ARTC Melbourne-Brisbane Inland Rail Alignment Study Working Paper No. 12 Stage 2 Financial and Economic Analysis ARTC Contents Page number Glossary .......................................................................................................................................................ii 1. Introduction ..........................................................................................................................................7 1.1 Background to Melbourne-Brisbane Inland Rail 8 1.2 Study objectives, stages and working papers 8 1.2.1 Rolesof the Lead Technical Consultant and Financial and Economic Consultant 9 1.3 Stage 2 and role of Working Paper No. 12 10 1.4 Structure of this working paper 10 2. The inland routes assessed in Stage 2 ...........................................................................................11 2.1 Inland routes assessed in Stage 2 11 2.2 Stage1routeidentifiedforfurtheranalysis 13 2.2.1 Demand and volume analysis 13 2.2.2 Technicalanalysis 14 2.2.3 Identificationofoptimalroutesegments 14 2.2.4 Financialandeconomicanalysis 15 2.2.5 Routeidentifiedforfurtheranalysis 16 2.3 Stage2optimisedroute 16 2.4 Stage2alignmentoptionsanalysis 17 2.4.1 Alignmentoptionsforthe1,880kmroute 17 2.4.2 Alignmentoptionsforthe1,690kmroute 19 2.4.3 IdentifyingalignmentoptionsforStage3analysis 19 2.5 Other rail proposals for the inland railway corridor 20 2.5.1 Great Australian Trunk Rail System inland rail network 20 2.5.2 Border railway 21 2.6 Case studies of recent rail freight projects 22 3. Demand...............................................................................................................................................24 3.1 Introduction 24 3.2 Freight in the inland railway corridor (all modes) 25 3.3 Modalanalysismethodology 26 3.3.1 Scenariosconsidered 29 3.3.2 Price and service attributes assumed 29 3.4 Demandresults 31 3.4.1 Results–revenuemaximisingaccessprice 40 4. Cost estimates, transit time and other key assumptions..............................................................42 4.1 Introduction 42 4.2 Performance assumptions 42 4.3 Journeytime 43 4.4 Capitalcosts 44 4.5 Operatingandmaintenancecosts 45 4.5.1 Above rail costs 45 4.5.2 Below rail costs 47 4.6 Accessrevenue 48 4.7 Scenariosconsideredinthedemand,economicandfinancialappraisals 51 4.7.1 Base case 52 4.7.2 ScenarioswithInlandRail 56 5. Financial appraisal methodology.....................................................................................................57 5.1 Introduction 57 5.1.1 Operator and ownership 57 5.2 Keyassumptions 59 6. Economic appraisal methodology ...................................................................................................60 6.1 Introductiontotheapproachandmethodology 60 6.1.1 Incorporationofdemandforecasting 62 6.1.2 Economicbenefits 63 6.1.3 Economiccosts 67 6.2 Economicassumptions 68 6.2.1 Employmentgeneration,regionalbenefitsandwidereconomicbenefits 69 Melbourne – Brisbane Inland Rail Alignment Study – Page i Working Paper No. 12: Stage 2 Financial and Economic Analysis ARTC 7. Financial and economic results .......................................................................................................73 7.1 Financialresults 73 7.1.1 Project financial NPV 73 7.1.2 Summary of financial results 75 7.1.3 Potential impact on ARTC revenue 75 7.2 Economic results 76 7.3 Summary of financial and economic results 80 7.4 Results–alternativedemandscenarios 80 7.5 Results–changestokeyassumptions 83 7.6 Results–implicationsforcorridorpreservation 86 7.7 RouteidentifiedforfurtheranalysisinStage3 88 7.8 Areas of further analysis in Stage 3 91 8. Bibliography and reference list ........................................................................................................93 Melbourne – Brisbane Inland Rail Alignment Study – Page ii Working Paper No. 12: Stage 2 Financial and Economic Analysis ARTC Contents (continued) Page number List of tables Table 5 Working papers 9 Table 6 Melbourne to Brisbane inland railway routes analysed in Stage 2 11 Table 7 Melbourne to Brisbane routes for economic and financial analysis 15 Table 8 Cost per minute saved relative to the reference case – 1,880 km route 18 Table 9 Cost per minute saved – 1,690 km route 19 Table 10 Characteristics of Melbourne-Brisbane Intercapital market 29 Table 11 Forecast tonnes and net tonne kilometres carried on the 1,880 km scenario (assuming commencement in 2020) 36 Table 12 Number of northbound trains per day on the 1,880 km scenario (assuming commencement in 2020) 37 Table 13 Forecast tonnes and net tonne kilometres carried on the 1,690 km scenario (assuming commencement in 2020) 38 Table 14 Number of northbound trains per day on the 1,690 km scenario (assuming commencement in 2020) 38 Table 15 Melbourne-Brisbane (and backhaul) forecast tonnes (intercapital freight, Base Case and inland railway scenarios, assuming Inland Rail commencement in 2020) 39 Table 16 Inland railway performance specifications 43 Table 17 Melbourne-Brisbane journey time 43 Table 18 Indicative Inland railway capital costs ($ millions, undiscounted, 2008 dollars) 44 Table 19 Asset allocation of inland railway capital costs (excluding contingency) 44 Table 20 Asset allocation of inland railway capital costs (excluding contingency) 45 Table 21 Train operating costs (2008 dollars) 46 Table 22 Inland railway below rail maintenance costs (2006 dollars) 47 Table 23 Inland railway below rail operating costs (2008 dollars) 48 Table 24 Inland Rail access revenue assumptions (2008 dollars) 49 Table 25 Inland rail indicative maximum regulated revenue limits ($ millions, 2008 dollars) 50 Table 26 Summary of assumptions for specific scenarios 52 Table 27 ARTC proposed capital spend on the north-south corridor assumed in demand and appraisals ($ millions, undiscounted) 53 Table 28 General financial appraisal assumptions 59 Table 29 Key economic appraisal assumptions 68 Table 30 Estimated direct and indirect construction-phase employment (gross FTEs, average per annum over 5 year construction period) 69 Table 31 Estimated direct operations-phase employment (per annum, FTEs) 70 Table 32 Financial – project NPV (pre tax) nominal cash flows ($ million, discounted, excluding financing costs) 73 Table 33 Discount rate Sensitivity analysis ($ million, discounted, 2010 dollars) 74 Table 34 Net project cashflows – demand/capital cost sensitivity analysis ($ million, discounted, 2010 dollars, excluding financing costs) 75 Table 35 Estimated annual revenue loss to ARTC of coastal rail access revenue 76 Table 36 Economic – appraisal results for Inland Rail (incremental to the Base Case, $ million, discounted, 2010 dollars) 77 Table 37 Economic – breakdown of economic costs and benefits by start date (incremental to Base Case, $ million, discounted, 2010 dollars) 78 Table 38 Economic sensitivity analysis: demand and capital cost ($ million, discounted, 2010 dollars) 79 Table 39 Economic sensitivity analysis: capital costs and discount rate, $ million, discounted, 2010 dollars) 80 Table 40 Intercapital rail market share for a selection of years and under each demand approach (Operations commence: 2020) 82 Table 41 Comparison of core and optimistic demand scenarios ($ millions, discounted, 2010 dollars) 82 Table 42 Comparison of capped and uncapped demand scenarios ($ millions, discounted, 2010 dollars) 83 Table 43 Comparison of core appraisal and changes in reliability for both 1,880 and 1,690 km scenarios ($ millions, discounted, 2010 dollars) 84 Melbourne – Brisbane Inland Rail Alignment Study – Page iii Working Paper No. 12: Stage 2 Financial and Economic Analysis ARTC Table 44 Comparison of 1,880 and 1,690 km Melbourne-Brisbane routes and Melbourne- Toowoomba railway ($ millions, discounted, 2010 dollars) 85 List of figures Figure 2 Map of the far western sub-corridor 7 Figure 3 Inland rail routes analysed in Stage 2 12 Figure 4 Aggregate market shares using survey elasticities (no inland railway) 31 Figure 5 Aggregate market shares using survey elasticities (2020 inland railway commencement, 1,880 km scenario) 32 Figure 6 Aggregate market shares using survey elasticities (2020 inland railway commencement, 1,690 km scenario) 32 Figure 7 Freight flows along the corridor 35 Figure 8 Inland rail route identified for Stage 3 analysis 90 List of appendices Appendix A Stakeholders consulted Appendix B Case studies of recent rail freight projects Appendix C Additional information on demand results and assumptions Appendix D Additional information on economic parameters Appendix E Terms of reference for the study Melbourne – Brisbane Inland Rail Alignment Study – Page iv Working Paper No. 12: Stage 2 Financial and Economic Analysis ARTC Disclaimer This paper has been prepared by PricewaterhouseCoopers (PwC) at the request of the Australian Rail Track Corporation (ARTC), to provide economic and financial analysis of the Inland Rail project. The information, statements, statistics and commentary (together the ‘Information’) contained in this paper have been prepared by PwC from material provided by the ARTC, and from other industry data from sources external to ARTC. PwC may at its absolute discretion, but without being under any obligation to do so, update, amend or supplement this document. PwC does not express an opinion as to the accuracy or completeness of the information provided, the assumptions made by the parties that provided the information or any conclusions reached by those parties. PwC disclaims any and all liability arising