William McDougall

Summary

A PERFECT storm is brewing in Melbourne’s north-east.

The $16 billion North East Link is touted as ‘the biggest road transport project in Victoria’s history’.

It’s also shaping up as the biggest mistake of the Andrews Government’s autocratic approach to transport infrastructure.

Here are just a few of the problems with NEL:

• It was announced before being scoped or costed in any way
• The assessment was done by the very organisation set up to deliver it (the NEL Authority)
• Its business case was based on excessive traffic growth and incorrect cost-benefit analysis (it probably only returns 70 cents per dollar invested, not $1.30).
• Despite including a busway, it’ll reduce public transport mode share overall
• Its massive impacts on people and the environment are unacceptable to the local community
• It’ll involve extensive tunnelling, with unanswered questions about soil disposal
• Toll road investors have walked away from the project, so the taxpayer will take the financial risk (the scale of which will probably be kept secret).

In the aftermath of COVID-19 the whole thing makes even less sense than it did before.

The Andrews Government must stop, take a deep breath and reconsider their transport priorities. They must re-evaluate the scale of the problem and review the nature of the solutions. They must also get the transport modelling and economics done properly.

It’s time for a massive reality check. While infrastructure investment is important for post-COVID jobs and economic recovery, we must pick better projects than the ones being chosen by our politicians.

Overview

NEL is another West Gate Tunnel in the making, except it’s a far bigger project with even more risk to the taxpayer.

It’s justified by the same erroneous transport modelling and another overstated benefit-cost ratio. All this for a $16 billion (and counting) mega-project that destroys valuable habitat, taking trees, houses and large amounts of land.

The road will be built and run under an ‘availability’ contract; the operator will be paid a pre-agreed fee for keeping it open to traffic, over a predetermined number of years. This is like the Peninsula Link Freeway set-up, but with one big difference; users will have to pay tolls for using NEL. Toll prices will be set – and revenue collected – by the Government.

Toll revenue won’t cover the fees paid by the Government to the operator. Thus, the operator will be shielded from the risk of future traffic variations; the taxpayer will take the risk.

No doubt, like Peninsula Link, the deal will be ‘commercial-in-confidence’ and the Government won’t tell us how much profit the operator will make out of it, nor how much it will cost the taxpayer over the concession period.

Regardless of whether it’ll produce sustainable transport outcomes (it won’t), the sheer scale of NEL and the haste with which it’s been assessed and designed, plus the unknown aftermath of COVID-19 on all the assumptions behind it, mean that it MUST be re-evaluated properly, and re-scoped accordingly, before a contract is signed.

It’s irresponsible in the extreme to do otherwise.

My involvement

As an expert witness during the NEL EES hearings in 2019, I reviewed the transport modelling and strategic planning-related aspects of the project.

My expert witness report raised an initial set of issues. We then had a ‘conclave’ with the transport modelling team. Some issues were clarified, but further digging simply revealed more concerns.

I gave a presentation at the EES hearings to throw more light on this. It then took over two weeks for NELA to lodge a response from the transport modellers, just a day or so before our legal team’s time slot was up.

I wrote a further response to this reply, but I was refused permission to submit it to the EES review panel. The panel concluded, in their final report, that the traffic modelling was ‘probably good enough’ for the purposes of the EES.

I disagree with their assessment. The distortions in the traffic forecasts are substantial and will have a material bearing on its justification, as well as its impacts and effects.

If you’d like to read the paper trail, here are the links one by one (feel free to ask me if you have any queries):

1. My expert witness report
2. The traffic conclave report
3. My presentation slides
4. A report on the convergence issue in 4-step models
5. Response from NELA’s transport modellers
6. My final rebuttal to (5)

The EES terms of reference didn’t allow the Panel to question the fundamental basis for the project. They were mainly concerned with its physical impacts and how to mitigate them. To them, it didn’t matter that there were flaws in the preceding business case. They even felt that the excessive traffic might end up conservatively over-estimating some of the effects.

The business case is supposed to be the document that determines the worth of a project. However, in this twisted world, business cases are done after the political decision is made to proceed.

This approach is enabled by the Major Projects Facilitation Act. Designed to speed up the process, the legislation allows politicians to pick and announce a project, set up an implementation authority and instruct them to prove its worth. The implementing authority has an inherent bias because it’s their job to get their project through the hoops, to politically determined timeframes.

Election platforms have become the place for determining priorities, and the public service is actively prevented from intervening or influencing them. Politicians take free rein in dreaming up what they think is needed, based purely on political gain. This is done without a strategic plan to determine long term targets and objectives.

Anyway, enough ranting; let’s dig into the NEL business case.

NEL traffic modelling

You’d be forgiven for thinking that I’ve got it in for the Zenith model and its creators, Veitch Lister Consulting. Far from it; I think it has the potential to be the best model of its type out there, if only they’d fix it up properly. 

I’d welcome the opportunity to help them.

Like West Gate Tunnel and East West Link previously, the Zenith transport model was used for traffic forecasting. It still had the illogical ‘single loop’, this time with more documentation defending it.

After the EES traffic conclave, a ‘full loop’ model run was provided, so we could see the differences. However, I don’t believe it was done properly; it almost certainly didn’t converge to within acceptable mathematical tolerances. Its results can’t be relied on any more than the ‘single loop’ method.

The table below compares some key model statistics.

Differences between the total number of person and vehicle trips modelled in Greater Melbourne were small, but the differences in vehicle-km and vehicle-hours were larger. The ‘full loop’ method gave 4% less vehicle-km and 9% less vehicle-hours in 2036.

Notice also that NEL results in fewer public transport trips, even though it includes a busway. This is also despite Zenith assuming no limit to future public transport carrying capacity, which shouldn’t be done for project appraisal.

The changes due to NEL were affected more significantly, and also rather strangely. From the numbers, it looks as though the ‘full loop’ produced a 4% larger increase in car trips, a 64% larger reduction in public transport and a 13% smaller reduction in active transport (walk and cycle) trips due to NEL.

It also resulted in an 18% smaller increase in vehicle-km, but a 110% larger decrease in vehicle-hours due to NEL. Behind these overall numbers, there were large differences between the vehicle-km and vehicle-hour changes for cars and commercial vehicles.

These results are greatly concerning. They clearly show that ‘single loop’ produces very different results to ‘full loop’. However, one key problem is that the degree of convergence of BOTH methods is unknown. Without iterating to achieve convergence, there’s no way of knowing how much model ‘noise’ is affecting the results. Given the very strange numbers in the table above, I suspect that it’s having a huge effect.

Proper model convergence is a fundamental requirement of modelling done for projects like NEL, to ensure that the model isn’t producing unwanted side-effects.

If this ‘full loop’ result was used for cost-benefit calculation, I think it’d produce completely unbelievable results.

Here are some traffic flow results from the two model runs.

‘Full loop’ did indeed produce less traffic than ‘single-loop’. It also attracted 7% less traffic to NEL in 2036, which meant less traffic relief on surrounding roads (as shown above).

‘Single loop’ probably overestimates 2036 traffic by as much as 10%, but it’s impossible to know for sure because the ‘full loop’ run was also wrong.

Toll discounting

As on West Gate Tunnel and East West Link before it, the modelling assumed that future toll prices would go down in real terms, because of increased future prosperity. However, tolls were the only price that was lowered for this reason, in the modelling. If we’re all going to be more prosperous, all prices ought to be adjusted, not just the tolls. All this assumption does is make the toll road more attractive compared to everything else.

I expect that the incorrect reduction in future toll prices would probably attract 10% more traffic to NEL.

Including the general over-estimating of ‘single loop’, this probably means that NEL traffic in 2036 is overestimated by about 20%.

These distortions are solely introduced by illogical and erroneous modelling methods and assumptions.

Cost benefit analysis

The cost-benefit analysis in the business case gave NEL a benefit-cost ratio of 1.3 (1.4 including wider economic benefits). 

Percentage-wise, the wider economic benefits were smaller than the Western Distributor’s, which seems reasonable; the Western Distributor serves central Melbourne much more directly than NEL. Wider economic benefits are most noticeable in big activity clusters like CBDs.

The economic results in the NEL business case are summarised below.

Some of the economic benefits flow from changing things in the economic calculations without also changing them in the transport modelling. This is procedurally wrong. The economic benefits are intended to reflect perceived or behavioural prices. If something is changed which would affect behaviour, it should’ve been changed in the traffic modelling too.

A key example is the perceived extra cost of congestion. If this was a real phenomenon, and it was somehow added into the transport model, it would probably divert traffic away from congested links, increase public and active transport mode shares, and/or shift journeys from peak to off-peak time periods. However, in this case, as I’ve already said in Tunnel Tales 3, theoretically the transport model has already been calibrated to take full account of perceived values of time and costs associated with travel, congested or not.

The travel time reliability is another item in which additional benefit is claimed from users’ perception of increased network reliability (reproducible travel times from one day to the next) due to the project. Again, the concept of reliability ought to be already reflected in the transport model calibration; it would be influencing travel choices every day.

The benefit stream in the cost-benefit analysis was inflated to account for increased values of travel time in future years due to increased prosperity). However, this wasn’t included in the transport model (in which future values of time were constant in real terms, as per Government guidance of the day). If it had been modelled, it would’ve changed future traffic patterns, and given a different result for NEL. It’s incorrect to escalate a behavioural value in the cost-benefit analysis without also doing it in the modelling.

Finally, since the business case was published, the capital cost of NEL has increased. The business case used a cost of 12.2 billion (2017 dollars). The latest State budget puts it at $15.6 billion, which is 8% more in real terms (after allowing for escalating construction prices in the interim).

The table below summarises my estimate of the impact of these issues on the benefit-cost ratio.

The outcome is to reduce the benefit-cost ratio from 1.3 to 0.7, or from 1.4 to 0.8 including wider economic benefits.

Conclusions

While this is the best I can do at the moment (without getting the traffic modelling re-done!), I think it shows that:

• It’s imperative that the economic appraisal and the traffic modelling both contain the same pricing assumptions throughout
• The traffic modelling needs to be done properly (i.e. without ‘single loop’, and with clear evidence that the demand model converges sufficiently, in all modelled years and time periods).

Changes since the business case, particularly COVID-19, mean that NEL shouldn’t proceed until it’s been re-assessed properly, including taking full account of the pandemic’s possible effect on future growth and travel patterns.

If this changes the scope, timing and overall need, so be it. The present project, like so many others, has been concocted from a political standpoint rather than a demonstrated need.

North East Link is the biggest road project in Victoria. Despite that, its justification was unduly rushed and highly questionable. Its construction will probably be rushed as well. It threatens to cost us many times more even than the West Gate Tunnel will.