), scales them and then places subjective weights upon them. In that sense, it is a technique for scoring project attributes. The project is expected to be approved if the weighted sum of the desirable effects (i.e. the scaled value of the various dimensions of project benefits) exceeds the weighted sum of the project’s undesirable effects (the scaled value of its costs and harmful outcomes).

Evaluative standpoint

There is a presumption in CBA that the value policy-makers place on a policy’s effects ought to be derived from the valuations of the individuals who will bear those effects. Underlying this presumption is the belief that where a project is being evaluated by a collective agent on behalf of a group of individuals, that project should be adopted if those individuals’ preferences are advanced by that decision, such that were those individuals taking the decision themselves, they would adopt the project at issue.

In MCA, the evaluator determines the relevant scores; alternatively, there may be the claim that the scores are those of society as a whole, but it is not obvious whether or how they relate to, or are derived from, underlying individual valuations. As a result, the results cannot be related back to underlying concepts of rational collective decision-making or of actual or implied legitimacy. This is why MCA is highly subjective and a dangerous tool with which to assess economy-wide wellbeing.

CBA has a number of advantages over MCA.

SMART

In CBA, the dimensions of benefits and cost are commensurable and reflect marginal valuations, allowing it to aggregate benefits and costs, to treat as costs the net valuations forgone in pursuing that project relative to others, and to take account of the option (if there is one) of varying project scale. Moreover, commensurability extends to the time dimension, allowing the use of a discount rate to convert future consequences into present values and making it possible to evaluate alternative time profiles for a given project. Together, all of these features mean that CBA allows different projects (including the project of doing nothing), and different options within any given project, to be evaluated and compared.

In contrast, the weights used in MCA are not generally commensurable and would only by accident measure rates of substitution in consumption or of transformation in production between the various dimensions of the project’s impact. As well as undermining attempts to assess whether total and marginal tests are passed, this lack of commensurability means that it is difficult to see whether or how time-dated effects in a MCA evaluation can be consistently discounted.



An advantage of the systematic use of CBA is that it allows consistent values to be used across projects for assessing particular project inputs or outcomes. For example, using a standard value for a statistical life can help ensure that social outlays aimed at saving lives are used efficiently, i.e. through a project mix in which reallocating resources among projects could not increase lives saved for a given total outlay or reduce total outlays for a given number of lives saved. Equally, using a common approach to setting the discount rate is clearly necessary if meaningful project rankings are to be derived.

Although such consistency is not always achieved in practice, the structure of CBA does not prevent it and indeed naturally invites it. This is for two reasons: because inputs and outcomes can be defined in standard terms across projects and the weights placed upon them compared; and because the weights are generally separable, so that changing, for example, the discount rate, does not change the value of a life. In contrast, in MCA, the weights themselves are rarely transparent, and because they are derived by looking at the project as a whole, it is not clear that they can be treated as separable in the sense defined above. As a result, the scores used in MCA evaluations cannot be given an interpretation that is independent of the projects themselves, nor can they be compared across projects, undermining the extent to which they can be used to improve the efficiency or cost-effectiveness with which goals (such as saving lives) are achieved.

The assumptions used in a CBA are capable of being tested in terms of their consistency with market valuations, the way in which market valuations have been altered, and the methods used to measure and weight non-marketed inputs and outputs. It is difficult to see how the essentially subjective weights used in MCA are capable of third-party audit, so that while they may formalise the discretion exercised by the relevant decision-maker, they merely express, rather than constrain, that discretion.

Finally, accountability - improved by providing a standardised ex ante statement of key expected values for costs and benefits, CBA facilitates ex post identification of variances from those expected values. This both enhances accountability – as those responsible for the forecasts can be required to explain the variances – and encourages analysis of the causes of those variances, which can assist learning. In contrast, it is impossible to assess whether the weights and other judgements on which an MCA relies are confirmed or denied by subsequent events.

Double counting benefits

If the costs and benefits of a regulatory change have been estimated from the impact in a primary market, they should not be counted a second time as a result of consequent changes in secondary markets. For example, if a change to transport regulation resulted in savings in travel time to a particular group of homeowners, it would be inappropriate to add the resulting increase in their house prices to the benefits from the regulatory change (which is merely the capitalised equivalent).



‘Before/after’ rather than ‘with/without’

The key issue in CBA is getting the counter-factual correct. It is an absolutely fundamental element in project evaluation, in policy analysis, and in the whole field of applied welfare economics. What we are doing in such analyses is comparing an economic equilibrium that exists in the presence of a given project (or policy) and comparing that equilibrium with the one that would exist in the absence of that project (or policy).

The costs and benefits from a policy change come from the incremental changes to the best estimate of what would have happened in the absence of the change. That is, we compare the world without the change to the world if the change is introduced. It is incorrect to calculate costs and benefits compared with the pre-project situation as that assumes no further relevant changes would have eventuated in the absence of the project.

Some funding and taxing issues in relation to governance

What rate of interest to manage risk?

Establishing an appropriate discount rate with which to judge the value of a proposed project is a key governance and regulatory measure.

Getting the discount rate wrong means getting the project valuation wrong.

SMART

The appropriate discount rate for an infrastructure project varies according to the economic opportunity cost of capital. This hurdle rate applies not only to investments financed solely with public funds but also to the economic evaluation of investments undertaken by the private sector.

Deriving an economic net present value greater than zero implies that a project is potentially worthwhile. That is, the project would generate larger net economic benefits than the normal use of equivalent resources elsewhere in the economy. On the other hand, if the net present value is less than zero, the project should be rejected on the ground that the resources invested could be put to better use if they were simply left in the capital market.

Risk does not disappear with government financing, but is imposed on taxpayers.

SMART

Some have argued that government projects should be discounted using a risk-free rate. However there is always an element of risk — aggregate risk or irreducible social risk — that cannot be diversified, even by the government. We believe taxpayers deserve to be



compensated for this risk via an appropriately set discount rate, high enough to ensure the project’s benefits compensate for the risks borne.

Experience suggests that governments can run some projects very badly and significantly increase taxpayer risk. For example, governments may find it more difficult than the private sector to wind up or restructure poorly performing projects, because of political pressures and lack of incentives. As these hard decisions are more likely to be necessary in a recession, this difficulty adds to market (non-diversifiable) risk.

Unlike private-sector firms, the central government can often tax its way out of financial difficulties. The central government is therefore not unlike a firm that has large discretionary cash flows. These blunt the threat of financial distress and reduce its effectiveness in deterring wasteful investment in all but the most extreme cases.

Innovative funding models

We believe the NSW Government should investigate a broad range of funding models for infrastructure provision based on economy-wide efficiency and risk criteria. Alternative funding models may prove to entail lower risk and greater economic and social benefits for the NSW community.

There are several primary forms of funding for transport infrastructure projects:

general government ‘own-state’ taxation revenue

property taxes, including tax increment financing

motor vehicle registration

commonwealth specific-purpose grants

fuel taxes

GST

Public-private partnerships

Superannuation funds

User pays

Toll roads, flat and time-of-day charging

Congestions charges

As will be discussed in chapter 5, we feel that congestion charging should be considered on a case by case basis and only supported where it can be shown that economy-wide benefits are likely to exceed costs.

The Australian taxation system needs to be reformed to promote better infrastructure outcomes.



PPPs and Super Funds

Infrastructure projects can be considered as one or a number of activities within a complex network. Infrastructure projects – and particularly PPPs with long concessions – can be viewed as activities within this network with evolving social and economic characteristics and relationships. Extensive and explicit modelling within a network can provide a broad framework for more effective reasoning and debate about infrastructure ranging from planning to cost-benefit analyses and longer-term governance (Cohen 2011).

PPPs can be decomposed into four reasonably distinct states of planning, procurement, investment and operation. In excess of 50 PPPs of various forms have been procured in Australia (Cohen 2011).

In Australia last year the total value of infrastructure construction reached $58 billion; most of this work occurred in the energy sector (40 per cent) and transport (38 per cent). New urban infrastructure is not getting a lot of this pie, especially in NSW. It is telling that $30 billion of the total last year was spent by the private sector. Interestingly, the value of private sector projects for the public sector has more than doubled since 1999 to nearly $14 billion in 2009-10. However, this demonstrates that even this is not enough to meet the needs of a sophisticated, growing Sydney (Bowditch).

Are Superannuation Funds the answer?

Superannuation funds are being increasingly tapped in the United States and India to fund long-lived infrastructure projects. Often, the investments rely on arranging sales that bind and oblige the buyer to develop assets and renovate existing ones. A good example is the recent sale of the Brisbane Port Corporation to a consortium, Q Port Holdings. Access to and from ports is a national and state priority and the Queensland government was stretched. Its response was to sell the asset on a 99-year lease and couple the sale with an obligation to fund and build a major road to the port. The sale delivered $2.1 billion to government and the consortium will pay $200 million for the road upgrade. The taxpayer also avoided port infrastructure costs of up to $1 billion. Importantly, the consortium has better credentials for owning and running ports than the state government, with interests in port terminals across eight countries (Bowditch).

Raising funds for public and urban infrastructure has become riskier and more complex after a range of problems over the past 10 years, including the rise in risk premiums during and post-GFC.

Australia has one of the largest superannuation savings pools in the world. From Asia to Europe, Australia is a major institutional investor in infrastructure such as airports, rail and energy. We need to get some of that money back home by making our projects more attractive to investors. This will contribute to solving our urgent urban problems of road congestion, poor public transport, and bottle-necked access to ports (Bowditch).

There are also broader issues about the state of NSW Finances, what is on the NSW Balance Sheet that might be restricting the necessary expansion of infrastructure in NSW. On this issue, the solution for the NSW government is to take a whole-of-government approach to



funding its infrastructure plan. It must ascertain what assets it has and how these can be better deployed to achieve new and worthy infrastructure objectives (Bowditch).

NSW has a plethora of older assets across its property, maritime, transport and energy portfolios with good cash flows, valued at a fraction of their true market value. They are typically old, in need of expensive maintenance - and in some circumstances complete replacement. Their future requires strong and experienced management and investment, neither of which is always available to government.

A solution is to mix the established cashflows of old assets with an obligation to replenish and build new ones. This would work if there are genuine economies of scope between the new and old assets and would, therefore, improve the attraction of investment and bring on rail, road, health, education and energy projects sooner (Bowditch).



Chapter 5 Lessons for congestion charging

Measures to address urban transport congestion require coordinated action that addresses supply, demand (that is, efficient pricing) and planning issues (including the integration of transport systems). Leaving one of these out means that the other methods will be less effective — demand management is only a piece of the urban transport congestion puzzle

(Hubbard 2009).

In recent years, there have been calls for congestion charging to be introduced in Australia’s largest east coast cities. Proponents invariably cite the BITRE figures, which estimate the annual net social costs of congestion in Australia to be $5-15 billion in 2005, doubling to $10-30 billion by 2020.

Although congestion charging can be a good idea in the abstract and has the potential to improve efficiency, this does not mean that any particular congestion charging proposal should be adopted. There is a need for detailed analysis of proposals, taking into account the unique nature of each traffic network and the travelling behaviour of the population because, in practice, congestion charging schemes are imperfect, costly to introduce and run, and will not capture all the potential benefits. The relevant policy issue is the costs and benefits of feasible policy responses.

We need to evaluate actual proposals, projects and reforms on whether they improve efficiency. Congestion charging is likely to be inequitable, because the net benefits of road pricing to a driver decline (become more negative) with his value of time, and value of time and income are positively correlated. In other words, drivers on relatively low incomes effectively pay a higher congestion charge.

SMART

Therefore, without rigorous project appraisal, the political process could produce a congestion charging scheme which is both inequitable and inefficient, lowering social welfare and reflecting badly on both the government that implemented it and on the idea of congestion charging. In fact, evaluations of actual road pricing schemes often find the costs to be greater than the benefits.

Hence, accurate assessment of congestion can only be achieved using detailed network models. For example, partial charging increases congestion on uncharged substitute roads offsetting the benefits from charging. The greater the marginal congestion costs on other roads and the greater the portion of drivers diverted off the priced road that move to other roads, the lower the optimal charge and the smaller the benefits.



Overseas experience amply illustrates that the data requirements, the complexity of the modelling and understanding of behavioural change required, necessitate many years of preparation to develop a method of road pricing that is in the community interest. Only if the aim is simpler, such as any reduction in congestion, regardless of the net impact on the community, could a scheme be implemented earlier.

Eliasson (2010) argued that congestion charges should only be introduced when:

This may seem obvious – but in fact, one is sometimes confronted with cities with virtually no road congestion that are nevertheless considering ‘congestion charges’ (there are several current Swedish examples of this). The purpose may instead be to raise revenues or reduce traffic emissions. Generally speaking, there are usually more cost-efficient ways to do such things than introducing congestion charges – not least because a charging system is typically a fairly expensive investment (Eliasson 2010 p. 3).10

Eliasson also listed the key factors in achieving large benefits from efficient charge design:

designing the charges is a job for experts;

you need a good transport model;

the goals have to be explicit and relevant;

try to get political and legal possibilities to adjust the system once it is in place; and

there is a conflict between ‘effective’ and ‘easily communicated’ design, but erring

towards too simple seems more common. (Eliasson 2010 pp. 5-6)

Public transport can potentially play a significant role in the successful implementation of road pricing. However, this role does not allow planners to abdicate responsibility for applying standard project evaluations to public transport developments.

In the absence of an effective public transport network that provides a close substitute to private car use, there may be little behavioural change from more direct road-user charges. With no behavioural change, there are no efficiency gains and the road pricing scheme becomes an administratively expensive way to raise taxation revenue.

There is solid evidence to suggest that the public transport systems in Sydney, Melbourne and Brisbane (the cities that account for the bulk of the congestion costs in Australia) could be operated more efficiently.

Hence, before road pricing could be seriously contemplated for the major cities, significant reforms in the investment and management practices of the public transport systems would be necessary. Poor investment decisions, of which none of the major cities is free, are counterproductive and become a millstone around the neck of future generations of public transport administrators.

10 Eliasson (2010).



However, the task is wider than reforming public transport. As identified by many analysts:

… measures to address urban transport congestion require coordinated action that addresses supply, demand (that is, efficient pricing) and planning issues (including the integration of transport systems). Leaving one of these out means that the other methods will be less effective — demand management is only a piece of the urban transport congestion puzzle (Hubbard 2009, p. 9).

Overseas schemes have been successful in reducing congestion, but have been confined to small areas, in cities where congestion is severe, and where public transport provides options and responsive demand. And yet, in SMART’s view, they have rarely been justified in terms of net community benefit. Although the London scheme has been touted as a huge success, at least some evaluations find its costs exceeded its benefits.

Overseas congestion charging tends to be characterised as cordon schemes for small areas (Singapore, 7.25 km2; London, original charging area: 21 km2; Stockholm, 23 km2). One significant problem is getting the size of the circle right. For example, if you make the charging ‘island’ too big then everyone is inside the zone already and the charge will not encourage sufficient behavioural change to achieve the congestion-reducing policy objective.

In fact, cordon schemes may generate congestion at boundary points and exacerbate congestion elsewhere in the road network, as people change their routes to bypass the pricing region. And it encourages businesses to set up outside the cordon, increasing congestion there. Any exemptions further undermine efficiency gains.

The extent to which Australian cities lend themselves to cordon charging will vary between the cities.

Sydney does not appear to be a likely candidate for cordon or area charges since the severe congestion occurs on the approaches to the CBD, rather than in the CBD.

SMART

As observed by Hensher (2003, p.12) in his rejection of a specific proposal to pursue a cordon-based congestion charge for Sydney, “much of the traffic moving in the areas adjacent to the CBD does not go through the proposed CBD charging zone”.

It is an open issue whether road pricing schemes generate enough benefits to justify their enormous costs. The London Congestion Charge required start-up costs of £200 million. The 693 fixed cameras cost more than £100 million. In Stockholm the cost of final implementation was US$430 million. The proposed Dutch national system of congestion charging has implementation costs at €2.2–€4.1 billion with operational costs estimated to be €500–€1100 million per annum. The cost of operating the Singapore scheme has remained about 20-30 per cent of total revenue collected.



The main determinants of a successful road pricing scheme are:

high degree of congestion;

low system installation and operation cost; and

low marginal cost in public transport (Hamilton 2010, p. 8).

In essence, the likelihood that a scheme will be an economic success will be low when the scheme’s establishment and operating costs are high and when the prevailing level of congestion is low. Further, the benefits depend on the level of charge set. Again, efficiency analysis should be used to determine the optimal charge.

Governments are monopoly suppliers of roads and the absence of direct charging limits the scope for exploiting this monopoly. Congestion charging gives them the power to raise a substantial amount of money. Cost benefit analysis should be used to set prices to maximize efficiency. But there is a risk that governments will set congestion charges to maximise revenues, thus focusing on a public finance rather than economic objective. And it would be easier to raise the price than cut the state budget. Therefore, like all taxes, road charging may create perverse incentives for politicians and state treasury departments. A congestion charge, perversely, gives governments an incentive to promote congestion by delaying new transport infrastructure investment.

The less responsive is road demand, the smaller is the welfare gain relative to gain in revenues collected by the road owner (which come at the expense of motorists). In other words, the transfers from drivers to government are very large compared to the welfare improvement.

If some of those revenues are wasted, such as being spent on public transport projects with costs greater than benefits, it takes proportionately very little of it to eliminate any efficiency gains from congestion charging. The revenue should be used wisely – the highest return should be sought.

SMART

Congestion charging and public transport

It shouldn’t be automatically assumed that the proceeds of congestion charging should be spent on public transport. Expanding public transport can be efficient, all the more so as road pricing increases demand for alternative transport options. However, with roads properly priced, the efficiency case for subsidising public transport diminishes, as its main competitor is no longer subsidised. The need for evaluation remains.

The success of congestion charging depends on it inducing significant behavioural change. Low levels of public transport use limit the degree to which road charging would induce substitution away from peak time car travel. In London, 85 per cent of commuters to the charging zone used public transport before the scheme’s introduction. The figure was also high for Stockholm, at 65 per cent of commuters.



This contrasts to Sydney and Melbourne, where public transport accounted for 21 and 14 per cent of commuting trips in 2006. While improved public transport could increase these levels, pervasive inefficiencies in public transport management would need to be addressed before congestion charging could hope to be effective, much less efficient. Indeed, contriving a new revenue source for public transport will reduce the pressure for improvements in the management of public transport systems.

Even so, a behavioural change that leads to a reduction in congestion will not guarantee that a scheme is in the community interest – the cost of achieving that reduction will be critical.

In short, every aspect of a proposed congestion charging package should be evaluated: including pricing and the use of the revenues. The benefits from charging directly for road use depend critically on the location and the details of the scheme. Introduction of successful congestion charging requires far more careful consideration of its design, timing, implementation and governance than it has received to date.



Chapter 6 Public Transport

Increased use of public transportation is the single most effective way to reduce America’s energy consumption

William Millar

Whatever objectives the Master Plan sets out to achieve will not be easy, especially in relation to public transport. Achieving significant modal share shift in Sydney will require strong and ongoing community support. Increased public transport use will not happen overnight, and it will not happen by government mandate.

That said momentum is building in Sydney (and Melbourne and Brisbane) for high service intensive metro style public transport systems. While the benchmarks for these infrastructure investments are typically cited in Europe, their relevance and appropriateness to Australian cities will need careful consideration. Public transport services in Sydney lag behind the major European cities, often by a considerable amount11.

Investing in so called Metro style public transport boils down to one very significant issue and that is how Australia will achieve transformational growth in public transport patronage that will be essential to support the viability of these mega infrastructure investments. How have cities around the world approached these issues and how can international case examples help inform future transport policy for Australia generally and, in particular, Sydney.

In its working paper A Tale of Three Cities, SMART examined London, Vancouver and Zurich, which are three cities selected due to their diversity and size, but all having had reasonably consistent increases in public transport patronage, either for sustained periods, or rapid growth after new public transport initiatives.

The examination of the three cities suggests that no city has been able to achieve fundamental reform and improvement of its public transport system without considerable community debate. However a strong conviction by policymakers to achieve change and improvement was common that occurred over a period of about 25 years, and at times political mandates were contested with referenda in cities such as Zurich.

All three cities explicitly acknowledged the dominance and importance of the private motor vehicle however the capability of this transport mode to meet the long term needs of their cities was very limited owing to congestion, air pollution and high costs of owing and maintaining cars. Importantly, all cities sought to benchmark operational performance of public transport against the private motor vehicle, and established service level agreements for public transport with private motor vehicles front of mind.

11 This chapter draws on A Tale of Three Cities, SMART Working Paper No.1, University of

Wollongong.



Importantly, policymakers sought to establish public transport systems that were integrated and where modal choice with respect to buses, light rail, heavy rail, ferries etc were rigorously synchronised and coordinated to ensure deep complementarity across the modes, including with the private motor vehicle.

It is argued that an integrated public transport approach, which is broadly indifferent to modal choice, is important to building patronage on public transport, and that the community has the benefit of choice of modes to best fit their needs and purpose at any point in time. While there are economic constraints evident in this approach, it does reflect the importance of flexibility and choice that is evident with private motor vehicles must be mimicked to some degree in the public transport system.

Overall, policymakers in the three cities acknowledged that heavy rail offers the best and most compelling value proposition for moving large volumes of people in the shortest possible time. It is for this reason that policymakers identified that the rail network is the most important transport infrastructure to get right in a city, and should be given top priority in terms of operational performance and adequacy of network coverage. All other modes of public transport therefore should be synchronised and complementary to the rail network.

The appropriateness of these experiences to Australian cities will require further investigation, particularly given our spatial differences, population densities and cultural preferences that drive transport modal choice. Detailed below are key areas and possible sequence of issues to be resolved in achieving higher use of public transport.

Governance and management systems – The structure of governance has a very sharp focus on operational effectiveness, usually through a transport authority that has clearly defined relationships with central regional and local government and also the private sector.

In most cases the broader transport policy architecture is devolved to central agencies. This enables a better focus by transport authorities on operational effectiveness.

Performance Benchmarking – strong recognition of the competitive potency of the private motor vehicle as a transport mode, and public transport must ensure parity of travel times and comfort and safety with private motor vehicles to be viable in eyes of the customer.

Long term strategic decision framework – All cities reviewed experienced extreme controversy and vigorous debate on the merits of change and the role of public transport in the future of their cities. Community consensus was emergent through a consistent approach with the credibility of a long term plan. Both Vancouver and Zurich sought mandates from the community via referenda reflecting the gravity of the issues at play.

Rail is the core transport mode – An effective public transport system must start with rail, its operations and capital improvement. In each city the spine in the transport system is the rail system owing to its effectiveness in moving in excess of 50,000 people per hour. Heavy rail, supplemented with light rail, is the precursor for getting the broader public transport system right so addressing performance and network gaps is a priority; with bus and other modes connecting and operating in a complementary way with rail.



Funding of public transport systems – Each of the cities have significantly different funding arrangements but all had significant deficits that required government subsidies. The operating deficit is met directly by government at several levels (Zurich) with contributions from fuel, property (Vancouver) and congestion taxes (London).

Property values increase near public transport hubs – In all three cities there are examples of property values being increased and new settlement patterns evident from altered public transport arrangements. However, Transit Oriented Development (TOD) that sought to exploit these changes to help government fund new transport infrastructure did not appear to play a significant role in any of the three cities reviewed.

What are the public transport implications for Sydney?

1. An effective rail system is the priority mode for improving public transport

The case examples suggest that the rail system is the core of the public transport system for Australia’s largest cities, and should be accorded the strategic priority for future investment and operational enhancement to reflect its importance.

2. Customer Focus & Relevance is fundamental

Operating effectiveness and efficacy of the transport network to work in an integrated way is important to meeting the community needs. There is a need for clarity of strategic purpose for public transport authorities that is about the customer and that they expect the system to accommodate and work with (not against) their private motor vehicle. While the train service is a safer mode of travel than the car, the fundamental time and reliability criteria has to provide city dwellers with enough re-assurance to engage with the public transport system. Overseas experience suggests that if the rail backbone is underperforming, then the bus and secondary transport links lose the synergy that is evident in a well synchronised rail system with the rest of public transport and private motor vehicle.

3. An effective governance authority is needed to raise finance and delivery of

operational services

A sound governance structure enables financing, procurement and management roles to be more clearly applied outside of the tides of politics. Separation of operational performance and high level policy development is desirable to the longer term planned frameworks with which overseas transport authorities are managed.

4. Large operational subsidies are required for the public transport system

While some well run public transport systems can seek to break even on their operational budget, capital costs are very onerous and usually require finance, or direct payment by government. Australian cities are unlikely to be an exception. The justification for publicly funded subsidies must be based primarily on operational performance. Superior operational efficacy of public transport is paramount in order to outperform alternative modes with less desirable environmental credentials.



5. Travel Time is a key performance indicator

Time was a parameter that defines key indicators of performance and quality in the three city studied. In each study there were attempts to benchmark the public transport time to its competitor, the private motor car.

6. Public transport developments, shape settlement patterns – Transit oriented

development

There are numerous references in the three cities to on how public transport systems shape people living/settlement. In light of the onerous capital costs associated with enhanced public transport, Government’s and the community will need to consider the full range of options available to help fund new infrastructure investments in these areas. There are also observations in all the case examples on the economic impacts of new transport systems on surrounding land and property values. It does beg the question whether government’s can do more in finding new innovative ways to fund these significant investments and therefore bring forward new public transport infrastructure to meet community expectations for better services. Future transport developments could be partially funded through some of these transit oriented developments- land value capture, common ownership, joint ventures and tax increment finance are all ways to do this. This is an important area of further research.

The growth in public transport patronage in these three cities overseas has been achieved on a timescale of decades, rather than by applying “a quick fix”. The longer time scale is needed to move from patching modes together, under old infrastructure constraints, to systems which can be synchronised to more fully meet the travel needs of the public. Technology can increase the communication with customers, make payment systems card based for greater convenience and improve operational performance.

The core issue for customers used to private vehicle travel is to have access to a reliable and fast public transport system that has the flexibility to meet how and when people wish to travel. Providing the value proposition of public transport is strong, this will allow scope for higher fares based on quality of service. Minimum fares and minimum service in public transport is an approach that can risk compromising the long term effectiveness of the system.

The SMART Infrastructure Facility (2012) has examined in further detail the issues of Transit Oriented Development in its submission to Inquiry into the utilisation of rail and infrastructure corridors, prepared for the NSW Legislative Assembly, Committee on Transport and Infrastructure, January 2012. This report addresses the use of land development for integrated infrastructure corridors and considers improvement to policy development, planning and strategies to achieve greater productivity, enhanced liveability and improved economic benefit through informed decision making.



Role for Greater Innovation in Public Transport

Transport Commons – The Face Book of Transport

Ironically, with the soaring number of cars on our roads, there is also a corresponding increase in the capacity to carry more passengers in the form of empty seats in these vehicles.

Safaei (2012)

A Transport Commons is a network of private car commuters willing to share seat space with others in the network in order to reduce the private (and social) cost of transport. It takes the well-established concept of carpooling to another level using modern web-based and smart-phone technology.

The magic of augmenting networks is the key to this concept. Whereas carpooling often generally involved 2-4 persons from a neighbourhood or workplace, the Transport Commons can recruit an unlimited number of commuters into the network. And the more commuters in the network, the more efficient and beneficial the Transport Commons becomes. For example, a private car commuter could now have access to potential ‗cost sharers‘ along the full length of his or her journey, rather than just those commuters in the near neighbourhood or workplace. Hence, the Transport Commons can be thought of as the Facebook of Transport.

The concept is based on sound economics. If promoted and used widely, the Transport Commons has the potential to reduce congestion, significantly lower per km fuel costs and, potentially, reduce or delay capital expenditure on new roads. In this way, the Transport Commons can raise the productivity of road transport and thus reduce unit costs of travel per km.

It is now possible to create a transport commons management (TCM) entity that is accountable for the safe operation of the system, able to enforce rules, moderate supply and demand, incentivise the right behaviour and weed out perverse incentives. TCM may be private and/or government owned. (Safaei 2012).

This discussion is based on Safaei (2012).



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