Coal train. Photo: ARTC

The secret to successful state-owned enterprises is how they’re run

State-owned companies are often touted as necessary tools for development in emerging economies. This is because they can be directed by governments to achieve development ends. The model has been a success in some countries, but it’s been an epic failure in others.

The knee-jerk reaction to paralysis in state-owned enterprises is to call for privatisation. The Conversation’s business and economy editor Andile Makholwa asked Steve Koch, Professor of Economics at the University of Pretoria, why governments need state-owned enterprises and what determines their success or failure.

Why do governments need state-owned companies?

In first year economics, we often consider an “ideal” world. The “real” world differs markedly from this “ideal”, and those differences create problems that potentially can be solved through government intervention. Those interventions include:

  • the provision of safety and security;
  • support for public health, education and research;
  • the provision of water, sanitation, communications, energy and transportation infrastrcuture; and
  • the development of regulations and enforcement agencies.

State-owned companies are not generally needed to provide goods. Rather, they are needed to provide the foundation for a well-functioning economy and a healthy, well-informed populace. State-owned companies operate in a wide range of sectors across all countries, although they are most common in emerging markets.

How can state-owned companies spur growth and development in emerging economies?

Recent research suggests that electricity infrastructure roll-out increases employment. Related to this, transport infrastructure expansion increases economic growth in the long-run and has relatively high rates of return in industrialising countries, although that effect might not be as strong as initially believed.

Thus, state-owned companies that provide the backbone of an economy can be expected to help spur economic growth and development.

But it is not clear that other types of state-owned companies can be expected to do the same. The share of state-owned companies among the top ten firms is 96% in China, 88% in the United Arab Emirates, 81% in Russia, and 59% in India. China and India are among the fastest-growing economies in the world.

That means it is tempting to conclude that state-owned enterprises can spur economic growth. But that conclusion is not supported by any empirical research, and ignores the fact that even China believes it is necessary to further reform its state-owned enterprises sector.

Where have they have been used successfully and where have they not?

State-owned companies can be found in every country in the world. Norway has, arguably, seen greater success than other countries, especially in Europe, while South Africa cannot point to the same levels of success. State ownership itself is not necessarily the problem.

Instead, success more often hinges on managerial skill and autonomy. In Norway the government operates through the board and treats all shareholders as equals.

Chinese state-owned enterprises have been spurred on by a variety of events, including increased autonomy and the impact of market forces.

Historically, governments have set up companies to develop industries where investors seem reluctant. Is that still important in today’s world?

Understanding the establishment and continuation of state-owned companies is more complex than wondering why investors might not favour them.

First, there are entrenched world leaders in some industries; in other words, investors may shy away from competing against that leader.

Second, industries require a host of both downstream and upstream counterparts (and skills) that often develop together. Investors may not have the resources to also develop these counterparts.

Third, political leaders may view certain companies as too important to fail. Such views create pressure on the fiscus, but also decrease investment risks.

Malaysia’s Proton is an interesting example. It was established in 1983 to increase the level of industrialisation in the economy, although Mitsubishi held a small stake. Its success hinged largely on industrial policies that made imports far more expensive than the local product. At the same time the manufacturer received millions in subsidies.

Although the company can point to some successes during its time, it was never in a position to compete with internationally produced cars because it was never expected to. Its future is therefore in doubt. But in 1993 the Malaysian government set up Perodua, another automobile manufacturing company, as a joint venture with Daihatsu. Their focus was to become a competitive manufacturer, and it is now the best-selling brand in the country.

Often, when state-owned companies are battling, there are calls for privatisation. What has been the experience of countries that have privatised?

A recent book on privatisation illuminates much of the recent history of privatisation: the good, the bad, and the ugly. For example, Russia’s privatisation program is believed to have led to increased economic inequality, as assets were stolen and agglomerated among a select few.

Privatisation in Mexico also fared poorly, partly because the proper regulatory structure was not in place to deal with companies inappropriately using their market power.

Thus, successful privatisation requires strong institutions.

Research also suggests that privatisation is good for productive efficiency, even if it does not always lead to improvements.

More generally, in addition to calls for privatisation (changing ownership), there are also calls for restructuring and changes in management. All of these feature in the private sector as well.

To oversimplify, the experiences associated with any of these changes have been mixed, both in the public sector and the private sector.

Thus, we end with another common statement in first-year economics:

It depends.

The ConversationSteve Koch is Professor of Economics at the University of Pretoria. This article was originally published on The Conversation. Read the original article here.

Hills M2 toll road (owned by Transurban) Photo: Creative Commons / Sardaka

IPA calls for new road charging scheme

Infrastructure Partnerships Australia has proposed a new system to charge motorists and freight vehicles according to where, when and how far they drive, and wants the the ACT to offer itself up to trial different approaches.

“Our figures show Canberra suffering similar problems to Sydney and Melbourne, with the Territory’s congestion costs doubling to $400 million in the next 14 years.” IPA chief executive Brendan Lyon explained.

“At its most fundamental, transport is broken because we don’t have the money needed for new and renewed infrastructure and we use the networks we have very poorly.

“This problem can and will be fixed by pricing reforms that spread capital city peaks, better recover freight costs and make the system fairer and better for motorists.”

IPA modelling shows a fairer and better pricing system would have a tiny, 37 cents per week impact on the average Canberran road user, but would give them better maintained, safer roads and faster journey times.

“It’s understandable that people will be concerned about change, which is why we need a detailed process and real world trials,” Lyon continued.

“Canberra’s integration between local and state government powers means it could play an important role in testing technologies and models to fix transport.

“The transport network is costing us time and money, because we cannot afford the new road and rail infrastructure we need, and we use what we already have badly.

“While it’s easy for people to get scared of a pricing system based on time, distance and location of travel, our modelling shows it would fix most of the problems and give motorists much better travel times, for much fairer costs.”

Lyon said the NRMA and other peak motoring groups support a process to fix road pricing, because it’s the key to better roads and better transport.

Sydney CBD light rail. Artists Impression: Transport for NSW

Cultural shift needed to tackle growing transport challenges

Mobility is critical for a city’s life. But Australian cities need change, and they need it urgently, Stephan Winter, Nicole Ronald and Ronny Kutadinata write.


Cities are complex systems. One visible artery of the city is traffic – the cluster of moving people and flowing goods – and mobility is critical for a city’s life. We should be concerned about voices pointing to disrupting forces on mobility, such as a Global Summit on Disrupting Mobility recently hosted by Massachusetts Institute of Technology.

The challenges of mobility in the city are well known; roads at capacity, urban growth, peak oil, air quality and climate change are among the prominent ones.

These challenges are already on the verge of disruption if we simply prioritise roads and cars. Melbourne and Sydney roads are at capacity – or beyond – in commuting hours already. There is just no space to cater for the transport demands of population growth of the predicted 50-100%.

We need change, and we need it urgently. But twisting a complex system somewhere, even with the best intentions, may have unintended consequences elsewhere. An evolution might be a better approach than just allowing technology to disrupt.

Beyond the driverless car

Much of the hype on disrupting mobility is caused by the emergence of driverless vehicles. But these alone would not reduce the number of vehicles on the road – quite the contrary.

The core of the problem is private car ownership and its inefficient use. Cars are often empty and stationary, and underutilised even on the road. Disrupting mobility is not just about driverless cars, it is multi-faceted.

Alternative means and systems are required to enable choice and comfortable access. This would mean better integration of various means such as fast mass transport, last mile transport and active forms of transport.

The design and integration of these modes require proper designs, regulations and policies, automation and control for safety, smart use of land and space for urban planning, supporting infrastructure, energy-efficient technologies and connecting IT platforms.

One key to reducing private car ownership is a shared transport economy. Shared vehicles, shared trips and shared parking spaces will improve efficiency.

Added to this is the smart integration of different travel modes. This is being attempted with train and bus connections, including multi-modal ticketing. But it should go far beyond these limited efforts – the current exploration of a single smart card for all forms of mobility is an example of this.

Even after the advent of the driverless car, a critical part of the mix will be mass transit. Last mile transport may become a niche for the driverless car. This could take the form of on-demand shuttle buses in areas surrounding a station, and improved bicycle parking and access.

In the US, Lyft has found that transit access makes up a large number of user requests and has recently entered partnerships with transit companies. At this stage, the transit company trip planner includes a link to the Lyft website so that passengers can plan their entire journey.

The changing bus

In areas of low travel demand, demand-responsive services are replacing fixed bus services with low patronage. The route and/or time is not fixed and is determined by passengers’ needs. These provide a more affordable service for operators and, depending on the service, more flexibility for passengers.

The Telebus service, operating in Melbourne’s outer east, allows passengers to be picked up or dropped off from their homes, saving a walk to the bus stop.

Flexible commuter buses are also gaining traction in the US. Bridj, in Boston, uses traffic data and historical information about passengers to determine weekly routes and timetables. For some patrons, the service offers a more convenient and reliable trip than using public transport.

However, other entrants in this area, such as Melbourne’s SuitJet and San Francisco’s Leap bus, did not succeed.

Cities require connections

Another area of innovation is on-demand delivery of food and other goods. Australian company Swift is attracting attention in the US for its on-demand services, after starting out as a liquor delivery service. Food delivery services are also popular. These services could replace a car trip, which could involve cruising for a parking space, or a walking trip.

However, a vision of door-to-door vehicular travel will have effects on behaviour. Would anyone walk or cycle? Would these activities become simply exercise modes?

Cities are about people. Such a behavioural change would affect the atmosphere of the city by removing incentives for planning for walkability.

Effective transportation is about connecting people and places. Building a connected and integrated system of transportation modes – incorporating “traditional” and “disruptive” modes – is crucial for mobility and livability for future cities.

The Conversation logoThe Conversation

Stephan Winter is Professor of Spatial Information, University of Melbourne; Nicole Ronald is Lecturer in Computer Science and Software Engineering, Swinburne University of Technology, and Ronny Kutadinata is Research Fellow, School of Engineering, University of Melbourne.

This article was originally published on The Conversation. Read the original article here.

Seniors line up at Chatswood railway station for their Opal cards. Photo: Oliver Probert

Seniors adapt to paperless transport in NSW

The next stage of Transport for NSW’s Opal card rollout has seen the state’s seniors shifted to the smart ticketing system.

With almost 5 million Opal cards now issued, several of the last remaining paper tickets were formally phased out on New Year’s Day. The only paper tickets still available for public transport are single and return adult and concession tickets for trains, ferries and light rail, and single adult and concession tickets for buses.

Tickets phased out on New Year’s Day included the pensioner excursion ticket. To replace paper tickets for seniors is the Gold Opal card.

“For seniors and pensioners eligible for the Gold Opal, it’s easy to apply,” state transport minister Andrew Constace said.

Cards can be ordered online, by phone, at Service NSW centres, or picked up at Opal kiosks at train stations.

“You’ll need to confirm your eligibility with your NSW Seniors Card, Pensioner Concession card of DVA NSW War Widow/ers card,” Constance added. “They can be topped up at more than 2100 retailers including Woolworths, 7-Elevens, newsagents or top-up machines at stations across the network.”

Gold Opal customers can travel across the entire public transport system for no more than $2.50 a day.

“It’s simple to use – just tap on at the start of your journey, tap off at the end, and the fare will be deducted,” Constance said.

Greens NSW MP and transport spokesperson Dr Mehreen Faruqi said the phasing out of all remaining non-single or return tickets was forcing thousands of remaining passengers onto a “flawed” system.

“On 1 January, thousands of people will be forced onto a ticketing system with systemic and obvious problems that have not been adequately addressed,” she said late in December.

“The government has promised 350 top-up machines by early 2016, but as of the last days of 2015, machines are advertised as only available at fewer than 100 stations or interchanges.

“Where are the rest, and why aren’t they here in time for the ticket removal? The government has had years to sort this out.

“Transport Minister Constance needs to seriously look at the problem of excessive surcharging,” she added.

“From Friday, plenty more people will need to use Opal retailers, which means more people getting slugged 10%, 20%, or even 40% fees on their top-ups when they pay by card.

“A good public transport system gives people options and provides accessibility for everyone. It’s ridiculous that the long-awaited Opal system still leaves plenty of people worse off.”

Christmas reading: Rail Express AusRAIL edition

In case you missed it, Rail Express published a digital edition of its AusRAIL magazine in November. You can read the magazine, which includes features, interviews, analysis and comment covering the Australian and New Zealand rail industry, in digital format on our website.

The 92-page magazine can be viewed in digital format by clicking here.

Instructions: simply use your mouse to drag the pages just like you were reading a magazine. Alternatively, you can use the left and right arrows on your keyboard. To zoom in on a page, use the magnifying glass icon on the bottom left menu.

We hope that you enjoy the magazine. If you have any feedback, please feel free to email our editor:

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Waterloo station. Artists impression: Transport for NSW

Waterloo selected over Sydney Uni for final Sydney Metro station

The last major alignment decision for stage two of the Sydney Metro line has been made, with an alignment under Waterloo chosen ahead of an alternate option under Sydney University.

Waterloo is the 31st station chosen for the Sydney Metro line, after the state government heard from community and business representatives over the past month to consider options for the line between Central and the existing train line at Sydenham.

NSW Premier Mike Baird said the government would look to develop a value capture around Waterloo station to be reserved for the Metro project and associated infrastructure, under a similar model to that recently proposed for the Parramatta Light Rail project.

“The metro station creates the opportunity to transform Waterloo and make it a better place to live for future and existing residents, many of whom are amongst the most vulnerable people in NSW,” Baird said.

As part of the station’s construction the government’s plan is to replace and renew the “ageing” Waterloo social housing estate, with a mix of private, affordable and social housing.

The government says there will be no loss of social housing from the current figure of 2000 dwellings as a result of the project.

While some residents may need to move into other housing in the local area during redevelopment, the government said many will be able to relocate into new social housing on the estate as the renewal progresses.

“Waterloo Station will help bring new jobs to the area as well as providing a direct public transport link to employment hubs at Barangaroo and Martin Place,” Baird explained.

“Sydney Metro is a game-changer for our city,” transport and infrastructure minister Andrew Constance added. “The station at Waterloo will make this rapidly growing part of Sydney more accessible and take pressure off Redfern and Green Square stations.”

Planning minister Rob Stokes said: “Waterloo metro station will be the catalyst for the delivery of an additional 10,000 homes and thousands of new jobs in the precinct for families who live in the area.”

Social housing minister Brad Hazzard said the community will be consulted about the future of the neighbourhood to help prepare more detailed precinct plans with new parks, homes and community facilities.

“The metro station will transform the Waterloo housing estate for the better, building a dynamic community with better amenity, better homes, better facilities, fantastic transport and more jobs,” Hazzard said.

“I can assure Waterloo tenants that if they want to remain in Waterloo after the redevelopment, they can do so.”

An Environmental Impact Statement for the station development is expected by mid-2016. The government is planning to stage the area’s renewal progress over a 15-20 year period, with the first relocations not expected until midway-through 2017.

Sydney Metro is a 75km rail project.

The first stage of the project, known as Sydney Metro Northwest, is already under construction, with a new metro under construction from Rouse Hill to Epping. The existing line between Epping and Chatswood will be converted to metro standard, to create ‘stage one’ of the project between Rouse Hill and Chatswood.

Announced more recently, the second stage of the project – Sydney Metro City & Southwest – will see the line extended from Chatswood, through North Sydney and under the harbour to the CBD. It will continue under the city at several new stops, to re-join the existing rail line at Sydenham. The line between Sydenham and Redfern would then also be converted to metro standard, to create the full Sydney Metro line, from Rouse Hill to Bankstown.

The final major alignment decision was whether to run the line from Central to Sydenham on a western curve under the University of Sydney, or to run it on an eastern curve under Waterloo.

With Waterloo the chosen alignment, the government said it will look into improving public transport at the University of Sydney, through significant upgrades to Redfern Station and improved pedestrian connectivity through Redfern and Darlington.

Monash University building. Photo: Public Domain

Monash to host ‘world-leading’ public transport research centre

A public transport research centre, which Victorian minister for public transport Jacinta Allan says is one of the world’s largest, has been established at Melbourne’s Monash University.

Five million dollars in seed funding will support up to 18 PhD scholarships for students, including international candidates, to undertake independent, applied research into public transport planning and delivery at the university.

To date, 16 topics have been matched to students covering subjects including public transport safety, better coordination of transport modes, and train design and engineering, Allan said.

“This world-leading research centre will drive improvements, and keep us at the cutting edge of public transport research, design and delivery, both here in Victoria and internationally,” the minister said.

“The Andrews Labor Government is investing in the projects and services our network needs now, and in the strategic planning and thought leadership we need for the future.”

The research group is jointly funded by Public Transport Victoria (PTV) and Monash University, with industry contributions from Metro, Yarra Trams, VicRoads and the bus industry.

Graham Currie, who holds Australia’s first professorship in public transport, will lead the new research group. Professor Currie has more than 30 years’ experience as a public transport planner.

Allan said the new research group will form part of a world-first public transport research ‘cluster’ at Monash University’s Clayton campus, which will include the Institute of Rail Technology, the Monash University Accident Research Centre, the Institute of Transport Studies and the Transport Design School.

“This initiative demonstrates Monash’s reputation as a world-leading research University with significant community impact,” Monash University president and vice-chancellor Professor Margaret Gardner said.

“Applied research of this type can progressively address the challenges and opportunities facing Melbourne’s growing transport system into the future and advance international practice in this field critical to the success of growing cities throughout the world.”

PTV chief executive Gary Liddle said the research and innovation generated by the centre “will help us deliver a competitive, effective, world-class public transport system”.

“By funding academic enquiry into public transport we will access some of the brightest minds in public transport research, which will complement our extensive stakeholder engagement,” Liddle added.

Tony Abbott. Photo: APEC

National Auditor slams federal East West funding

Tony Abbott’s decision to deliver $1.5 billion to the East West road project in 2014 was made without proper assessment of the project being first made, the Australian National Audit Office has found.

In a move approved by the then-prime minister, the Coalition gave $500 million for the first stage, and $1 billion for the second stage of the East West road project to Victoria on June 30, 2014.

This was despite an ongoing state election campaign, which featured the then-Opposition leader Daniel Andrews promising to cancel the road project if he came to power.

And that he did: In February 2015, new premier Andrews formally told the Commonwealth the East West project had been cancelled.

A report released by the Australian National Audit Office on Monday, December 14, found the project funding was simply given to the state far too early.

“Neither stage of the East West Link project had proceeded fully through the processes that have been established to assess the merits of nationally significant infrastructure investments prior to the decisions by Government to approve $3 billion in Commonwealth funding and to pay $1.5 billion of that funding in 2013/14,” the Australian National Audit Office said.

“This situation had been identified in departmental advice prior to the decisions being taken.”

According to the national auditor, the Department of Infrastructure and Regional Development specifically told the Federal Government that the $1.5 billion was being paid earlier than the project needed it.

The department reportedly proposed an alternative payment model that aligned payments with the project’s progress, but this plan was ignored.

“None of the $1.5 billion in advance payments had been spent by Victoria prior to the cancellation of the East West Link project,” the audit detailed.

It’s estimated the interest earned on the $1.5 billion held by the Victorian Government as a result, could be more than $49 million.

Despite cancelling the project, Andrews has refused to give the money back to the Commonwealth, and the audit suggests he may not have to.

“The non-legally binding nature of the agreements signed with the Victorian Government meant the Commonwealth was unable to rely on those documents to require the advance payments to be returned when the project was cancelled,” the auditor found.

“In September 2015, the Department of the Treasury obtained legal advice on how Victoria could be required under the federal financial relations framework to repay the $1.5 billion in advance payments.

“The advance payments had not, as of October 2015, been recovered from Victoria.”

Shadow minister for transport and infrastructure Anthony Albanese said the report showed the Coalition had gone against its own policy in providing the funding.

“Today’s Auditor General’s report into the funding of Melbourne’s East-West Link toll road has highlighted the complete collapse of proper process in funding major infrastructure projects under the Turnbull Government,” Albanese said on Monday.

“This [audit] is a result of a request made by myself as the shadow minister.

“I wrote to the National Audit Office because it was very clear that this farcical proposal needed proper investigation and scrutiny so that this never occurs again.

“They provided $3 billion for this project in the 2014 Budget. That’s without having seen a business case. Without any recommendation from Infrastructure Australia and without any cost-benefit analysis being undertaken.”

Greens member for Melbourne Adam Bandt also took a swipe at the Coalition, saying the report confirmed the Abbott Government’s toll road agenda was purely political.

“We now know Tony Abbott made a ‘captain’s pick’ by giving billions of taxpayers’ dollars to his Liberal mates in Victorian without a business case and against the advice of public servants,” Bandt said.

“In any fair world, Tony Abbott and [former Victorian Premier] Denis Napthine would be hauled before a tribunal for intentionally wasting billions of dollars in public funding for nakedly political purposes.”

Melbourne Tram. Photo: RailGallery

Victorian infrastructure czar warns of population challenges

Infrastructure Victoria chairman Jim Miller says population growth would be one of the great challenges to get right in planning for the next 30 years.

Miller, who was recently appointed by the state government to head the new entity, spoke at a Committee for the Economic Development of Australia lunch at Melbourne’s Crown Palladium.

Infrastructure Victoria has been asked to develop a strategy to cater for Victoria’s needs over the next three decades and the chairman told the gathering, that of all the impending challenges, population growth was the most obvious.

“Victoria is going to grow by 3.5m people over the next 30 years.

“These are the government statistics.

“Out of all the work that we do…. We’re probably likely to get that most right.

“In truth we will make assumptions that will be wrong, but on the population side, that is the one as I said we will probably be most right or closest to.

“So that is a big challenge: how do we fit another 3.5m people into this state in terms of looking at the infrastructure solution that satisfies the requirement.”

Mr Miller also explained some aspects of the role of IV notably that it had an advisory rather than an approval role, with state governments deciding for themselves how and if to act upon such advice.

He also indicated an announcement was imminent on an IV chief executive, albeit he gave away nothing on just who that person might be.

This story originally appeared in Rail Express affiliate Lloyd’s List Australia.

SWRL extension. Graphic: Transport for NSW

SWRL extension to go underground in win for homeowners

An extension of the South West Rail Link in Sydney would be run underground at Oran Park and Harrington Park, the government has announced.

NSW transport minister Andrew Constance and member for Camden Chris Patterson announced the proposed rail extension would be tunneled to minimise impact on new homes.

Constance said the development of a second major airport in Sydney’s south west would mean more than 300,000 new residents would call the region home over the next 30 years.

“While construction on a rail line is not expected to start for some years, even decades, we need to do the planning now to make sure we can build this crucial infrastructure more efficiently and cost effectively when it’s needed,” Constance said.

“Earlier this year the NSW Government carried out detailed consultation with the community to help refine corridor options for a future rail extension between Leppington and Narellan.

“While work is still continuing to refine the future corridor, we are pleased to announce that the final recommended corridor will include an underground alignment between Oran Park and north of Narellan.

“This will ensure that the corridor will avoid impacting existing homes in Oran Park, the Anglicare aged care facility, Wildfire Estate, and Harrington Park.”

Home and land owners in the region were in the news in June, publicly expressing their concern over the proposed corridor for a SWRL extension through Maryland, Oran Park and Narellan.

“We’re sitting here, ready to build a house, and we don’t know what to do,” one landowner told ABC’s 702 Mornings program at the time.

Patterson, the local member, said the government got this message loud and clear from the community during consultation sessions.

“The communities of Oran Park and Harrington Park are growing rapidly, and I’m pleased the government has agreed to go underground for this part of the corridor preservation,” Patterson said.

“This is a great outcome for these communities and will come as a relief for many new homeowners who are building or have just moved into their homes in the Oran Park and Harrington Park areas.”

The state government says it will begin further consultation over the next stage of the project in early 2016.

Options include an extension of the future rail line south of Narellan, and north to the T1 Main Western Line at St Marys, as part of the proposed Outer Sydney Orbital consultation.

A recommended corridor for the rail extension will be finalised in late 2016, Constance said.

“This is not an easy task – the transport planners need to consider a range of issues, including the technical and environmental constraints needed for a rail corridor as well as the impact on existing and future communities,” the transport minister added.

“Local knowledge is vital to getting this future transport corridor right and I’d like to thank residents for all their feedback to date.”

The South West Rail Link was opened to passenger services in February 2015, with new stations at Edmondson Park and Leppington, branching from a refurbished station at Glenfield, on the T2 Airport, T2 South and T5 Cumberland lines.

The next plan is to extend it from its current terminus at Leppington to a new station at Rossmore. After Rossomore the line would split into a northern and southern line. The proposed northern line would pass through the new airport at Badgerys Creek, while the southern line – which has caused the housing development drama – would extend to Narellan, then potentially on to the T2 Southern lines in the future.

The development of the southern section of the line is further ahead than the northern section, but the government has stressed that its current work is to secure a corridor for the proposed extension, with no timetable yet set for construction.