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Estimates: Rural and Regional Affairs and Transport Legislation Committee (Department of Infrastructure and Regional Development)

Estimates & Committees
Lee Rhiannon 24 Feb 2015

Senator RHIANNON: Last night in the public forum in Sydney, hosted by the WestConnex Delivery Authority, the head of the authority, Mr Dennis Cliche, stated that the documents, such as the project's business case and traffic modelling, were being reviewed by Infrastructure Australia. I understand from earlier responses to questions that the traffic modelling is being reviewed, and you have acknowledged that. Is it also the case that the project's business case is being reviewed by Infrastructure Australia?

Mr Mrdak : Yes, my understanding is that Infrastructure Australia has recently completed an assessment of the business case as it stood. My understanding is that Infrastructure Australia recently published its analysis of that business case, but I will ask Mr Foulds to outline again, because as he indicated in his earlier answer, the New South Wales government and the WestConnex Delivery Authority are looking at some additional options for the project, which are necessitating a review of the business case. I think, Mr Foulds, that that is correct, isn't it?

Senator RHIANNON: Could I just ask some other questions that could come into the response. I was interested in how long you we reviewing the documents, in when the review will be completed and in whether it will be made public? Could we start with that please.

Mr Foulds : The New South Wales government announced that it was reviewing the business case for the WestConnex project to take into account the potential for the northern and southern connectors. Those northern and southern connectors, it appears, have a lot of demand. Those could actually be achieved and be economically viable. The business case is, therefore, being reviewed by the WDA. That business case is due to be provided sometime around midyear to the New South Wales government. As for it being made public, the New South Wales government has not made any decision or communicated that at this stage.

Senator RHIANNON: Mr Cliche's comment last night was that it was being reviewed by Infrastructure Australia. So I take from your answer that it is not being reviewed by Infrastructure Australia.

Ms O'Connell : No, it is being reviewed by Infrastructure Australia, and Infrastructure Australia has completed its assessment and review.

Mr Foulds : The current business case has been reviewed by Infrastructure Australia. The current business case is also being reviewed to take into account the potential change scope of a northern and southern connector and the fact that-

Senator RHIANNON: By Infrastructure Australia?

Mr Foulds : Infrastructure Australia, I am sure, will review that when it is provided to them, but it has not been finished yet by New South Wales.

Senator RHIANNON: So this is a second review. In your earlier answer you said that it would be finished by midyear, and you say that then it comes to Infrastructure Australia?

Mr Foulds : I would imagine. You can ask Infrastructure Australia.

Senator RHIANNON: When you say 'imagine', is that a yes?

Mr Foulds : Well, I would expect so.

Ms O'Connell : Yes.

Mr Mrdak : We would expect that would be the case, yes.

Senator RHIANNON: Why do you say you expect? That means that there is not a clear process.

Mr Foulds : Well, it is the normal course of events.

Mr Mrdak : It is the normal course of events if they have updated the business plan. I say that because it will depend on whether the New South Wales government decides to proceed with changes to the design, the reference design, which includes the additional connectors that Ms Foulds has outlined. If they do that, and therefore change the business plan, then they will put that to Infrastructure Australia.

Ms O'Connell : I think that Infrastructure Australia has assessed the current business case for the three-stage WestConnex project. They have.

Senator RHIANNON: Is that public?

Ms O'Connell : Yes.

Mr Foulds : Yes, it is on the website, and it also says that the core benefit cost ratio is very positive, and that is why they have rated it as threshold.

Senator RHIANNON: From your answers today, as well as from previous estimates hearings, we are hearing again about the hundreds of millions of dollars from the Commonwealth to the New South Wales government, but you have been unable to verify the numbers that have been presented. If that is incorrect, can you explain whether the figures relating to the number of jobs created by WestConnex and the traffic analysis have been independently verified? On the two issues of jobs and traffic analysis, have the figures been independently verified and where?

Ms O'Connell : The role of Infrastructure Australia is to assess projects. They have assessed the business case of WestConnex, and that has now been made public. That was not the case, probably, when we met earlier and at the time of our answers to earlier questions on notice, but it is now the case that Infrastructure Australia has assessed the project, has looked at the business case and has published its six-page assessment of it. They have rated it as threshold and with a core BCR of 1.8 to one-that is, a benefit cost ratio of 1.8.

Senator RHIANNON: But it does not include the number of jobs that are going to be created?

Ms O'Connell : I would have to ask Infrastructure Australia if they assessed the jobs. They are appearing later this morning, and we can ask them then to what extent they looked at job numbers. But their main role is looking at the benefit cost ratio of the project.

Senator RHIANNON: If you are putting it out there in the public domain you would try to put forward a positive presentation, and jobs would be a selling point.

Ms O'Connell : It is not IA's role to be selling the project. Certainly the New South Wales government has talked about the number of jobs.

Mr Mrdak : And certainly the Australian government's commitment to this project is very much based on the employment as well as the long-term productivity this project will provide.

Senator RHIANNON: What we are trying to pin down is where you have verified those job numbers and those traffic numbers. We are still not hearing that that is what has happened.

Mr Mrdak : In working with the WestConnex Delivery Authority my officers have confidence in the jobs projections. At the end of the day, there is a relatively standard formula which operates around levels of expenditure for projects like this and multipliers for job creation. In our involvement with the delivery authority, we would be comfortable with the job projections that have been provided.

Ms O'Connell : We do think the job projections are reasonable. We have also looked at the traffic modelling. Part of IA's assessment would have been based on looking at the traffic modelling as well, so they have assessed the traffic modelling.

Senator RHIANNON: Mr Mrdak, you used the words 'comfortable' and 'confident'. Ms O'Connell, you used the word 'reasonable'. Have you done modelling to demonstrate that these figures are correct? Is there something behind your use of these words?

Ms O'Connell : We have done a detailed assessment of traffic modelling. We have raised some questions, as we talked about earlier, about getting peer review of the traffic modelling. Those questions have been answered. We are confident about the traffic modelling because that underpins the business case-absolutely we are. That is now being looked at by IA, who have come out with an assessment that is again strongly supportive, and the traffic modelling would very much, in detail, underpin that assessment. In terms of the jobs numbers, obviously, in terms of investing in WestConnex, it is going to create very significant numbers of jobs. The New South Wales government has made a statement about the number of jobs. We would concur with that statement. The jobs number is an estimate-it cannot be an absolute detailed assessment of numbers. But it is, in our view, a reasonable job estimate number.

Senator RHIANNON: Coming into this project we have had a background of urban motorways in Sydney that in terms of projected figures have been very problematic. The figures for the Eastern Distributor have been highly discredited; the Cross City Tunnel goes belly up twice; you would also know what has happened with the Lane Cove Tunnel. When you come into these projects and you are looking at the investment potential and how it all stacks up, are there lessons that you have learned from those previous projects?

Ms O'Connell : Absolutely. We have done a lot of work in this area, including producing quite a significant document that looked at some of the optimism bias in patronage risk forecasts to date. You have mentioned a number of specific projects where there has been significant optimism bias in the projection of patronage risk. We have worked with all jurisdictions in terms of being very open about the sorts of studies we have done, what they have shown, and how to avoid that bias in the future. We have produced a public document in relation to that optimism bias that lists quite a number of significant issues and how that can be better dealt with. In relation to WestConnex, not only has there been a detailed patronage model done by New South Wales and scrutinised by the WestConnex Delivery Authority, and they have had assistance and expertise in developing that model, but we have also scrutinised that model and engaged somebody else to help us with some peer review of that model and raised a number of questions about it and sought answers on those questions and refinements to some of its assumptions. I have to say they are all based on a model-it is not a precise science but you can certainly get much better forecasting from patronage risk modelling, and we have played a strong hand in advancing Australia's expertise in that area.

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Senator RHIANNON: Just getting back to WestConnex, will additional traffic modelling work be undertaken in-house by the WestConnex Delivery Authority? And will that be provided to you?

Mr Jaggers : Additional traffic forecasting work is happening within the WestConnex Delivery Authority and using their consultants. We expect to receive the outputs of that model and will have those outputs considered and reviewed by our expert consultant in the area.

Senator RHIANNON: When will that be concluded?

Mr Jaggers : I think that work is ongoing. I would expect a further report from New South Wales within the next two months.

Senator RHIANNON: Will that be made public?

Mr Jaggers : I do not believe it will be made public.

Senator RHIANNON: Will you make public any of your assessments?

Ms O'Connell : We have already said that we will take on notice whether we will be able to make our peer review of the traffic modelling done by New South Wales available to the committee.

Senator RHIANNON: I just want to go back to the issue of payments. The $500 million of the 1.5 has been paid. We will leave the $25 million aside for the moment. At what stage are you expecting to make the additional payment? Can you explain the process there?

Mr Mrdak : As we outlined earlier, at this stage we have a cash flow forecast at $250 million for the balance of this financial year, but, as Mr Foulds has indicated, that will be dependent firstly on the settling of the project proposal report and then the milestones and the achievement of those milestones.

Ms O'Connell : The projected cash flow for the project is, as the Secretary said, $250 million in this financial year, in 2015-16 a further $450 million and in 2016-17 a further $300 million. That is for the grant component, and there are separate arrangements in place in terms of drawing on the loan for stage 2. But that is a loan different to the payments under the grant.

Senator RHIANNON: How many staff of Infrastructure Australia, Infrastructure Investment and indeed the department are now working for the WestConnex organisation?

Ms O'Connell : None.

Mr Mrdak : We do not have staff with the WestConnex development authority. My officers participate in meetings as part of the steering committee and the like.

Senator RHIANNON: No, the question was about people who were staff members of the department and have left and are now working for WestConnex.

Ms O'Connell : I am not aware of any.

Senator RHIANNON: Could you take that on notice?

Mr Mrdak : We are not aware of any departmental staff who have been working for us who are now with WDA.

Senator RHIANNON: But can you take it on notice?

Ms O'Connell : Yes, certainly. Just for clarification, the WestConnex Delivery Authority is a New South Wales government entity.

Senator RHIANNON: I did come in a little bit late, so maybe you covered this. I was after more information about the $25 million-what it actually covered.

Mr Mrdak : Certainly. We did cover it briefly. It essentially provided the development funds, with New South Wales, for the development of the initial business case for the project and enabled New South Wales to set up essentially the project office, which now forms part of the development authority.

Senator RHIANNON: Could you provide a bit more detail? I mean, $25 million is a lot for a project office.

Mr Mrdak : Essentially it funded the initial development of things such as what goes in to a business case, the concept design, the traffic modelling-all the work that feeds in to the development of a business case.

Senator RHIANNON: At that stage, going back to the response Ms O'Connell gave when I asked about the experience you hopefully have drawn from the other controversial urban motorway projects, did that come in to any of this $25 million?

Mr Mrdak : Certainly the expertise and some of the work we have done fed into the project office, which I think it was called at that stage.

Ms O'Connell : That is right.

Mr Mrdak : Our contribution to the work that was being done at that time also built in what we regard as best practice for modelling and also some real-world experience of what actually has happened in Sydney in relation to traffic growth.

Senator RHIANNON: Is that looking at the concept of induced traffic and what that means for surrounding areas?

Mr Mrdak : Yes, it does. The traffic modelling does include, as it should these days, the impact of new developments such as this on induced traffic.

Senator RHIANNON: Is that then about how you modify what you need to do to surrounding roads? Does it go to that point where it is not actually the motorway project but there is a flow-on effect that needs to be managed?

Mr Mrdak : Certainly in the design of this project New South Wales is looking at issues, and Mr Foulds can give you more detail, such as the impact on connecting roads and decisions taken, such as which roads will or will not connect to the motorway and how local traffic will be handled in scenarios or how that then feeds in to the motorway and then what your off ramps do in terms of local traffic impact. They are all factors that are taken into the concept design. Alex, do you want to comment further?

Senator RHIANNON: I will just ask another question, and maybe it can come in to your response. In undertaking all that, have you considered any route alterations? Is that something you feed in to what you get from the New South Wales government and WestConnex? And have you considered the impact that might have on the cost, house acquisitions and that sort of thing? I am trying to see where that analysis of induced traffic and local traffic conditions goes in terms of the feedback you give to the New South Wales government and WestConnex.

Mr Foulds : The responsibility for the planning of the project essentially lies with New South Wales, as you know.

Senator RHIANNON: Yes.

Mr Foulds : In looking at and reviewing their traffic modelling, we would not be seeking to advance a particular route over another, but we would, rather, be working with them to understand why a particular route was favoured over another and asking questions: why should it go there; why not there? But the answer is usually a result of analysis that has been done, and as part of that business case development. So, you have induced demand, where-

Senator RHIANNON: Perhaps I could just ask you to clarify: are you saying you are looking only at the options the government and WestConnex present to you, like route A or route B? You are not saying, 'Why don't you go there?' That was not really clear from your answer.

Ms O'Connell : We would ask questions. The New South Wales government put together a business case based on a reference design. In the end, the final design is a result of post-tender arrangements in terms of looking at how that design can be optimised. So, it is not a single point in time; it is an iterative process, and we have involvement in that iterative process. And we certainly ask questions about options that were looked at, why they were discounted, why certain options were preferred, what that does in terms of benefit-cost and traffic modelling and all those sorts of things. It is not that we come to the position-and this is what Mr Foulds said-with a preferred route in mind and say, 'This is what it should be.' We come to it with knowledge, questions and a point of discussing and ensuring that options are explored with the New South Wales government.

Senator RHIANNON: Is it correct to assume that therefore once you get into the complexity of the project then proposals could be put forward, or options could be put forward, that result in a change in route and different house acquisitions and different flow-on effects?

Ms O'Connell : Absolutely, and that commonly does happen. It has happened in the NorthConnex project, where, as a result of the tender design, there was a slight change. These are not fundamental changes to the overall route, but when it comes down to individual blocks and where an entrance to or exit from the tunnel exists, that can be adjusted in accordance with-

Mr Foulds : And New South Wales does work very hard to look at the property impacts. When there are impacts that they can reasonably avoid, they take a lot of trouble in trying to do that.

Senator RHIANNON: Getting into some of the specifics, have you modelled, or has the material you look at modelled, an extension of stage 1 to the CBD or stage 2 to Port Botany?

Mr Foulds : If by that you mean the Sydney gateway-because currently stage 2 is from the Beverly Hills area through to St Peters interchange; that is the current scope for WestConnex stage 2. And then there are some enhancements in and around that interchange, and from 2019 there is the possibility of the gateway, which is a direct connection to Sydney airport and Foreshore Road at Port Botany. The modelling of that is underway, but I have not looked at that in recent times, so that work is still happening.

Senator RHIANNON: Has it come to you yet, or are you still waiting for it?

Mr Foulds : Not any final version, and I could not be more specific, because I simply cannot remember. The work on the Sydney gateway has not been completed.

Senator RHIANNON: Could you take on notice what work on the gateway-and by the way, the word 'gateway' is confusing for people from New South Wales; there have been so many different versions of this-

Mr Foulds : There is an overview document that New South Wales has provided on stage 2, which actually has a very clear map of what will happen under stage 2, the St Peters interchange, and then, separately, how the gateway will look and how it would be a connection directly to the airport ring road and down to Foreshore Road.

Senator RHIANNON: Is that public?

Mr Foulds : Yes, it is absolutely public.

Senator RHIANNON: That is the map-

Mr Foulds : It is actually a book of maybe 20 pages. It is hardcover.

Senator RHIANNON: Yes, it has the big map.

Mr Foulds : Yes. And the map does show, through colour, what is going to happen by 2019.

Senator RHIANNON: As a question on notice, what I am also trying to understand is where it is up to with you, with the stage 1 and stage 2 gateway-whether you have that information yet to review or when you expect to get it.

CHAIR: Perhaps you could put the rest of your questions on notice, or come back to them.

Senator RHIANNON: Okay.

 

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