Speech to the Infrastructure Partnerships Australia Industry Leaders Lunch

I am pleased to join you for today’s Industry Leaders’ Luncheon.

Infrastructure is an area where public policy and the private sector very much overlap.

There is a strong public interest in having efficient, well designed infrastructure operating with high standards of customer service.

Very often the best way to achieve this is to draw on the capabilities of the private sector – to design, to build, to own or to operate that infrastructure.

For these reasons it is critical that private sector industry participants have a strong and well informed voice in the public policy debate about infrastructure.

That is the role which Infrastructure Partnerships Australia plays – and it does a very important job.

One area where IPA has had a fair bit to say is the role of public transport and particularly rail – and that is a topic I want to address today.

In the first part of my remarks I want to speak about the increasingly important role that rail will play as our cities grow.

Next I want to discuss some key elements of our policy agenda in urban passenger rail.

Thirdly, I want to speak about how that agenda is to be paid for – and the role of both grants and other sources of funding.

 

The role of rail as our cities grow

Let me turn firstly then to the importance of urban passenger rail as our cities grow.

There is a clear trend in our big cities – the number of people using rail is rising.  In Perth, urban heavy rail patronage rose 102 per cent between 2001-02 and 2015-16.  In Melbourne, it rose nearly 80 per cent in this period and in Adelaide 40 per cent.  Even in Sydney, which had the largest starting usage levels, it rose over twenty per cent.[1]

This trend reflects, first, strong population growth.  Our national population is growing at around 1.5 per cent a year[2] and our four biggest cities are growing faster than our national population.

Secondly, it is a response to network upgrades and increases.  In Perth, during the period 2001-02 and 2015-16 the network measured in kilometres of track expanded by 89 per cent[3]. 

The third driver for growing rail patronage is the efficiency of rail as a means of moving large numbers of people quickly and reliably.   A train line can move 50,000 people an hour. Compare this with a freeway lane which can move 2500 people an hour[4].

One good example of this the strong jump in patronage on the rail service between Sydney’s CBD and Kingsford Smith Airport.  Rail passenger numbers at Sydney Airport increased by 32% between 2014 and 2016. Around 20% of Sydney Airport passengers now use rail.[5]

As someone who regularly uses this service myself, it is not hard to see why more and more people are choosing the train.  In the last few years, as the airport has become busier, travelling there by road has involved a more variable, and frequently longer, journey time than in the past.

By contrast, the train trip is both quick and reliable, and has remained so as passenger numbers have risen.  The service is quite expensive, given the station access fee charged at the two airport stations, but the value proposition the train offers has become considerably more attractive in the past few years.

This is a good example of my key premise: as our cities become larger and more densely populated, heavy rail has an increasing advantage over other forms of transport because of its capacity to move large numbers of people quickly and reliably. 

Of course the upfront capital cost of heavy rail is enormous – as I will discuss further – but as our cities get bigger and more densely populated the benefits that rail can bring increasingly will justify this cost.

Let me mention some of these benefits.

New or extended rail lines can support the release of new land for housing, either on the outskirts of the city or in areas experiencing urban renewal.

Rail is the most efficient way to move people quickly to and from our CBDs and other employment clusters. As the number of jobs in CBDs and other employment clusters rises, we need higher capacity rail connections in and out of these locations.

Rail corridors are well suited to apartment and townhouse living. This mode of living is increasingly popular, and will represent a growing share of homes as our big cities grow and the population density rises. Case studies from Australia and overseas have shown that in inner and middle ring locations in cities, the bulk of the new housing supply is medium and high density, located very close to train stations. For example, recent research commissioned by my Department found that in Sydney from 2001 to 2011, 42.2 per cent of new housing was within one kilometre of a railway station [6].

In addition, the regional communities surrounding a city are closely integrated economically and socially with that city. Better rail connections can help that integration, benefiting the city and its surrounding regional areas.

 

Our policy agenda for urban passenger rail

For all of these reasons, the Turnbull Government has a strong policy agenda to support urban passenger rail – including some significant elements announced in the 2017 budget. 

The first component is a strong existing pipeline of investment around Australia.  This includes $95 million for Gold Coast Light Rail Stage 2 in Queensland; $490 million for the Forrestfield Airport Link in Perth; $42.8 million for Flinders Link in Adelaide; $1.7 billion for Sydney Metro City and Southwest; $78.3 million for Parramatta Light Rail and $67.1 million for Capital Metro in Canberra.

The second component includes our work with state governments to develop urban rail plans for Australia’s five largest cities (including their surrounding regional areas.)  We announced this in November 2016, in response to Infrastructure Australia’s (IA) 15 year Plan. This announcement was welcomed by IPA, who noted “The commitment to work with the major states on urban rail network planning and reform priorities could also provide a good basis for cross-government decision making and funding.” [7]

These rail plans are intended to take stock of the existing network and look at plans for the future network, and they will inform future Commonwealth investment into each network. 

Our intention is for the plans to cover such matters as the standard of existing infrastructure; forecast network capacity constraints; integration of state government strategic urban land-use and transport plans; housing affordability and supply; transport affordability and accessibility; and key transport solutions.

Thirdly, we are funding significant planning and business case work on major urban rail projects at various stages of early development.  This includes $10 million to progress planning for Cross River Rail in Queensland and a Joint Scoping Study with the NSW Government on the rail needs of Western Sydney and Western Sydney Airport.

In the recent budget we committed $30 million for work to plan a rail link between the Melbourne CBD and Tullamarine Airport.

We also allocated $20 million to support business case development on proposals for faster rail connections between our major capital cities and surrounding regional areas.  Let me explain this in more detail.

We have seen a number of proposals in recent years for high speed rail and the benefits are easy to visualise.  What is less well understood is that our existing regional rail services, often using tracks built in the nineteenth century, run at well below the speeds and frequencies that conventional rail can achieve.

For example, the average speed today between Sydney and Wollongong is 56 km/h.  At one point on that track there is a tunnel only large enough for one line, meaning trains often need to wait for the train coming from the other direction before they can pass through.

As we consider how to get the best impact through improving rail connections between our cities and their surrounding regions, it is important to consider both new rail lines and upgrades to existing rail lines.

There are two types of opportunities want to consider. The first is opportunities for a new or extended rail line between a major city, and a nearby regional area. The second is opportunities to improve existing regional rail connections, so that existing lines will support faster or higher frequency connections. 

Later this year we will issue a prospectus describing the program and the opportunities and call for initial proposals in response.  These could come from private sector proponents or consortiums or from state government rail operators.

The next stage would be business case development, which would be completed by the middle of 2018.

The project proponent would be expected to provide funding towards the business case, and the Australian Government would match that funding up to an agreed total, with the Australian Government’s maximum contribution on an individual business case to be $8 million. Business cases would be assessed by Infrastructure Australia once developed.

The final stage will be a decision by the Australian Government as to whether it will provide substantive funding to a project which is the subject of a business case. Our aim is for a decision to be made in relation to at least one business case in time to allow a funding commitment to be made by the end of 2018.

 

How this agenda is to be paid for

In the final part of my remarks today I want to turn to the question of how an expanded commitment to urban rail is to be funded. 

Firstly, there are significant additional funding commitments in the 2017 budget. 

We have allocated $792 million to progress urban rail projects in Western Australia, including extensions to the Thornlie and Joondalup lines, subject to positive business cases being provided to Infrastructure Australia.

We have also committed $500 million for regional rail projects in Victoria, including upgrades to lines running from Melbourne into regional areas.

Secondly, we made a major commitment to long term investment in urban passenger rail: the Turnbull Government will invest $10 billion over a ten year period for the National Rail Program. This Program will fund investments in major passenger rail projects in our big cities and investments to improve passenger rail connections between our big cities and their surrounding regional areas.

Funding starts to flow from 2019-20, and the ten year commitment has been designed to allow for the long lead times typical of major rail investments. Significant planning work is required before construction can commence.

This program has been designed at a scale to allow the Australian Government to make major funding commitments to several transformational urban rail projects (including on rail connecting our big cities and their surrounding regional areas) over the next decade.

The Australian Government’s funding contributions to these projects is expected to be provided as part of an overall package of support, alongside funding provided by the relevant state government and the direct beneficiaries of the project.

Guidelines for the provision of funding under the National Rail Program will be issued in coming months.  These will set out a range of factors to be considered in allocating funding, including

• The scale and city transforming nature of the project;
• The extent of state government funding provided;
• The extent of funding secured from other sources, including the private sector and including through value capture mechanisms;
• Whether land around the stations is zoned for higher value use, such as apartments and urban living;
• Whether the project has a positive impact on housing affordability;
• Whether the business case for the project has received a positive recommendation from Infrastructure Australia; and
• The project being consistent with the recommendations of the urban rail plans being developed by the Australian and state Governments, if appropriate.

Let me expand for a moment on the question of whether rail projects can be funded at least in part through the increase in value which is typically experienced by property owners and businesses located along the route of a new rail line.

Both the Commonwealth and state governments are looking closely at this approach. Just recently Infrastructure Victoria issued a policy paper, "Value Capture - Options, Challenges and Opportunities for Victoria." 

The NSW Government has indicated its interest in value capture as a potential funding source for projects like Parramatta Light Rail and the proposed new Sydney Metro West between Sydney and Parramatta.

The WA Government has stated its interest in value capture as a funding source for its Metronet rail projects.

Gold Coast City Council has established the City Transport Improvement Charge, which has helped to fund the first stage of the Gold Coast light rail.

Last year I visited the massive Crossrail project in London, which includes nine new stations. Value Capture mechanisms will contribute over one third of the $28 billion cost of the project. 

One of the new stations (Woolwich) is being funded almost entirely by the private sector landowner which sees the value of having improved access to its Royal Arsenal housing and retail development around the station.

Certainly as the Turnbull Government works with state governments on funding packages for major rail projects around the country, we expect value capture to be a component of the funding mix where there is market interest.

Let me be clear: value capture is only ever likely to contribute part of the total capital cost of rail projects. Crossrail is seen as an example of global best practice, with – as I mentioned – 30 per cent of the cost coming from value capture mechanisms. That is precisely why we have committed to significant long term grant through the National Rail Program.

 

Conclusion

Today I have outlined the critical role played by public transport, particularly rail, across the nation.

Rail will be an increasingly important element of the public transport mix as our cities grow. The Turnbull Government has a strong plan to support urban passenger rail, which includes an existing pipeline of investment, working with state governments to develop urban rail plans, and funding planning for major urban rail projects.

We look forward to working with state governments, and private sector companies in the infrastructure sector, to realise our objectives.

 

[1] Source: BITRE Estimates

[2] ABS 2016, http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0

[3] BITRE 2016, Trainline 4, https://bitre.gov.au/publications/2016/train_004.aspx

[4] Transport for NSW 2017, http://www.sydneytrains.info/about/environment/

[5] NSW Minister for Transport 2017, Media Release: More Trains More Services on Airport rail line as growth takes off, https://www.transport.nsw.gov.au/newsroom/media-releases/more-trains-more-services-airport-rail-line-growth-takes

[6] Research conducted by SGS Economics for the Department of Infrastructure and Regional Development

[7] Infrastructure Partnerships Australia 2016, Media Release: Turnbull Government accepts fundamental changes to infrastructure, http://infrastructure.org.au/wp-content/uploads/2016/11/161124-Response-to-IA_FINAL.pdf