Canberra Light Rail – is it delivering the benefits promised?
The ACT Government has released a report that assesses whether the Canberra Light Rail Project is realising the benefits projected in the project’s business case.
You won’t be surprised to learn that the report details many benefits delivered by the project. But whether it’s on track to deliver the benefits forecast in the business case remains a mystery.
We’ll probably never know, because most of the actual value of the benefits generated by the project can’t be measured. The best we can do is confirm that the light rail service is operating as proposed in the business case (which it is), and then make the same assumptions as in the business case regarding the economic benefits that the improved transport service will deliver.
Projected benefits
The business case distilled the projected costs and benefits down to a Benefit Cost Ratio (BCR) of 1.2.
The capital cost was projected by the business case (with a 75% level of confidence) to be $783m (including contingency of $173m). After adding opex, and discounting payments to be made in the future, the present value of the total project costs was calculated to be $823m.
The present value of the projected project benefits was calculated to be $984m, resulting in a BCR of 984/823 or 1.2.
The tender process for the project resulted in a contracted design and construction price of just $589m. Although the ACT Government ended up paying an additional $85m (14%) for variations and risks for which the ACT Government assumed responsibility (such as unplanned utility augmentations), the resulting capital cost of $675m remained $108m below the business case’s projected capital cost of $783m.
So, it’s a good story from a capital cost perspective.
But what about the $984m of projected benefits? Are they being realised?
Benefit realisation
The short answer is, for many of the projected economic benefits, we don’t know because we can’t measure these benefits and/or the extent to which they are due to the light rail project or other factors.
And for some of those that can be measured, the report lacks detail.
For example, the report doesn’t reveal the shortfall between the ticket revenue the ACT Government has collected, and the ticket revenue that was forecast. Although daily patronage was consistent with forecasts before the COVID-19 pandemic, and is currently tracking towards pre-pandemic levels, the report doesn’t reveal the extent of the patronage shortfall, or whether it can be entirely attributed to the pandemic’s impact on working from home and travel patterns. One can only assume the actual ticket revenue isn’t mentioned for a reason - perhaps because many patrons treat the light rail as a free service.
The report points to specific changes in land use near the route, but doesn’t mention the value of the land use changes that have occurred, or whether they are in line with the $168m forecast in the business case.
The report points to examples of increased densification near the route, but it doesn’t reveal whether the densification achieved to date is consistent with the forecasts, let alone whether the economic benefits associated with the achieved densification come anywhere near the $212m of forecast densification benefits.
Likewise, the report’s discussion of wider economic benefits realised bears little resemblance to the wider economic benefits forecast in the business case, including $165m of forecast productivity benefits due to firms being in closer proximity to other firms and to workers because of the light rail system.
The operating performance of the light rail has been good, with 99.98% of services running on time, so we can probably assume that the project is on track to achieve the forecast travel time benefits of $222m (although this may also depend on whether patronage targets are ultimately achieved).
Was a PPP the right contract model?
The report finds that the decision to use a PPP model was a good one, based on the cost and time outcomes achieved during the delivery phase. But this analysis ignores the impact that the PPP contract has on the ACT Government’s ability to obtain value for money on the extensions to the light rail system. It can’t competitively tender the operation and maintenance of the extensions without terminating the existing PPP contract, and must therefore negotiate with the incumbent operator on a sole-source basis. The cost savings obtained by using a PPP contract for stage 1 could be easily lost due to the ACT Government’s inability to competitively tender significant components of subsequent stages.
Stage 2
Stage 1 of the project (Gungahlin to Civic) was easy. The route was largely designed to accommodate such a service and was already lined with apartment blocks to provide patronage.
Stage 2 will be a different matter. The cost of just two more stops between Civic and Commonwealth Park is enormous.
The route across Lake Burley Griffin has yet to be agreed with the NCA and will involve a new bridge (probably down the centre of the two Commonwealth Ave bridges). The construction costs to extend to Woden will be massive, but where will the patronage come from? Will the ACT Government allow apartment blocks to line Adelaide Avenue?
Conclusion
The publication of the benefits realisation analysis by the ACT Government is a welcome initiative. It is rare for governments to publish their business cases and post-implementation reviews for major projects, and the ACT Government should be commended for doing so. But the exercise does reveal this it is impossible to validate, or discredit, the business case’s valuations of the anticipated economic benefits after the event. All the more reason to expose these to public scrutiny at the business case development stage, before committing to the delivery of the project.
