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Wednesday, 12 September 1984
Page: 946

Senator HILL(7.14) —I wish to make a few brief comments during the adjournment debate about the Alice Springs to Darwin rail link. This issue has receded from public attention over recent months. Nevertheless, it remains an important and necessary national project which requires careful and considered assessment.

The completion of the rail link between Alice Springs and Darwin was the stated intention of the previous Government. In 1981 it was announced that the project would go ahead at an estimated cost of $545m. On completion at the end of the decade, together with the completion of the Stuart Highway, Australia would have finally had a rail and highway network linking our major population and development centres. The rail link was supported at the time by the Australian Labor Party and during the last election campaign it committed itself to its completion. Unfortunately, like so many other promises given prior to the election, the Government failed to deliver. The subsequent findings of the report of the so-called Independent Economic Inquiry into Transport Services to the Northern Territory, which was undertaken by the Chairman of the New South Wales State Rail Authority, Mr David Hill, and published last February, provided the Government with its justification for abandoning the project. The Hill report concluded that in present value terms the direct economic benefits of the rail link would be far outweighed by the costs of the project. The social benefits of the project, while believed to be 'considerable', were not, in the opinion of the Hill report, enough to warrant the construction of the rail link.

It is not my intention at this stage to canvass in any detail the methodology adopted by the Hill committee to reach the conclusions it did with regard to the rail link. It is important to note, however, that the findings of the Hill committee differed significantly from those of the Northern Territory Government which, even under the worst possible scenario it considered, found that the rail link would achieve a real internal rate of return of 7.51 per cent. On the other hand, the Hill committee's estimates, even on its most favourable assessment of the project, indicated that any social benefits arising from the project would not close the cost-benefit gap and, as such, it was not viable.

It should be noted that the approach adopted by the Hill committee in its assessment of the viability of the project looked only a the costs and benefits of the railway to be generated in the corridor between Alice Springs and Darwin. The Hill committee failed to examine the costs and benefits which would accrue over the entire rail and road system in Australia as a result of the construction of the proposed railway. Such effects should have been included in the Hill committee's evaluation of the project. Its failure to do so eliminated measurable benefits arising from lower road maintenance costs over a wider geographical area as well as the savings in marginal resources costs for each tonne/kilometre of freight transferred from road to rail.

Differences also arose between the Hill committee and the Northern Territory submission in the estimates each made of freight volume that would be carried following the construction of the railway. The Hill committee argued, for example, that the Northern Territory submission had assumed too large a volume of freight, too optimistic a growth rate and an overstated potential rail-road split. As such, the committee argued that the Northern Territory's research model had an inherent bias in favour of the railway.

In view of the discrepancies between the findings of the Hill committee and the Northern Territory as to the viability of the railway, it is interesting to examine more recent figures obtained by the economics and commerce group of the Legislative Research Service of the Parliamentary Library. In view of the Hill committee's failure to consider the effects of the proposed rail link outside the Alice Springs to Darwin corridor, the Parliamentary Library asked the Northern Territory to rerun the research model it used to make its submission and use the Hill committee estimates of freight volume, freight growth and rail- road split but evaluating the effects over a wider geographical area than the Darwin-Alice Springs corridor. The results of that simulation were provided to the Library via telex in June. I seek leave to have a copy of that telex incorporated in Hansard.

Leave granted.

The document read as follows-

The Northern Territory's model has been re-run to conform with your request to substitute the freight forecasts and growth rates of the Hill Inquiry, for those used in the original work by the Northern Territory. An additional modification has been made to use the Hill Inquiry's mode-split (76% to rail) rather than the marginally higher mode split adopted in the original work. All other parameters remain the same a those specified in the N.T.'s submission.

For the purposes of modification, the worst case model is used i.e. the lowest freight forecast of 1.182m tonnes or 2395 m NTK (Road and rail) in the 'With Rail' case. (see p.102, vol. 1).

Taking Hill's illustrative projection I (1.115m tonnes in year 1) and translating this to a national transport task results in the following:

Freight demand, with rail case, year 1

Road-542 m NTK

Rail-1717 m NTK

Total-2259 m NTK

Saving in year 1-$36.73m

Appraisal period-40 years

Rate of growth-2.75- p.a.

Net present value (NPV) of total cost/benefit stream at 7- discount rate-$80m

Internal rate of return (discount rate which yields a zero NPV)-6.32- p.a.

Hill's illustrative projection II provides a better result than the N.T.'s worst case. Total transport task is not provided by Hill in this case, only an estimate of 949,000 tonnes assigned to rail in year 1. Assuming 76% mode share for rail, this translates to a total transport task of 1,249,000 tonnes in year 1, with the following result when translated to a national transport task.

Freight demand, with rail case, year 1

Road-607 m NTK

Rail-1924 m NTK

Total-2531 m NTK

Saving in year 1-$41.13m

Appraisal period-40 years

Rate of growth-2.97- p.a.

NPV (7- discount rate)-$34m

IRR-7.27- p.a.

Senator HILL —The insertion of the Hill committee estimates into the model provides some interesting results. First, using the more optimistic of the Hill committee estimates, the model shows the project would generate an internal rate of return of 7.27 per cent. This would, therefore, provide an acceptable rate of return. Another way of expressing the result is that using a discount rate of 7 per cent the project would return a positive net present value of $34m. When the more pessimistic of the Hill committee's freight task estimates are used, an internal rate of return of 6.32 per cent is generated. Although this is much higher than the figure generated by the Hill assessment it may not be a sufficient rate of return for such a large publicly funded project. However, as I pointed out, it is certainly well above the rate of return that was originally estimated by the Hill committee. Again, using a 7 per cent discount rate, a figure of minus $80m is calculated. It should, however, be noted, as I indicated at the commencement of my remarks, that the range of social benefits which would occur from this project are not included in such calculations. But the discrepancy between direct costs and benefits as estimated by the committee was so great that the committee seemed to assume implicitly that the consideration of social benefits was still unlikely to lead it to reverse its decision. But on the new figures, when these benefits are taken into consideration it appears that the Hill committee may well have been hasty in dismissing the viability of the project.

In the light of these findings I would argue that the benefits of the railway have been considerably underestimated by the Hill committee. The huge gap found by the Hill committee between the costs and benefits of the proposed railway may in fact be much closer. Therefore, the social benefits of the project, which the Hill Committee admitted would be considerable but did not seriously attempt to evaluate, could turn the rail link into a viable project. I stress that that is so even on Hill's figures. I therefore urge the Government to re-examine its attitude to the Hill committee's report in the light of these findings. It might not have long to run as a government but its conscience would benefit if it were able at least on this occasion to meet one of its election promises. These new figures might just give it the basis to do so if it is really interested in the future economic prosperity of South Australia and the Northern Territory.