The case against the NSW Government’s road building agenda in the Sydney region

This article explains the main reasons why the NSW Government's road building agenda in the Sydney region is seriously flawed. Since the 1990's all major road building in Sydney, Brisbane and Melbourne has been carried out by private consortia that have designed, funded and managed the projects and, in some cases, have proposed them as well. The Federal government's assistance to such projects as WestConnex and NorthConnex may have also encouraged the process. However, questions need to be asked about whether a proper evaluation has been carried out of the economic and operational factors as well as the social costs in the planning of the currently proposed toll road projects.

It also needs to be asked whether these projects represent the best allocation of capital resources. The privatisation of roads in Australia is a politically driven agenda. It is inspired by the desire of politicians to promise the electorate free flowing traffic which is unattainable for reasons explained later in this article. The true cost of privatisation to the road user has largely been ignored by the government. A quantitative example given in this article shows that road users collectively are paying very large sums of money through toll payments for which there is little or no return in travel time savings.

The financing of roads

To raise capital to build roads and other infrastructure,the Premier of NSW, Mike Baird is proposing to sell public assets despite the fact that the cost of capital is now very low for a government with an AAA credit rating.

A misplaced belief in the advantages of privatisation in the form of public private partnerships has resulted in the expenditure of very large sums of money to construct 11 toll roads in Australia. Between 1994 and 2011, I have estimated that a total of $23.17 billion was spent in this period of which $13.98 billion was project debt and $9.19 billion equity (2011 dollars). Four roads out of these eleven have financially collapsed. The remainder only appear to be viable to investors because of financial engineering, an example of which is provided by the Transurban Group as discussed below.

Are there any advantages for the road user in privatising roads?

The stated advantage of private sector involvement in road building was that the roads would be built more quickly and efficiently, pleasing the electorate who did not understand the hidden social costs and other implications. Nor was it understood that privatisation was laying the foundations for a more rapid increase of future congestion.

This undesired outcome arises from an uncontrollable phenomenon known as traffic induction. New road space attracts new traffic and its advantages in terms of travel time savings are eroded in a short space of time. A road system is very much like a system of interconnected pipes carrying fluid. As the amount of fluid increases the available space gets taken up. This analogy was used in early studies of traffic flow and forecasting.

The performance of the M2 Motorway in Sydney is a good illustration of the effect of traffic induction. It only took a few years after it opened in 1994 before congestion during peak hours became apparent. In 2010 a decision was made to widen the M2 to try and cure congestion. At a cost of $550m, the advantages of widening were greatly overstated to justify the project. For example, annual crash rates were not reduced by increasing the number of lanes. Now quite frequently throughout the week, queuing and delays can be observed during peak periods. The widening was approved by the NSW Department of Planning and Environment which had apparently predetermined that it should proceed while ignoring any submissions that disagreed with its predetermination.

A short history of failed toll road projects

As stated above, four toll roads out of 11 in Australia have financially collapsed. These are the Cross City Tunnel and the Lane Cove tunnel, both in in Sydney, and the CLEM7 tunnel and Brisconnections Airport Link tunnel in Brisbane. Accounts of these failures are available on the internet.

The most serious of the four was the collapse of the Brisconnection Airport Link which I forecast in 2012 (see Brisbane Courier Mail, 12/11/12). Investors and bankers incurred losses of $4.8 billion. I considered that this case of financial collapse warranted an investigation by a Royal Commission into this disaster. (See The Australian Financial Review, 20/11/2012, 21//2/2013). The role of traffic forecasts in these failures was critical as shown below.