A quick guide to the crazy world of business cases

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By Andrew Herington

The state budget has included a swag of new transport projects but it seems some are little more than thought bubbles. The Napthine government is claiming that passage of the budget is tantamount to approval of the projects – which is not the case. All the budget does is set aside allocations for the future and a change of government can simply reallocate those funds in the next budget. Most lack a real business case although the government is trying to pretend otherwise.

Each of the projects still faces a series of hurdles to obtain the various planning, environmental and financial approvals that would be required to proceed. Critically, the Coalition will need to enact legislation (like the Eastlink Project Act) to entrench any East-West Link contracts that it tries to sign before the election. This will be the acid test for the hung Parliament.

It is also important to understand that the State Budget is presented as a single Bill and unlike the Federal Budget, which includes separate legislation to implement various measures, it is not possible for the Victorian Parliament to amend the Appropriation Bill on a line by line basis.

The Coalition is maintaining that there are business plans for each project and they are well advanced towards construction but disclosures to the Victorian PAEC hearings and the Senate Estimate suggest otherwise.

It is instructive to look in detail at the status of each of these claimed “business cases”.

East-West Link Stage 1

Victoria submitted a 40 page “short form” business case for Stage 1 Part A to Infrastructure Australia in June 2013. An 8 page “Executive summary of the short form” business case was publicly released containing minimal information – some of which contradicted other public statements.

Neither contained sufficient information for Infrastructure Australia to assess the EWL project and they still classify it as only of “real potential”. The payment of Federal funds is awaiting the delivery of the “long form” business case which is now described as “imminent”. 

East West Link Stage 2

The rapid acceleration of Stage 2 has led to further confusion. The Treasurer, Michael O’Brien  said there was an interim business case and the project was ready to go. The Prime Minister announced a $1.5 billion commitment claiming the project would start construction by the end of 2015 – subject to a business case being provided.

However, the CIS approval process has yet to start and even in the case of Stage 1 that took 18 months from the time of declaration. The Government now proposes to establish a new “Western Section Office” to deliver Stage 2 (and probably Part B of Stage 1) instead of the LMA.

At the Senate Estimates hearings, Infrastructure Australia were far less confident. They advised that Victoria had only first requested funding after the May State Budget and shortly before the Federal budget in a letter that was “more than a couple of pages” long. John Fitzgerald the Acting Infrastructure Coordinator for IA described it as “very early, very high level” information that amounted to a “conceptual” business case. He said “There is significantly more information that we would require for it to be a full business case”.

Mr Fitzgerald should know – he previously was involved in developing the East West project when employed in the Victorian Department of Treasury and Finance and then advised the Victorian Government on the project as a consultant at KPMG. He denied these previous jobs amounted to a conflict of interest.

City - Tulla Widening

Victoria has also signed a secret heads of agreement with CityLink over an $850 million project to add lanes to Citylink. This is the result of the mysterious Project Zebra and will be funded by Citylink in return for various benefits and ending some long standing legal issues in which Citylink owed money to the State. Because this is a “private deal” not requiring additional State Budget funding there is no business case at all. Transurban has told the Stock Exchange that the announcement doesn’t mean what it says.

Pakenham - Cranbourne Rail project

This is another private “unsolicited bid” for which there is minimal public information despite $2-2.5 billion being set aside in the Budget. There is no indication of the planning process to be followed in removing level crossings, upgrading tracks and signalling. There are 25 new trains to be bought without public tendering and their eventual ownership is undisclosed. Naturally there is no business case.

Melbourne Rail Link

Some $40 million has been spent on the design of the Melbourne Metro route through Parkville and a business plan for this project which Infrastructure Australia initially classified as “Ready to proceed” and then downgraded to Threshold when the Coalition shortened the route. The big surprise of the budget was the Metro route has been scrapped in favour of a previously unheard of route through Montague (misleadingly called Fishermans Bend).

Premier Napthine told the Estimates Committee on Tuesday 13 May say there was a “very comprehensive interim business case” existed for the Melbourne Rail Link and he thanked all the departments, agencies and external advisers who had allegedly contributed to it.

Public servants sitting behind the Premier were seen to visibly blanch at these words because they knew that there is not actually such a document.

Three days later, Transport Minister Terry Mulder was more measured when he told the Estimates Committee on Friday 16 May that “a preliminary business case has been prepared and considered by the government.”  He later referred to it as an “interim comprehensive business case.”

However he said “the government will be finalising that work over coming months”  and only committed that the government would look to release “relevant information which does not create a commercial disadvantage for the State and the Victorian taxpayer at the appropriate time.”

Planning Minister, Matthew Guy went much further in the now famous interview with Jon Faine declaring there was no need for a business case to justify the new route for the Melbourne Rail Link claiming “common sense is the best business case”.

In defending the Melbourne Rail Link concept the Premier said on radio that the government had received "significant expert advice" and over 600 boreholes had been drilled around the Fisherman's Bend-Montague proposed site for this rail link.

However his Minister for Transport then refused to confirm this at the Estimates hearing; refused to name the experts who advised on the project or to confirm whether ANY geotechnical work had been done at all on that route .Instead he again referred to the “preliminary, comprehensive business case.”

The Abbott Government refuses to fund public transport projects so there is no requirement for Victoria to submit a business case on the MRL to Infrastructure Australia.

Where to from here?

Before the end of June, Victoria will submit its full list of current projects for which it is seeking Federal funding. This is normally a public document and Infrastructure Australia classifies each project into one of four categories (in ascending priority):

  • Early Stage
  • Real promise
  • Threshold
  • Ready to proceed.

The East West Link Stage 1 is still only classified as “real promise”. Infrastructure Australia confirmed at the Senate Estimates that Stage 1 was not “ready to proceed” and Stage 2 had not even been submitted for assessment. Disregarding this advice, the Abbott Government intends paying over $0.5 billion for Stage 1 and $1.0 billion for Stage 2, before 30 June.

That is a lot of money to spend without a business case – whether it is conceptual, very comprehensive, interim, long or short form, preliminary or simply non-existent.

 

 

 

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