Recall that the 2023-24 Victorian Budget expected the federal government to provide “a matching contribution” to the first stage of its Suburban Rail Loop (SRL) project.
Source: Victorian Budget 2023-24
However, the federal government has so far only committed to funding $2.2 billion, leaving a potential funding hole from the federal government of $9.3 billion. The $11.5 billion expected to be raised from value capture is also rubbery.
On Friday, Infrastructure Australia (IA) delivered a damning assessment of the SRL, suggesting that additional funding is unlikely in Tuesday’s federal budget.
According to IA’s evaluation, the Victorian government’s business case lacked detail and “overstated” the project’s benefits.
IA noted that the project is likely far more expensive than projected and recommended that the government create “exit strategies” if the project cannot be completed.
IA also noted that the SRL would create more emissions than it saves. Moreover, it questioned whether the $11.5 billion expected to be raised via “value capture” is realistic.
Below are key extracts from IA’s evaluation of the SRL.
“Based on the information provided, we have low confidence in the cost estimate for SRL East, presenting a major risk to the SRL East project and the SRL Program as a whole”.
“The proponent’s cost estimate was produced in 2020 and therefore does not reflect the design and scope definition activities that the proponent has undertaken over the last five years. Industry-wide cost escalation since 2020 presents further risk and uncertainty. Due to the uncertainty in the cost estimate, it is likely the economic case for SRL East and SRL North is overstated as any further increases to costs without extra benefits will reduce the benefit-cost ratio”…
“One third of the estimated cost of SRL East ($11.5 billion) is proposed to be funded through value capture mechanisms. While we acknowledge the role value capture can play in funding infrastructure, there is insufficient detail in the submission to provide confidence that these mechanisms can provide such a large proportion of the required funding, presenting a major risk to the project”….
“The proponent’s analysis states that emissions saved during operations would be less than 1% of the emissions produced during the construction phase… Based on current design and expected demand, the project is estimated to generate more emissions than it saves”…
“We recommend the proponent develops the exit strategies discussed in the Business and Investment Case in detail, in consultation with the Australian government, to provide a clear pathway to successfully conclude or transition out of the project in the event it cannot be delivered at this stage or in the future”.
After reading IA’s assessment, the key question is: how will the Victorian government fund the SRL if the federal government refuses to provide additional funding beyond the $2.2 billion already committed?
If the federal government refuses to fund SRL East (stage 1), how likely is it to fund the final two stages?
Victoria is already drowning in state debt, and funding shortfalls from the federal government and value capture will only exacerbate the situation.
Rating agencies S&P and Moody’s have already stated that they will downgrade Victoria if it doesn’t receive matching SRL funding from the federal government. A credit rating downgrade would drive up interest costs.
Premier Jacinta Allan’s negligence in signing the contracts to build the SRL against the advice of infrastructure experts has placed Victorians in a no-win position.
The project should be abandoned. However, doing so would force Victorian taxpayers to pay billions of dollars in compensation. This is comparable to what happened with the Commonwealth Games and the cancelled East-West Link, but on a much grander scale.
However, if the SRL continues and all three stages are built, the state will plunge deeper into debt, and its credit rating will suffer. In that case, interest costs will soar, and the state’s infrastructure budget will be eaten for decades, leaving little money for other vital projects.
Residents in Melbourne’s growth zones (e.g., the Western suburbs) will suffer the most since they will be denied crucial infrastructure investment.
Premier Jacinta Allan must resign over her financial mismanagement. Her pigheaded decision to proceed with the SRL has sabotaged the state’s finances and infrastructure budget for decades.
