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A strong plan for Queensland's roads and railways: speech to the Infrastructure Association of Queensland, Brisbane.



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A STRONG PLAN FOR QUEENSLAND'S ROADS AND RAILWAYS

VS15/2007 19 July 2007

INFRASTRUCTURE ASSOCIATION OF QUEENSLAND BRISBANE, 19 JULY 2007

Introduction

I'm delighted to be here today with the Infrastructure Association of Queensland.

Australia's greatest years lie ahead of us, and our future can be one of great optimism. Our future will have its challenges, including the provision of infrastructure over the decades to come.

The amount of freight on our national transport system is forecast to double by 2020. The amount of freight carried between Sydney and Brisbane is forecast to triple.

Australia's exports, and particularly our resource exports, are booming and our infrastructure is struggling to keep pace. For example, Australia's coal exports increased from 204 million tonnes in 2002 to 237 million tonnes in 2006.

The Australian Government's response

The Australian Government is responding through AusLink 1 and 2 -- $38.1 billion in funding for Australia's roads and railways.

We are spending $766.2 million on Queensland roads in 2007-08, including:

• $53.8 million to continue widening the Caboolture Motorway; • $25 million to continue widening the Bruce Highway to four lanes through Gympie; and • $26 million from the Australian Government’s $79.5 million commitment

to the Townsville Ring Road.

In addition, the Queensland Government is able to press ahead with upgrading the Bruce Highway between Cairns and Townsville and building

flood improvements south of Tully, because we provided the state with an advance payment of $347 million in June 2006 for these projects.

The Government has also brought forward $400 million to 2007-08 and 2008-09 to start work on the Goodna Bypass between Dinmore and Gailes.

The bypass is the most important part of our $3 billion plan to fix the Ipswich Motorway. The bypass will halve the congestion on the existing motorway, because it will separate the heavy long distance trucks from the commuter on

the motorway.

The other parts of our plan are the new interchange with the Logan Motorway, which is now under construction, and widening the Darra to Wacol section of the Ipswich Motorway to six lanes.

We have now unveiled AusLink 2 - a $22.3 billion investment in the land transport system from 2009-10 to 2013-14.

It will be the biggest investment in land transport infrastructure ever made by an Australian Government. It is 41 per cent larger than the original AusLink programme.

AusLink 2 will extend the Black Spot Programme and increase its funding from $45 million a year to $60 million a year.

It will extend the Roads to Recovery Programme and increase its funding from $307 million a year to $350 million a year.

It will also inject an additional $300 million into the Strategic Regional Programme.

AusLink 2 will include $16.8 billion over five years for road and rail projects on the AusLink national network. I will be announcing the details of the major AusLink 2 projects later this year.

Stopping the cost overruns

The Ipswich Motorway projects that I mentioned earlier are the last Queensland projects that we are funding under the rules that we developed for the original AusLink programme.

They are also the reason that we have had to change the rules, for the greatest problem with AusLink has proved to be cost overruns by the state and territory governments, especially by Queensland, and especially on these projects.

The Queensland Department of Main Roads originally estimated that the interchange between the Ipswich and Logan Motorways would cost $148 million. Its June 2006 estimate was $238 million, an increase of 61 per cent.

QDMR originally estimated that the cost of widening the motorway from Wacol to Darra would be $320 million. Its December 2006 estimate was $468 million,

which is an increase of 46 per cent. The cost of this project is likely to blow out even further.

I was so concerned about the cost blowouts in Queensland that I commissioned an independent report into the way the state estimates the cost of major road projects. The report was compiled by consultants Evans and Peck, and I am releasing it today.

Evans and Peck examined the cost estimation process for three major projects: the two projects on the Ipswich Motorway and the Neilsens Road Interchange on the Pacific Motorway.

The key finding was that QDMR's transport planners are far too optimistic about the difficulties and unforseen costs that are involved in building any large project.

It's a problem that's known around the world as 'optimism bias', and it's part of human nature.

When you set out on a new venture, whether it's starting a business or building a road, you naturally hope that it will go smoothly. The danger comes when those hopes seep into your business plan - or your cost estimates.

Prudent transport planners apply a contingency factor of between 30 and 40 per cent to make sure their costings don't suffer from optimism bias.

The contingency figure covers the extra costs that can't be foreseen from the start of the project.

The QDMR planners only applied a contingency factor of 15 per cent for the Ipswich Motorway interchange and 19 per cent for the Wacol to Darra upgrade.

They picked low numbers, crossed their fingers, and hoped that nothing would go wrong.

One of the reasons they felt able to do this was because they knew that someone else - Australian taxpayers - would have to meet any cost overruns. The report noted that:

there was an expectation within QDMR that DOTARS [that is, the Australian Government Department of Transport and Regional Services] would provide additional funding to cover increases over the approved limits. This arrangement or understanding provided no incentive to QDMR to provide DOTARS with the best available estimate.

Massive cost overruns like the ones on these projects are a serious problem.

Every time the cost of a project blows out, we have to take money from other roads to pay for it. The people who were hoping to use those roads have to wait longer for their upgrades.

The Australian Government has already announced a series of measures to deal with cost blowouts by the state and territory governments. Under AusLink 2, we will require the state and territory governments to contribute to the cost of all new projects, including projects on the former National Highway. This requirement will give them an incentive to get the cost estimates right from the start.

Furthermore, the Australian Government's funding will be capped at a defined dollar figure for each project. The state or territory government will have to bear the rest of the cost, even if they mismanage the project and the cost blows out.

The Evans and Peck report concludes that these measures are a step in the right direction, but it sets out twenty additional recommendations for QDMR and DoTARS.

It recommends that QDMR should improve its estimating procedures and use appropriate risk assessment and contingency allowances. It warns that Queensland must guard against the tendency towards being too optimistic in its estimates.

It recommends that DoTARS should define its requirements better and that its staff should be trained to cast a more critical eye over the initial cost estimates for projects. It advises that the lessons from the report should be implemented nationally.

I have accepted all of the recommendations that relate to my department. I have asked the Queensland Minister for Transport and Main Roads, Paul Lucas, to implement the recommendations that apply to QDMR, so we can provide Queensland with better roads at the right price.

Queensland's coal exports

I want to turn now to another infrastructure issue: the state of the rail system that supports Queensland's coal exports.

Queensland exported 119 million tonnes of coal in 2006, but its export infrastructure is failing to meet the demand. There is a long queue of ships off Dalrymple Bay waiting to use the coal terminal. The capacity of the Dalrymple Bay coal loader is 60 million tonnes per year, but in May 2007 Queensland Railways was only able to deliver the equivalent of 49 million tonnes a year to the port.

The Queensland Government has launched a review of its Goonyella coal chain, but there is a fundamental problem with the state's rail system that also needs be addressed.

The problem is the state's rail gauge: 3 feet 6 inches, instead of standard gauge, where the rails are 4 feet 8 ½ inches apart.

You would all be familiar with the story of how Queensland developed its narrow gauge railway system. In the 1860s, it was argued that narrow gauge

would give the colony most of the benefits of a standard gauge system at much less cost.

On the whole, the narrow gauge system has served Queensland well, but it has two disadvantages for the state's coal exports.

Narrow gauge coal wagons have a lower productivity than standard gauge coal wagons, because they are smaller.

A typical Queensland coal wagon has a 26.5 tonne axle load and can carry 83.75 tonnes of coal. In contrast, a typical standard gauge coal wagon has a 30 tonne axle load and can carry 97 tonnes.

A typical Queensland coal train has 122 wagons, so a standard gauge train of the same length would be able to haul an additional 1,600 tonnes of coal.

In addition, Queensland's narrow gauge rail system is an enormous barrier that makes it extremely difficult for other train operators to enter the market. As a result, there is very little competition on the Queensland Rail system and very little incentive to improve efficiency.

In stark contrast, there are currently nine major operators using the interstate rail system owned or leased by ARTC. In the Hunter Valley, there are two train operators competing to haul coal - and one of them is QR National.

Today, I am announcing the first step in a radical plan to boost the capacity of Queensland's coal railways, starting with the proposed Surat Basin line.

Surat Basin Study

The Queensland Government has issued an unconditional exclusive mandate to the Surat Basin Railway consortium to build a new railway line from Wandoan to Banana and to upgrade the existing narrow gauge line from Toowoomba to Wandoan and Banana to Gladstone.

The new line will open up the vast coal resources of the Surat Basin. It is a far-sighted plan and is a tribute to the vision of the consortium partners: the Australian Transport and Energy Corridor, Industry Funds Management, Queensland Rail, Xstrata Coal and Anglo Coal.

My vision is that the Surat Basin Railway should be dual gauged so it can handle both standard gauge and narrow gauge trains.

It would enable Queensland to reap the productivity gains of using standard gauge coal wagons. It could also be expected to result in lower coal freight rates, because it would give interstate train operators a fair chance to compete against QR for coal contracts.

As a first step, the Australian Government will provide the Surat Basin Railway consortium with up to $3.5 million to help expand its planning work so it can examine the economic and financial viability of dual-gauging the line from Gladstone through to the planned Wandoan mine and then to Toowoomba.

The dual gauge track could be extended later to the massive Felton deposit near Pittsworth.

The funding is subject to an agreement that the Australian Government will have the option of becoming an equity partner in the development of the line upon the consortium reaching successful financial close.

The Government will decide whether to participate after the planning work is completed and will only become involved if the line is covered by an open access regime.

We are already in the process of investing $389 million to boost the capacity of the Hunter Valley coal line following our lease of the line from New South Wales in 2004.

So we are also interested in investing in new infrastructure in Queensland to improve the efficiency of its coal network.

The Government's funding for the planning work is also contingent on each of the consortium partners making a matching contribution to the planning work and meeting key benchmarks.

As a country, we need to be able to haul coal from the Surat Basin efficiently and competitively to the Port of Gladstone. We can no longer allow a lack of investment and a lack of competition to be an impediment to our exports.

Conclusion

So in conclusion, the Australian Government has a strong plan to build better roads and railways in Queensland.

The state will benefit from our $22.3 billion in land transport spending under AusLink 2 - and there will be strong rules to make sure that Australian taxpayers get value for money.

And today we have started taking action to make the state's coal export railways more productive and competitive. Thank you.