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Railing for a South-East solution

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A fast train line from Adelaide to Mount Gambier would provide an economic boost to the state’s South-East, write Richard Blandy and Edwin Michell in the latest of a series of articles arguing the case for regional fast rail in SA.

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Fast rail options

A fast railway to the Limestone Coast with stops at Murray Bridge, Bordertown and Naracoorte is the most economically difficult to justify of the three fast rail projects that we have considered. Not only is the capital cost the highest of the three, but its economics depend on a concerted effort by the State Government to develop the economy in the state’s South-East.

This area has fertile soil, high rainfall, is halfway to Melbourne, possesses a highly productive agriculture, forestry and fishing economy, as well as a scenic coastline and many attractive towns, including Mount Gambier with 25,000 people. Additionally, the route passes through several townships that would become suitable as commuter hubs for Adelaide.

As is the case for the Upper Gulf towns, the economy of the South-East can be boosted by eliminating non-essential business regulation and providing a substantial regional tax break for businesses and individuals domiciled there.

This would encourage businesses and individuals to relocate to the region. As we proposed for the Upper Gulf towns, perhaps 5000 state public servants should be employed in Mount Gambier, Naracoorte and Bordertown, to start with.

Construction works would include:

Adelaide to Mt Barker (30km): part of our previously-proposed Adelaide-Victor Harbor railway.

Mt Barker to Murray Bridge (40km): mostly new alignment following the South-Eastern Freeway, and some sections of the existing railway.

Murray Bridge to Bordertown (195km):  duplication of the Overland route, with few deviations.

Bordertown to Mt Gambier (190km):  reopening and upgrade of the abandoned, single-track Mt Gambier line, with occasional deviations.

The 425km railway would cost about $1.4 billion as an add-on to the Victor Harbor line (making a total of 455km from Adelaide).

In similar fashion to the Upper Gulfs line, there would be three major regional destinations: Bordertown, Naracoorte and Mt Gambier, with travel times of 90, 135 and 165 minutes respectively. The railway would also have a stop at Murray Bridge, making it a major exurban centre of Adelaide.

One could even consider dusting off the plans for Monarto, a major urban development concept of Premier Don Dunstan’s, that gave us the South-Eastern Freeway, yet never succeeded in becoming a town, due to its remoteness from Adelaide.

It is also interesting to note that such a project would, in effect, be the first half of a 700km fast railway between Adelaide and Melbourne. If completed, a 200km/h express journey between the cities would take under four hours – not fast enough to entirely replace air travel but certainly enough to become a major part of the transport mix. At such travel times, AECOM estimates 50 per cent of airline demand could be captured, or more than 3000 passengers per day. While this could one day be an important transport link, it is beyond the scope of this article.

Bus fares to Adelaide from Bordertown, Naracoorte and Mount Gambier are about $60, $75 and $80 respectively. The minimum saver airfare from Mt Gambier is $170.

The RAA estimates the total running costs of car travel to be $0.65/km for a small vehicle, or $295 one-way to Mount Gambier. A $70 average fare would therefore appear to be reasonable, and highly competitive with all transport modes.

Passenger numbers could be expected to be initially much lower than for the Upper Gulfs line. The line would serve an existing population of only 32,500 people compared to more than 60,000 for the Upper Gulfs region. It would therefore be reasonable to expect perhaps half that line’s ridership, or 750 passengers per day, at least in the short term. That’s just 274,000 trips per year, and a revenue of $19 million – not even remotely economic on an up-front cost of $1.4 billion.

However, like the Upper Gulfs line that we have proposed, value capture can offset construction costs, and revenues can be bolstered by commuter demand from townships closer to Adelaide. In addition to the Adelaide Hills townships already considered in the Victor Harbor railway, the South-East railway would pass through at least three areas that could be serviced by a fast commuter shuttle: Callington/Monarto, Murray Bridge/Swanport and Tailem Bend, which would have travel times to Adelaide of 29, 38 and 47 minutes respectively.

This would put the Murray region well within the commuter belt. We will assume a modest ridership for this service, perhaps 5000 passengers per day at an average fare level of $20 (competitive with existing bus fares to Murray Bridge), which would bolster revenues by $37 million per year.

With plenty of undeveloped land close to station sites, value capture opportunities would abound. Including sites in the Murray and Limestone Coast regions, there would be at least six development nodes made possible by this railway. Assuming, as we did for the Northern railway, that a billion-dollar mixed-use precinct were developed on each site, and that 10 per cent of this amount could be captured, real estate development could offset construction costs by $600 million.

We estimate, therefore, that the South-East railway could generate revenues of $56 million per year on a cost base (net of its value-capture offset) of $800 million – a gross profit of just 7 per cent per annum. In order to achieve profitability similar to the other railways we have studied, the service would require a direct government subsidy of at least $25 million per year, certainly in the early years when population along the corridor was still low. At a projected ridership of 2.1 million trips per year, the subsidy boils down to a little under $12 per trip, comparable to the typical subsidy for commuter rail in Australia.

Caution is always prudent when proposing public-sector support of a private venture, which would not, it appears, be profitable in the absence of a subsidy.

Would the public benefits of the subsidy exceed its costs?

According to a 2015 study by the Bureau for Infrastructure, Transport and Regional Economics, automobile congestion cost the Adelaide economy more than $1.1 billion in 2015. Divided among 220,000 daily car trips, that implies a direct marginal cost of congestion exceeding $5000 per vehicle per year (or more than $13 per one-way trip).

Assuming that each rail trip represents one car taken off the road, the proposed subsidy could be justified purely on avoided congestion costs. Considering also the additional benefits of containing Adelaide’s urban boundary, increasing employment in regional townships, improving the accessibility of regional areas, and the possibility of future integration with a Victorian network to Melbourne, we believe that the railway subsidy we have proposed is justifiable.

The construction of a South-East railway would not, on its own, result in the goals of the railway being met. The success of the railway would require a concerted effort from multiple arms of the State Government to facilitate the release of land for new rail corridors and residential and commercial development, implement a favourable taxation and regulatory regime to attract new residents and businesses and modest subsidisation of the railway in its early years.

But, in due course, we believe that a fast regional rail service to the South-East of the state would be an effective, and eventually profitable, element in a transformational regional development plan for South Australia.

Richard Blandy is an Adjunct Professor of Economics in the Business School at the University of South Australia and is a weekly contributor to InDaily. Edwin Michell is a Canberra-based engineer and author of the blog Hot Rails Regional Fast Rail for Australia.

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