Archive for September, 2010

Recent news that Brisbane’s Clem Jones* (Clem7) road tunnel which opened only a few months ago is now on the verge of financial collapse has a familiar ring, confirming a pattern of losses in a string of privately-owned toll roads and other infrastructure projects across Australia.

As part of this growing pattern, a key factor has been what turned out to be a huge over-estimation in forecasts of the tunnel’s use. According the Sydney Morning Herald, the projection for the Clem7 was that 91,000 vehicles would be using the tunnel every day by now, with numbers exceeding 100,000 by late next year.

However, even with a prolonged toll-free period and a current halving of the tolls, less than 28,000 vehicles are now using the tunnel.  As a result the owner, RiverCity, has slashed tunnel’s value by $1.56 billion to only $250 million and is still losing $10 million a month. The Herald article claims the company has just $106 million in cash reserves and needs patronage to double and tolls to return to their normal levels just to meet its interest bills.

The Herald concludes that the forecasts turned out so wrong mainly because they were shaped by the financial models required to fund the project and not vice versa, a problem exacerbated by their apparent reliance on peak-hour demand. As Melbourne Urbanist also points out, this sort of exaggeration is not confined to infrastructure companies – lobby groups and other project promoters are sometimes guilty of the same sin, resulting in a climate of hyperbole in which such exaggerated claims become plausible.

Whatever the cause, investors are going to be understandably more reluctant to go anywhere near private-sector toll-road projects for the foreseeable future. It seems we are at last reaching the end of an era in which toll-roads and motorways were embraced as the answer to all our transport problems.

For a long time they seemed like the ultimate solution. Governments, construction companies and investors combined to give punters what they wanted, or thought they wanted – better roads – and they then got the punters to pay for it through tolls. The toll companies also ran the roads themselves, which was another attraction for governments who didn’t want to put money into boring, unsexy things like railways which they increasingly disliked because of their ongoing costs, unions, public complaints, etc.

Like all get-rich schemes, however, the toll-road bonanza was ultimately good to be true. The music was always going to stop sometime and now it has – leaving the owners of the Clem7 and similar projects holding some very expensive babies.

However, there are a few hopeful conclusions that can be drawn from this mess. First is that there appears to be belated recognition of the need for some rationality and planning to be applied to process of developing major infrastructure proposals. If governments are ultimately going to carry the can – which one way or the other, increasingly seems to be the case – then surely they should exercise more say over what gets built and when, where and how it is built. After all, that’s what they were once elected to do.

One alternative investment approach is the so-called “availability model”, which is being used for Melbourne’s Peninsula Link. Under this arrangement, the Victorian government will make periodic payments to the road’s builder irrespective of volume, thus leaving the government to bear the consequences if the project is a white elephant.

Although at first glance this approach may seem more expensive to governments, it will lessen the incentive for toll-road promoters to exaggerate patronage forecasts or to make the outrageous demands that that accompanied some projects such as Sydney’s M2 that operators be compensated if “competing” public transport projects are constructed to serve the same corridor.

It will also force politicians to be more realistic about some of the hard choices that have to be made about transport funding. For too long the obsession with lower taxes has swept the problem of infrastructure funding under the carpet, which is one of the reasons why toll-roads were seen as such an attractive option. Ultimately, as the Independent Inquiry into Sydney’s public transport (in which I was involved) established, there is no easy way out – extra money will have to be found, from taxes, levies and increased fares – to pay for new infrastructure.

And if governments are going to explicitly shell out the funds for major road infrastructure, either upfront or on an ongoing basis, then from a financing perspective these road proposals lose a lot of their perceived advantages over the proposed rail projects that these same governments have neglected over the years.

Without the hype of exaggerated patronage projections, project costs and anticipated rates of return, both road and rail projects can be considered on a more equitable footing, one that takes into account externalities such as environmental impacts and social outcomes as part of a proper planning process. One result of that should be the realisation that the government abdication of its responsibility to plan and provide public transport in favour of a user-pays toll-road model has grossly distorted transport investment decisions over the past 30 years.

*     Clem Jones (1918-2007) was Lord Mayor of Brisbane, from 1961 to 1975. Although he did much to modernise the city, he also presided over the closure of its tramways in the late 1960s, very much part of an era that saw trams as an impediment to the modernist ethic of the car –based city. There is an obvious irony in a major road project named after him facing financial failure over 40 years later.

In the first four posts in this series I looked at the distribution of Sydney’s forecast population growth across local government areas and in particular the projected increase in the number of councils with populations over 200,000, from two in 2006 to 14 by 2036. I also looked at the characteristics of councils which are forecast to experience above-average population growth rates or above-average increases in population numbers.

I noted that of the “200,000 plus” councils, all but Sydney City Council are in outer-ring suburbs and that nine of the 14 are located in Greater Western Sydney. The GWS region is expected to grow by over a million people or over 58%, significantly higher than the projected metropolitan growth rate of just under 38%, resulting in GWS having over 40% of the total metropolitan area population by 2036.

There was a strong correlation between the so-called mega-councils and those which are forecast to experience above-average growth, either in terms of rates of increase or total numbers. This perspective reinforced the pattern of Sydney’s growth as occurring most strongly in an arc running from the Hunter through most of Greater Western Sydney and tapering off into the Illawarra, with smaller concentrations of growth around Sydney city and parts of the inner west.

There are some interesting conclusions to be drawn from this, some of which I’ll look at under the broad headings of demographics, infrastructure and governance:

    DEMOGRAPHICS 

• Managing Sydney’s growth will always be an issue, irrespective of population policy or overall levels of migration. Whatever policies are adopted in the future, Sydney’s pattern of growth is likely to continue to be highly differentiated between high-growth and low-growth areas.
• Under almost any scenario, Greater Western Sydney (GWS) will experience by far the greatest bulk of this anticipated growth, reflecting lifestyle choices, competitive (though not cheap) housing costs and natural increase.

    INFRASTRUCTURE 

• The outer suburban areas likely to experience growth, particularly in GWS, are those which already suffer from marked under-investment in infrastructure, particularly transport and to a lesser extent in health, education and cultural infrastructure.
• If existing and proposed suburbs in these areas are to continue to accommodate rates of growth significantly higher than the metropolitan average,  then they will need comprehensive planning and early investment in infrastructure to avoid both new bottlenecks and compounding the mistakes of the past.
• Just as they are unlikely to reduce significantly overall  rates of growth, changes in population policy are unlikely to affect the demand for new infrastructure to support transport, education, health, employment social and cultural opportunities in these communities.

    GOVERNANCE 

•  Sydney’s forecast growth and the highly differentiated nature of this growth will pose particular challenges for Sydney’s future urban management
• The growth of Sydney’s outer suburbs in particular will pose significant challenges in terms of resource allocation as well as in attempts to provide additional employment in these areas. This growth is also going to continue to put strain on the environment of these areas, particularly those suburbs at the urban-rural interface.
•  There are likely to be further challenges resulting from the complexities of governance in a city with 53 councils estimated to range in population size by 2036 from under 20,000 to over 480,000.
• The 14 potential “mega councils” (those estimated to be over 200,000 in population by 2036) will experience particular problems because of their high growth but are also likely to have greater capacity to deal with some of these issues.
• It is clear that meeting Sydney’s infrastructure demands will have to involve the Federal Government as well as the State Government and councils. It is also likely to require a review of Sydney’s current governance structures.

In this post I’ll try to put the “mega-councils” story in the broader context of Sydney’s forecast population growth by looking at population increases growth rates rather than the resulting  size of the councils themselves, though obviously there is a strong link between the two.

According to the NSW Bureau of Transport Statistics  (BTS – formerly the TDC) forecasts, the Sydney Greater Metropolitan Area (GMA) will be 37.8% (the average growth rate per council will be slightly higher, at 39.5%, but for the purposes of this exercise I will stick with the GMA average). There are 16 councils which are forecast to experience growth higher than this average rate.

The average increase in population per council over this period is 37,225 persons and there are 15 councils whose growth in terms of total population will exceed this figure, according to the BTS forecasts (the usual caveats and qualifications as outlined in earlier posts apply). I have decided to bring together these two groups – those with projected higher-than-average growth rates and those with above-average population growth numbers as a highly arbitrary but quite interesting way of identifying “high growth” councils.

SYDNEY

As shown in Table 1, seven councils are forecast to experience above-average growth rates but below-average growth in terms of numbers, while six councils are forecast to demonstrate the reverse below-average rates but higher-than-average increases in terms of numbers. Nine councils belong to both groups.

This group of 22 councils (42% of the GMA’s 53 councils) is an interesting bunch. 74% of all of Sydney’s population growth will occur across these councils and the average rate of growth will be 53.8%.

 Not surprisingly, all 12 “200,000 plus” Councils I identified in previous posts that are forecast to be added by 2036 are members of this group as well. One of the two existing 200,000 plus councils, Blacktown, will also grow strongly, leaving only one council, Sutherland, which is currently over 200,000 but not on this list as it will grow comparatively slowly over the next 25 years.

Greater Western Sydney (GWS) tends to dominate this list. Table 2 summarises regional figures for these councils (don’t forget the numbers refer to the “high growth” councils in each region, not the total numbers of councils, anticipated total population increases or forecast regional rates of growth).

SYDNEY

Twelve of the GWS region’s 14 councils are in this group and these councils account for over 70% the high-growth council increase, 52% of the total GMA increase and 95.4% of GWS growth. All these figures are substantially higher than those in the remaining 10 high-growth councils, which are spread across four other regions.

In summary, the picture of Sydney’s future growth is of an arc, or crescent, starting in the north with Hunter councils such as Cessnock, Lake Macquarie, Maitland and Port Stephens, moving down through Wyong to a thick band around the Western edge of Sydney containing almost all the Greater Western Sydney councils and tapering off into Wollongong and Shoalhaven in the Illawarra.

Meanwhile other, smaller clusters of strong growth will occur in Sydney City (which will increase substantially both in numbers and rate of growth) and around Burwood and Strathfield (which will show strong growth rates but off a small population base).

What is equally significant are the councils not shown in these tables, the other 31 that are forecast to experience below-average growth rates and comparatively lower increases in total populations. For example, there are no councils from Sydney’s north and south, none from the eastern suburbs and only two comparatively small councils in the inner west.

I’ll discuss some of the overall implications of the BTC population forecasts in a future post.