1 00:00:00,320 --> 00:00:02,560 S1: Okay, let's get back to the suburban rail loop now. Uh, 2 00:00:02,560 --> 00:00:05,320 S1: my back of the envelope number says it's not going 3 00:00:05,360 --> 00:00:09,600 S1: to cost 34.5 billion, and it probably costs $45.5 billion. 4 00:00:09,600 --> 00:00:13,119 S1: 11 billion more. An excuse is a transport planner and 5 00:00:13,119 --> 00:00:16,440 S1: infrastructure advisor, doctor Eric Keys. Good morning. 6 00:00:17,040 --> 00:00:18,040 S2: Uh good morning Tom. 7 00:00:18,560 --> 00:00:22,000 S1: Well, I've only based my higher estimate on a 20% 8 00:00:22,000 --> 00:00:26,080 S1: rise in construction costs between 2021 and early this year, 9 00:00:26,440 --> 00:00:29,360 S1: and then arguably another 10% given what's happened to diesel 10 00:00:29,360 --> 00:00:33,040 S1: and plastic prices since then. Do we need to sort 11 00:00:33,040 --> 00:00:35,680 S1: of redo the numbers on the suburban rail loop now? 12 00:00:36,400 --> 00:00:41,360 S2: Um, look. Apps. Absolutely. Um, the the cost of the project, 13 00:00:41,720 --> 00:00:44,879 S2: a 30% cost increase on a major project like this isn't, 14 00:00:44,920 --> 00:00:47,960 S2: isn't unusual. We can look at the Westgate tunnel project 15 00:00:47,960 --> 00:00:52,599 S2: or the North East Link project, whose costs escalated a 16 00:00:52,600 --> 00:00:58,320 S2: lot more than 30, 30%. Um, even without the current crisis. 17 00:00:58,640 --> 00:01:01,139 S2: I think one of the difficulties for the government at 18 00:01:01,140 --> 00:01:04,020 S2: the moment is we don't know how or when this 19 00:01:04,020 --> 00:01:06,899 S2: crisis is going to end. So we don't know, you know, 20 00:01:06,940 --> 00:01:11,060 S2: if peace broke out tomorrow. Um, this would all sort 21 00:01:11,100 --> 00:01:13,980 S2: of drift into the memory and prices would come back to, 22 00:01:14,020 --> 00:01:18,899 S2: to normal over time. But if this drags on for years, um, the, 23 00:01:19,180 --> 00:01:23,900 S2: the cost escalations we're seeing now are just the beginning. So, um, 24 00:01:23,900 --> 00:01:27,940 S2: the people working on this project, um, aren't any better 25 00:01:27,940 --> 00:01:30,580 S2: informed than you or I about what's going to happen 26 00:01:30,580 --> 00:01:33,140 S2: in the, in the near future. So it's, it's not 27 00:01:33,140 --> 00:01:36,500 S2: really possible for them to provide the government with, with 28 00:01:36,500 --> 00:01:39,060 S2: an updated estimate that has any credibility. 29 00:01:39,860 --> 00:01:42,220 S1: Well, but I mean, normally what you do is like, 30 00:01:42,220 --> 00:01:44,339 S1: if you're in business with these things, you say, what's 31 00:01:44,340 --> 00:01:46,740 S1: the best case? What's the worst case? You know, best 32 00:01:46,740 --> 00:01:48,940 S1: case is, as you put it, the world comes back 33 00:01:48,940 --> 00:01:52,740 S1: to normality. Peace is done tomorrow, within a month, you know, 34 00:01:52,780 --> 00:01:54,820 S1: petrol and diesel prices go back to where they were 35 00:01:54,860 --> 00:01:59,280 S1: $1.60 instead of $2.60 or more. The Worst case is 36 00:01:59,480 --> 00:02:02,440 S1: this goes on for a long time and $3 diesel 37 00:02:02,440 --> 00:02:05,440 S1: and $2.60 petrol is the new norm. I mean, wouldn't 38 00:02:05,440 --> 00:02:08,440 S1: it make sense to say that's best case? That's worst case. 39 00:02:08,440 --> 00:02:11,160 S1: And let's possibly pick something in the middle. 40 00:02:11,720 --> 00:02:15,000 S2: Well, I think the the the the difference between the 41 00:02:15,040 --> 00:02:17,919 S2: best case and the worst case at this particular point 42 00:02:17,919 --> 00:02:22,280 S2: in time would be, um, so large, um, people would 43 00:02:22,280 --> 00:02:27,040 S2: have trouble accepting it and the government would say the probability, 44 00:02:27,080 --> 00:02:29,120 S2: you know, the chances of it being the worst case 45 00:02:29,120 --> 00:02:31,320 S2: or the chance of it being the best case are 46 00:02:31,360 --> 00:02:35,600 S2: actually quite small. You know, it logically, it, the actual 47 00:02:35,600 --> 00:02:40,119 S2: situation would fall, um, in, in the middle. And, and 48 00:02:40,120 --> 00:02:43,760 S2: so you're making a decision with a high degree of uncertainty. 49 00:02:44,120 --> 00:02:47,400 S2: One thing, one thing they do know if they, if 50 00:02:47,440 --> 00:02:52,680 S2: they pause the project, these projects cost, you know, in 51 00:02:52,720 --> 00:02:56,520 S2: the order of 1 million to $2 million a day 52 00:02:56,820 --> 00:02:59,299 S2: to keep running. So if the project is paused and 53 00:02:59,300 --> 00:03:03,780 S2: it adds, it adds a year. That's half a billion. Um, 54 00:03:03,820 --> 00:03:08,020 S2: half $1 billion extra. Just in extra, extra time. 55 00:03:08,060 --> 00:03:09,860 S1: Yeah. So, so on that it's a bit like it's 56 00:03:09,860 --> 00:03:11,820 S1: a bit like the desal plant. It does cost us 57 00:03:11,820 --> 00:03:14,179 S1: money just to sit there humming along, not doing much 58 00:03:14,180 --> 00:03:16,500 S1: because we have to keep it on so that when 59 00:03:16,500 --> 00:03:19,620 S1: we need it, um, it can be just switched on. 60 00:03:20,020 --> 00:03:23,020 S2: And major projects are the same in that regard. The 61 00:03:23,020 --> 00:03:26,180 S2: overheads of these projects, you can't just send everyone home 62 00:03:26,180 --> 00:03:28,660 S2: from the work site, you know, there's maintenance needing to 63 00:03:28,660 --> 00:03:31,980 S2: be done, there's security needing to be done. Um, there's 64 00:03:31,980 --> 00:03:35,860 S2: all the interest, um, the contractors have to pay for 65 00:03:35,860 --> 00:03:40,180 S2: working work in progress. Um, and these, so the cost 66 00:03:40,180 --> 00:03:44,860 S2: of delay is, is not in insignificant. Um, if they 67 00:03:44,860 --> 00:03:47,660 S2: were to abandon the project, of course that would have, 68 00:03:47,860 --> 00:03:51,460 S2: you know, major political implications. And I dare say that 69 00:03:51,460 --> 00:03:55,640 S2: would be front of mind for the, for the Premier Um, 70 00:03:55,640 --> 00:03:59,800 S2: because she's so personally attached to the project. So right 71 00:03:59,800 --> 00:04:02,440 S2: at the moment, you know, once they decided to proceed 72 00:04:02,440 --> 00:04:06,120 S2: with this project, um, I think they sort of had 73 00:04:06,120 --> 00:04:09,720 S2: to strap themselves into the roller coaster and, and ride 74 00:04:09,720 --> 00:04:14,120 S2: the ups and downs. It's very you at the end 75 00:04:14,120 --> 00:04:18,080 S2: of the day, these major projects, you know, control you 76 00:04:18,279 --> 00:04:20,920 S2: more than you control these major projects. They build their 77 00:04:20,920 --> 00:04:21,480 S2: own momentum. 78 00:04:21,520 --> 00:04:23,760 S1: Yeah. So once you push the button, you're sort of 79 00:04:23,800 --> 00:04:25,279 S1: stuck with it. What about. 80 00:04:25,320 --> 00:04:25,800 S2: Exactly? 81 00:04:25,960 --> 00:04:27,920 S1: What about a reassessment? Do we need it? I mean, 82 00:04:27,920 --> 00:04:30,240 S1: it's been interesting, you know, people driving through the West 83 00:04:30,240 --> 00:04:32,440 S1: Gate Tunnel and I've been through it 2 or 3 84 00:04:32,440 --> 00:04:35,599 S1: times now. It doesn't appear to be hitting its initial 85 00:04:35,600 --> 00:04:39,359 S1: traffic projections. Now that that might change, but do we 86 00:04:39,839 --> 00:04:42,360 S1: perhaps need to look at all the assumptions based on, 87 00:04:42,400 --> 00:04:45,440 S1: you know, things like the suburban rail loop and say, okay, 88 00:04:45,640 --> 00:04:49,120 S1: do these assumptions still stack up? For example, if working 89 00:04:49,120 --> 00:04:51,480 S1: from home does become a human right in this state, 90 00:04:51,480 --> 00:04:55,020 S1: which it might later on this year, Does the concept 91 00:04:55,020 --> 00:04:59,300 S1: of an orbital rail loop all the way around Melbourne 92 00:04:59,339 --> 00:05:00,740 S1: actually makes sense anymore? 93 00:05:01,500 --> 00:05:05,860 S2: Well, um, it makes sense as a, at a, at a, 94 00:05:05,860 --> 00:05:09,620 S2: at a level of a barbecue conversation. Everybody loves the idea. 95 00:05:09,660 --> 00:05:15,740 S2: And this is why it was such a politically popular, um, idea, um, 96 00:05:15,740 --> 00:05:18,340 S2: that the government ran with. But when you look at 97 00:05:18,339 --> 00:05:22,180 S2: the costs and the complexity of delivering these projects, which 98 00:05:22,460 --> 00:05:25,940 S2: the business case is a, is available, um, to, to 99 00:05:25,980 --> 00:05:29,340 S2: read the original business case and a careful reading of 100 00:05:29,380 --> 00:05:33,380 S2: that by somebody who, who understands, you know, the assumptions 101 00:05:33,380 --> 00:05:36,420 S2: and can assess whether the assumptions are good or bad, um, 102 00:05:36,460 --> 00:05:39,660 S2: would question whether it stacks up. This is what Infrastructure 103 00:05:40,339 --> 00:05:44,700 S2: Australia um, did and why they were, you know, continue 104 00:05:44,740 --> 00:05:49,100 S2: to be somewhat circumspect about the project notwithstanding the recent 105 00:05:49,100 --> 00:05:53,480 S2: decision on the Westgate Tunnel project. Um, I actually was 106 00:05:53,480 --> 00:05:55,800 S2: engaged by the city of Melbourne as a, as a 107 00:05:55,800 --> 00:05:58,159 S2: as a reviewer of the project to help the city 108 00:05:58,160 --> 00:06:02,640 S2: of Melbourne. And it was clear through my assessment, through 109 00:06:02,640 --> 00:06:06,320 S2: the publicly available information, that the project was far bigger 110 00:06:06,320 --> 00:06:09,320 S2: than it needed to be for the traffic volumes being forecast. 111 00:06:09,320 --> 00:06:11,960 S2: So it came as no surprise to me. You drive 112 00:06:12,000 --> 00:06:16,720 S2: through the tunnel today and it's empty. It's also why 113 00:06:17,080 --> 00:06:20,000 S2: the motorists using it only pay one third of the 114 00:06:20,000 --> 00:06:23,040 S2: cost of it. The other two thirds of the cost 115 00:06:23,040 --> 00:06:25,520 S2: is being paid by you and me through our taxes 116 00:06:25,839 --> 00:06:30,520 S2: and somewhat, um, you know, upsetting me every time I 117 00:06:30,720 --> 00:06:34,400 S2: use Citylink. I'm paying for the Westgate Tunnel project. Yeah, 118 00:06:34,600 --> 00:06:38,160 S2: those have been extended. So, you know, the the evidence 119 00:06:38,160 --> 00:06:42,040 S2: was there to anybody who can read these documents and 120 00:06:42,040 --> 00:06:44,960 S2: understand the documents that these things are somewhat of a 121 00:06:44,960 --> 00:06:50,640 S2: white elephant. Now, if these projects proceed, you know, on 122 00:06:50,640 --> 00:06:56,099 S2: these wonky foundations, you know, a change of circumstance. You know, logically, 123 00:06:56,100 --> 00:06:59,580 S2: if we're being completely logical, you'd look at these projects 124 00:06:59,580 --> 00:07:02,300 S2: and perhaps made a similar decision you made with the 125 00:07:02,300 --> 00:07:07,740 S2: Commonwealth Games that costs have blown out, it becomes unviable. 126 00:07:07,740 --> 00:07:10,660 S2: We'll pull out, we'll wear the political flak for making 127 00:07:10,660 --> 00:07:14,900 S2: a tough decision and we'll pull out. Um, the problem 128 00:07:14,900 --> 00:07:19,100 S2: with the suburban rail loop is that it's progressed too far. 129 00:07:19,260 --> 00:07:23,020 S2: And I think the Liberals are somewhat struggling. You know, 130 00:07:23,220 --> 00:07:26,260 S2: the Liberals would like to to, to run on a platform. 131 00:07:26,260 --> 00:07:30,220 S2: They'd cancel the project, but they know themselves that the 132 00:07:30,220 --> 00:07:33,820 S2: construction has gone on too long. By the time the 133 00:07:33,820 --> 00:07:38,140 S2: election runs away, they would then have to justify why 134 00:07:38,140 --> 00:07:42,260 S2: they're throwing away 10 or $15 billion of wasted effort, 135 00:07:42,260 --> 00:07:45,380 S2: and it'd be a difficult thing for them to do. 136 00:07:45,780 --> 00:07:48,100 S1: Well, well, well, it would give, given that, you know, 137 00:07:48,140 --> 00:07:51,640 S1: a generation ago they argued against the cancellation of East 138 00:07:51,640 --> 00:07:55,880 S1: West Link, which cost a bargain only $1.6 billion to cancel. 139 00:07:56,120 --> 00:08:00,920 S2: That's right. So we we're operating in this environment where, 140 00:08:01,200 --> 00:08:04,480 S2: you know, the the the way I was trained to 141 00:08:04,480 --> 00:08:08,000 S2: evaluate projects and, you know, assess the costs and the benefits, 142 00:08:08,360 --> 00:08:12,200 S2: those those rules don't apply anymore. These, these projects operate 143 00:08:12,200 --> 00:08:17,560 S2: on some sort of political calculus. Yeah. Um, where the, where, 144 00:08:18,000 --> 00:08:20,120 S2: where you and I pay because at the end of 145 00:08:20,120 --> 00:08:23,280 S2: the day, it's our money going into those projects. 146 00:08:23,720 --> 00:08:26,520 S1: Alright. Look, thank you for your time, doctor. Eric Keys. 147 00:08:26,560 --> 00:08:28,600 S1: It's sort of what I expected, but not what I 148 00:08:28,600 --> 00:08:31,760 S1: really wanted to hear. So I think the phrase white 149 00:08:31,760 --> 00:08:34,880 S1: elephant was used at least once. And remember the whole 150 00:08:34,880 --> 00:08:38,640 S1: idea of Infrastructure Victoria and Infrastructure Australia was to take 151 00:08:38,679 --> 00:08:41,960 S1: the politics out of infrastructure decision making, to make sure 152 00:08:41,960 --> 00:08:44,600 S1: that every big project, whatever it is and wherever it is, 153 00:08:44,800 --> 00:08:48,080 S1: is the best use of money at that time. Seems 154 00:08:48,080 --> 00:08:49,480 S1: like we've forgotten that lesson.