funding

Captured by value: Finding the funding for faster rail

To make fast and high speed rail possible in Australia, governments are looking for new methods of funding.

In the mid 1990s, the CSIRO was looking to sell its defunct McMaster Farm. The Commonwealth research agency no longer needed the animal research field station located on the outskirts of south-western Sydney. The federal government put the 350-hectare property on the market, and two brothers banded together to purchase the site, paying $3.5 million, about $10,000 per hectare. While reports at the time indicated the price was lower than the going price for agricultural land, the location’s heritage was continued and the site was used for farming.

Only two years later, the federal government came back to the site at Badgery’s Creek. This time buying a portion of the farm back off the brothers for $175m, 50 times the price per hectare. What had changed?

Head out to the former farm today and the fields, cross-crossed with creeks have been changed. Major pieces of equipment and machinery are turning over soil to build the foundations for the new Western Sydney Airport. The brothers bought the land next door. The rest of the land that wasn’t purchased back by the federal government has now been bought by property developers and the expected windfall for the brothers is rumoured to be half a billion dollars. For an investment on $3.5m, the brothers have made a return of over 140 times. Their last name? Medich.

Federal parliamentarian and chair of the Standing Committee on Infrastructure, Transport and Cities, John Alexander has been using this example into a recent parliamentary inquiry entitled Options for Financing Faster Rail. What frustrates him about this is that we’ve seen it all before, particularly with the construction of the North West Rail Link, now Sydney Metro North West.

“What we saw at Castle Hill where people sold their houses for 40 and 50 times their value that will be nothing compared to what will happen when previously rural lands are made into high rise development or urban development.”

Badgery’s Creek is where history is repeating itself. With not only the airport, but also the rail corridors confirmed, the NSW and federal governments are investing billions of dollars into infrastructure for the Aerotropolis and private landowners are reaping the benefits.

“With the last announcement of the government, which was surprising, $11.5bn going into bringing the Metro rail forward to St Mary’s and seven train stations, those landowners around those train stations will have the ultimate uplift and we have failed on our investment of our taxpayers money to get a fair share of that,” said Alexander.

There is no suggestion of anyone, landowner, developer or government, having committed any crimes.

What Alexander and the committee have set out to do, is find out what is the fair return for the increase in land value brought about by rail infrastructure.

“If you try to search what is fair when the taxpayer puts in $11.5bn into one project and someone puts in $3.5m and walks away with half a billion, of that $500m uplift what should have the taxpayer got as their fair share of that? That’s the question that we need to be answering.”

A TRILOGY OF INQUIRIES
The current inquiry is the third of a series of inquiries into how the federal government can get a better return for the investment it makes in infrastructure. To do so, a method of value capture is needed, in order to tax the windfalls that private property owners gain from public infrastructure investment. This would then support the funding of infrastructure and communities.

“The prime goal is to provide a sustainable, affordable supply of housing for generations to come and to do that you’ve got to have a plan of infrastructure that facilitates that settlement,” said Alexander.

The committee’s first report, Harnessing value, delivering infrastructure found that all governments had not adequately planned for the future.

“Harnessing value, delivering infrastructure explored what needed to be done that had been absent, that had been overlooked by both sides of governments at all levels. There had been an absence of planning and an absence of capitalising when governments have invested taxpayers monies,” said Alexander.

Other observers have noted examples of this lack of planning not just in NSW. Cameron Murray is a Queensland-based economist who quantified the value returned to private landowners near the Gold Coast Light Rail line.

“I wanted to demonstrate that this occurs in general and put a number to it, because it’s very hard to get a good idea of the value to everybody in aggregate. You might think if we put a train station here and that shopping centre owner got some value, but everybody in the area gets a benefit and so looking at all these property sales data allowed me to add that all up.”

Murray found that the increase in property sales prices, as an indicator of change in land value, showed that the construction of the light rail line increased property values by $300m in the 1,324 plots of land within 400 metres of a light rail station. If this increase was captured, it would be equivalent to 25 per cent of the capital cost of the light rail line.

Taking these results and applying them to new rail lines, particularly faster and high speed rail, Alexander sees a way forward for debates over high speed rail in Australia.

“It’s a golden age for rail, faster rail and high-speed rail, and most people who discount high-speed rail and say it shouldn’t happen simply don’t know what the purpose of it is. It’s a simple equation, once you can say that the uplift in the value of the lands that will be created by high-speed rail can fund the additional cost that it takes to go from regular rail to high speed rail then it is a deal. It’s making money, you do it.”

Using the value uplift in land as the key commercial indicator, rather than the commercial operation of the service can make high speed rail a much more attractive proposition.

“If you’re just going to charge the ticket retrieve the cost of the construction and operation from the traveller, that will not stack up commercially. If you look at what is the purpose of high-speed rail, other than moving people from A to B, from Sydney to Melbourne, but a position of creating megacities and having areas that would have been outside of a commutable time, when delivered by high speed rail, you bring places like Gosford and the Southern Highlands to within 15 minutes of the CBD of Sydney, Goulburn and Newcastle within 30 minutes, it is an absolute game changer.

“When you look at Melbourne the opportunities are even more vast. There’s five fast and high-speed rail lines going out of Melbourne that will create an incredible megatropolis and reduce road traffic into the city but produce a number of satellite cities that would be linked by faster and high speed rail and commutes of less than half an hour.”

In addition to the federal inquiry, the NSW Productivity Commission is also conducting an inquiry into infrastructure contributions. In response to questions, the Productivity Commission said that as it was in the phase of listening to stakeholders it would be premature to offer a position.

The Australasian Railway Association (ARA) has prepared a submission to the inquiry, and CEO Caroline Wilkie said that good planning processes can make the most of infrastructure investment and save governments billions of dollars.

“Australia’s increasing infrastructure needs will mean governments alone will not be able to deliver every project that is required to meet future demand. We support value capture mechanisms that allow governments to share in the benefits of significant land value increases that result from their investment in infrastructure. As with all things, it is important cost recovery is applied equally,” she said.

Private property owners close to major transport infrastructure have seen property values increase substantially. Image credit: RailGallery.com.au

A POTENTIAL SOLUTION?
Murray has proposed two ways of implementing value capture, the first being a land tax.

“A land value tax that you revalue every year, that automatically raises money from every capital investment made by the government or raises more money when there’s a boom and less money when there’s a bust.”

Both NSW and Victoria have mooted switching from stamp duty to a broad land tax and have raised these ideas with the federal government. Another method, Murray suggests is to allow property owners to buy denser zonings.

“If you have a new rail station, and you say, ‘We’re going to densify this corridor.’ What you do is you charge landowners for the additional air rights to take advantage of that new zoning and density that you’ve facilitated.”

Alexander is instead proposing a form of capital gains tax on land that is impacted by infrastructure and rezoning. The tax would be triggered by a change in zoning. This would overcome the ad hoc nature of current developer contributions, raise a more significant amount than stamp duty, and create a fairer outcome.

“It shouldn’t be the developer that pays the outrageous price for the land, and then has to pay the developers contribution to develop it, it’s the person who makes the windfall through no effort of their own, simply by owning land that is now going to be rezoned and going to be the beneficiary of taxpayers funding.”

The tax would be collected by the federal government, which would create the master plans with state governments. State government would provide the infrastructure and local councils would determine local-level land use.

“The federal government collects the uplift, quarantines it and then hypothecates it to the state for distribution for the infrastructure.”

Currently, the National Faster Rail Agency (NFRA), which is developing business cases for fast rail to Melbourne, Brisbane, and Sydney with state governments and the private sector. As part of these business cases, the NFRA considers funding and financing options, such as private sector contributions and value capture opportunities.

“Matters such as funding and financing and opportunities for value capture from sources such as land value uplift to supplement project funding are considered in line with this framework,” said a spokesperson for the Department of Infrastructure, Transport, Regional Development and Communications.

The spokesperson however directed detailed questions regarding value capture mechanisms to the Infrastructure Project Financing Agency (IPFA). Formed in 2017, IPFA “supports the Australian government in making commercially astute decisions on nationally significant infrastructure projects and programs through the provision of independent, whole-of-government commercial and financial advisory services”.

After email inquiries to the publicly available email contact went unanswered, Chris Allen, managing director, transport and industry, responded to a LinkedIn message noting that “as there is not a consistent view on value capture and its implementation across the Commonwealth, we do not think that it’s appropriate for IPFA to provide its views or comments outside of government at this time”.

In its joint submission to the Options for Financing Faster Rail inquiry, the National Faster Rail Agency and IPFA wrote that “examples where value capture made major contributions to funding cost are defined by unique characteristics, such as significantly higher population densities than regional Australia”. The submission noted the case of transcontinental railroads in the United States in the late 19th century, and Hong Kong rail operator MTR’s Rail plus Property model.

In London, the extension of the Northern Line, a £2.5bn ($4.56bn) project, was entirely funded through a levy on development in the Nine Elms district and business rates revenue. Alexander also points to the Korean method of funding high-speed rail. There, the government owned corporation that constructs and operates the line provides half of the funding for the line. It can then take 100 per cent of the value uplift inside a determined development precinct next to the proposed stations. The national government, which provides 50 per cent of the funding, takes 50 per cent of the value uplift of land adjacent to the development precinct.

“I think it’s a structure that’s not far off the mark,” said Andrews.

There is another model, however, that is closer to home. In the ACT, where all land is owned by the government, 75 per cent of the increase in the value of leasehold land is captured by the territory government.

“Imagine if you got 75 per cent of the uplift of that $500m,” said Alexander. “That would’ve left $375m that would have gone towards the cost of the infrastructure, and the investor, for only putting in $3.5m, would have made $125m. Not doing too badly at all.”

Murray has done the sums on how much more money governments around Australia would raise if they followed the ACT example.

“If you scale that to the relative prices and quantities of new dwellings that are built in NSW, Victoria, and Queensland you get roughly $19bn per year in revenue, if they had the ACT system.”

With a number of faster rail projects at the business case stage and future projects in the pipeline, there is a need for governments to come up with a solution.

“Before the project is announced, before the zoning is announced, you’ve got to have your value capture legislation through Parliament,” said Alexander.

“We talk about, ‘We’re all in it together.’ That means everybody who is the beneficiary pays and it’s to the benefit of the taxpayer because you can then literally look at all infrastructure being funded in this way, relieving our general revenues, simplifying our taxes, simplifying the role of developers, and making our growth sustainable and creating affordable housing for all.”

Container rail into Port Botany. Photo: Sydney Ports

NSW provides information for freight industry to be COVID Safe

The NSW government has released industry-specific information for the transport and freight businesses to help them navigate the risk of COVID-19.

According to Minister for Better Regulation, Kevin Anderson, the materials have been designed for non-customer facing businesses and to provide practical guidance to limit the spread of the virus.

“80,000 businesses have already downloaded the NSW Government’s COVID Safety Plans, and we’ve now created additional resources for transport, freight and ride shares, offices, construction sites, and manufacturing premises,” Anderson said.

The NSW government has kept borders open to rail freight throughout the crisis, with no restriction on interstate movement into NSW for rail.

In addition, freight trains were given extra access to the Sydney metropolitan rail network in what were ordinarily restricted periods for passenger rail only.

NSW Ports CEO, Marika Calfas, said such measures should remain in place for the foreseeable future.

“These measures should be continued in the longer term to deliver community-wide productivity benefits, allowing trucks to supply businesses during evening periods, to alleviate pressures on the road networks during peak hours, and freight trains and passenger trains to share the network safely,” Calfas said.

“This will be especially important during the recovery phase when road congestion is likely to be exacerbated due to reduced public transport usage.”

Anderson said that the NSW government was working to ensure that businesses can operate as smoothly as possible.

“Ultimately we want to focus on getting NSW’s economy back up and running and providing businesses with the right guidance to operate safely and successfully in the current climate.”

The online database of information includes checklists for a COVID-19 safety plan for businesses, covering wellbeing of staff and customers, physical distancing, hygiene and cleaning, and record keeping. Businesses are also encouraged to register as being COVID Safe. Links to financial assistance are also available.

Moving freight by rail is easing Australia’s strained supply chains

Australia’s rail network is ensuring the nation’s supply chain stays intact.

People are working around-the-clock to ensure safe passage for 1,800-metre freight trains carrying essential products for all Australians.

John Fullerton, ARTC CEO said in a recent interview that was broadcast on Sky News that transport companies are moving as much as they can to boost the flow of essential goods and services.

“Rail is no different, we move around five million tonnes across the continent from the eastern seaboard to WA and a lot of our product involves groceries and the hardware that sits on those supermarket shelves,” he said on Sky News.

Fullerton said the sector is crucial and rail freight movements on the ARTC network are up approximately 14 per cent due to the unprecedented demand for goods.

“The COVID-19 outbreak has sparked an unprecedented challenge for Australia’s freight and transport industry, with the country’s demand for critical supplies prompting a surge in rail freight,” he said.

“The rail freight sector has stepped up to ease Australia’s strained supply lines.”

The ARTC CEO leads a team of more than 1600 employees to manage and maintain 8500km of the national rail network.

ARTC employs more than 300 people at its Keswick headquarters in South Australia including network controllers who ensure coordinated passage for the country’s freight trains.

“Freight trains are playing a crucial role in Australia’s response to the coronavirus pandemic – and our frontline teams are really part of a group of workers making sure the economy and society is able to keep functioning during these difficult times,” Fullerton said.

Moving freight has been highlighted by the government as an essential service. Fullerton says the sector has never been more important “which is putting a lot of responsibility on our shoulders”.

However, in collaboration with rail freight customers, government, and industry partners, Fullerton said it’s been wonderful to see teams rise to the challenge to keep Australia’s supply chain intact and the nation’s economy moving.

“We’re really proud to be able to keep freight trains moving and do our bit for Australia, but like other essential service providers, these are testing times for everyone and there’s still a long road ahead,” Fullerton said.

The company also has teams maintaining rail assets across the nation, including in the middle of the Nullarbor, to help move vital freight to its destination.

“There’s definitely a lot of uncertainty surrounding COVID-19, but we’ll continue to work hard with our customers and partners to ensure supplies continue to ride the rails and get to where they need to be,” he said.

ARTC is continuing to implement strict hygiene protocols and preventative measures to protect the health and safety of staff and local communities in which it operates. 

Inland Rail to boost regional Australia by $13.3b

Regional communities across Australia are set to benefit from $13.3 billion in gross regional product due to the Inland Rail project.

According to an eight month study by EY, Inland Rail can add up to $13 billion in today’s terms to the value of goods and services produced over its first 50 years of operation.

The report was undertaken throughout 2019 and released by the Deputy Prime Minister in March 2020. The report builds on the projected 16,000 jobs and $16 billion boost to the national economy outlined in the 2015 Inland Rail Business Case

Michael McCormack, Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development said Inland Rail is going to draw industry to regional Australia where the enhanced freight rail network will connect companies and consumers both domestically and internationally

“What the EY report is assessing is the additional benefit to communities from the opportunities that arise for local businesses and people from the completion of Inland Rail,” he said.

“For example, it might be a cereal manufacturer whose freight costs drop by 30 per cent allowing the employment of additional staff, or it might be the expansion of regional processing that takes advantage of Inland Rail’s lower cost and greater capacity and connectivity.”

EY looked at case studies, international examples, and local knowledge to determine the potential for investment, employment and growth along, and beyond, the alignment.

“The benefits of this project are going to be felt across generations. Right now, young people from regional areas are directly benefiting from working on Inland Rail’s construction including the 656 locals who have worked on the project in the Parkes region and the more than $75 million spent with local businesses,” he said.

“Inland Rail gives these communities new ways to grow and rebuild with better connections to interstate and international markets, new jobs and a stronger case for attracting public and private investment,” he said.

Mathias Cormann, Finance Minister said the first wave of developments are taking shape.

“We are very confident that many other regional towns in and around the Inland Rail corridor will secure further significant investment, development and job creation opportunities for their towns on the back of this exciting project,” Cormann said.

The Department of Infrastructure, Transport, Regional Development and Communication said in a statement that this work was tested with industry, governments, and communities with the study team heading to Narrabri, Toowoomba, Wagga Wagga, and Wodonga to get people’s views. 

That input shaped the forecasting and tested the study’s early findings. 

“We thank the communities, industry groups and local government who helped shape this work with local data and evidence,” the department stated.

The report followed another week of speculation on the impact of flooding on the regional rail link’s route via the Condamine floodplain. Shadow Member for Infrastructure, Transport, and Regional Development Catherine King said that the government needs to consider hydrological modelling commissioned by farmers close to the alignment.

The Australian Rail Track Corporation (ARTC) released a statement standing by its own modelling, which it said showed that the selected route is the right one.

“The science tells us there is no premise to change the route based on flood modelling and the economics tells us that this route was the most viable, cost effective option,” said ARTC Inland Rail chief executive Richard Wankmuller.

Local concerns have been incorporated into the design of the route, said Wankmuller.

“It’s important governments and the community have confidence in the engineering and science that allows countries like Australia to deliver world-class infrastructure.”

As part of the deal signed between the federal and Queensland governments which gave the Border to Gowrie section the go-ahead, an international review panel will review the floodplain modelling.

AusRAIL: For major projects, confidence is key

Confidence is a valuable asset in major transport project delivery. Systra Scott Lister speaks with Rail Express about the importance of quality expertise throughout the life of a major project to ensure an effective result.

 


Scott Lister was founded in 2009 by associates Mark Scott and Howard Lister as an engineering assurance, systems development, and project management and assessment firm. It was acquired in 2016 by Systra, and merged with Systra’s Australian branch in 2018 to form Systra Scott Lister as a single entity in Australia and New Zealand.

Business development director Patrick Desforges says this combination of local expertise with Systra’s global experience is well timed in the Australasian market. With an explosion of metro, light rail and bus rapid transit projects underway or planned right across the region, Desforges says Systra Scott Lister is leveraging this combination of local and global to help deliver better projects.

“Systra is focussing on the rail market that is at its core business, including projects like those in Sydney, Melbourne, Brisbane, Perth, Adelaide, Canberra and Auckland,” Desforges told Rail Express. “Systra is targeting engineering services where we believe we can add value and offer a different approach, based on our experience in both local and international markets.”

Desforges sees parallels between major projects like the Sydney Metro program and foreign projects like the new Grand Paris Metro Express, and the Dubai Metro.

“Those projects are all aiming to implement an automatic metro in a dense area environment to increase transport capacity, offer better and quicker mobility solutions to the increasing community, and promote urban development,” he said.

Systra was the project manager in charge of building Dubai’s Red and Green MRT lines, working hand in hand with the local transport authority from 2003 on preliminary designs through to the inauguration of the second line in 2011.

From 2014, Systra carried out preliminary design studies for the extension project, and has remained a part of the project during its construction and commissioning, scheduled for 2020.

“A successful rail project is a project that has been well thought-out and studied from an early stage, e.g. the business case,” Desforges continued. “A new transport system must have good reasons to be implemented and address real issues and risks in the most efficient and appropriate way. A good procurement strategy together with active local community engagement and controlled budget and timeline are essential.”

Desforges says Systra Scott Lister’s involvement in AusRAIL PLUS – where it is a Silver Sponsor – is to further demonstrate its capabilities in the local market, supported with global experience.

“Systra’s story is relatively recent in Australia and New Zealand and we are always keen to participate in events that present a unique opportunity to talk about rail business with the local rail community. There are solutions Systra can bring to help achieve all of this market’s very challenging projects,” he said. “The key expertise offered by Systra globally and by Systra Scott Lister in Australia in all its rail projects is the systems integration and the knowledge of how to operate any kind of rail system, including light rail, automatic metro and high speed and fast train. Systra is also an international leader in CBTC and ETCS L2 high capacity signalling systems development.”

Desforges notes the origin of Systra itself – through the merger of the former engineering arms of French Railways (SNCF) and Paris Urban Transport Authority (RATP) – has provided it with a history of rail expertise.

“Our DNA is rail and we are able to cover all technical disciplines, all through a project’s life cycle – from business case and feasibility study, to testing and commissioning, through all levels of design development,” he said.

 

Systra Scott Lister is a Silver Sponsor of AusRAIL PLUS.

Heavy vehicle charges to rise less than half recommended rate

Transport and infrastructure ministers will raise heavy vehicle charges just 5 per cent over the next three years, less than half the estimated amount needed to cover trucking’s share of road construction and maintenance costs.

Road access charges for heavy vehicles, which have been effectively frozen since 2014, are viewed by the rail sector as an unfair competitive advantage for trucking operators on key freight routes.

Despite the National Transport Commission recently estimating the heavy vehicle sector will cause 11.4 per cent more expenditure on new roads and road maintenance over the next three years, a meeting of Australia’s federal, state and territory transport and infrastructure ministers in Melbourne last week resolved to increase access charges by less than half that figure.

“In reaching its position Council was very mindful of the challenges faced by transport industry operators,” the Transport and Infrastructure Council’s post-meeting communique said.

Under the meeting’s proposal, road access charges for heavy vehicle operators will increase by 2.5 per cent in FY21 and 2.5 per cent in FY22.

“Council noted the charge increases would be significantly less than the amount of 11.4 per cent estimated by the NTC as necessary to recover the heavy vehicle share of recent road construction and maintenance costs.”

The ministers said they “considered” the expert advice of the NTC on road user charges, which are “designed to recover the heavy vehicle share of road expenditure,” but chose instead to favour a significantly lower increase, “having sought the views of industry representatives earlier in the day”.

This news comes after the CEO of Australia’s largest freight rail operator, Dean Dalla Valle, implored the ministers to level the playing field by lowering rail access charges.

“The guts of the issue is that relative to rail freight access prices, the trucking sector enjoys a ‘rails run’ in terms of user charges,” Dalla Valle said prior to the TIC meeting. “The result – in the last decade, on major transport corridors like Melbourne-Sydney and Sydney-Brisbane, large volumes of freight have shifted to bigger and heavier articulated trucks.

“Rail access charges need to be reduced so operators like Pacific National have the opportunity to compete on a level playing field with road freight.”

Vow to support rail

The transport and infrastructure ministers did discuss rail at their meeting, agreeing to address skills and workforce issues, and a harmonisation of standards, through a National Rail Action Plan.

“Recognising the rapid expansion in public investment in the delivery of rail infrastructure all across the country, Council agreed to a National Rail Action Plan covering skills and workforce issues and harmonisation of standards.

“The Plan focuses on actions to meet the rail sector’s critical skills and labour needs and to identify opportunities to improve the efficiency and safety of Australia’s rail system by continuing to align or harmonise operating rules, infrastructure and operational standards and systems across the nation’s rail network,” the communique said.

TIC said the Action Plan will be made available on its website.