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SEITA tollway using old data on oil prices

by Sheila Newman and Richard Laverack

Why build more roads now?

Why on earth, with petroleum supplies not meeting demand and oil prices through the roof, are we still engaging in public-private partnerships with road builders???

Australia is currently set to be criss-crossed by new roads, tunnels and tollways. A case in point, which we have studied is the SEITA Eastlink tollway, which is being built by ConnectEast in a private-public partnership with the Victorian Government.

So, why is Victoria engaged in massive road construction just now? And, why are we persisting with Eastlink, all the way down the Mornington Peninsular when we could simply stop it now?

We found some strange answers to our question towards the end of a SEITA document called, "Frankston Bypass Environment Effects Statement, Strategic Transport Modelling Technical, dated 3rd March 2008, in "Clause 5.7 - Impacts of Fuel Price Changes."

"The MITM adopts current estimates of vehicle operating costs (fuel maintenance etc) on a per kilometre basis in order to assist in determining route choice behaviour. However, these estimates remain constant for forecast years (2011, 2021 and 2031) since vehicle operating costs are unknown. However, it is worth investigating the elasticity of traffic demand with respect to fuel price in order to gain insight into the effects on traffic demand if fuel prices were to change in the future.

"Table 17 shows both short and long run elasticities of demand for fuel consumption and Vehicle Kilometres Travelled (VKT) with respect to fuel price. In the long term, and elasticity value of - 0.29 for VKT with respect to fuel price would mean that a 10% increase in fuel price would result in a 2.9% decrease in VKT. However, in reality motorists adjust much more to fuel price rises in relation to fuel consumption, either through more fuel efficient vehicles or better driving techniques to conserve fuel. This situation is likely to be even more relevant for the Frankston Mornington region where limited alternative transport options exist.”

SEITA then lists its source as Goodwin Dargay and Hanley (2003), referring to "Elasticities of Road Traffic and Fuel Consumption with respect to Price and Income: a review," ESRC Transport Studies Unit, University College London.

Let's analyse those statements.

Note that, In 2002, when the 'research' into trends for that review would have been done, oil was $22 a barrel. 10% of $22 is $2.20.

If all we had to cope with now was a $2.20 increase on $22, a freeway might still make some kind of sense. Now, however, only 6 years later, oil is over $140 a barrel. This is about 6 times the 2002 price of oil and represents a rise of 536% !

What has happened here? Well, we cannot say for sure, but what usually happens is that projections are based on past trends, and, since from 1987 to 2002 prices did vary more or less only by about 10%, to assume they would go on doing so would be to base one’s projections on past trends.

But those were not the only trends in the past.

Between 1973 and 1987 prices rocketed, but SEITA and the Victorian Government are proceeding as if the 1987 to 2002 trends will last for at least another half century.

The reality is that, since 2003, prices have increased continually, and have gone well beyond any previous levels in 2008, with little sign of ever coming down to the kind of trends relied upon by the Victorian government and ConnectEast to make the tollway a profitable, worthwhile or sensible transport option.

Have a look at trends in oil prices in the graph below:

(Source is "Oil Price History and Analysis," WTRG Economics' Energy Economist Newsletter, Prices are in 2006 dollars.)

Now why would an engineering company like ConnectEast, in the business of making roads, be unaware of the rising oil prices? Oil prices severely impact on the cost of the construction materials and the fuel used by roadmaking vehicles. Building Eastlink must be costing more every day. "Well in excess of 90% of the total construction budget has been spent," already in February 2008, according to The Age, in Simon Mann, "Long and winding road nearly ready to roll", February 16, 2008.

It would be strange if all ConnectEast's engineers and other staff, and SEITA's government advisors, were not aware of oil production curves and theory.

What of the Victorian Government - ConnectEast's partner - in tollroad ventures?

The government has received submissions and press releases from various groups about petroleum depletion projections and oil prices and there has been a Senate enquiry into oil depletion.

The Australian CSIRO study by Barney Foran and Franci Poldan, Future Dilemmas: Options to 2050 for Australia's population, technology, resources and environment, published in 2002, was already flagging problematic trends. See Chapter 4, "Natural Resources and the Environment".

The VAMPIRE study from Griffith University, Queensland, drew attention to Melbourne for its oil-reliant transport vulnerability.

Apart from that, explosive oil prices and depletion fears are constantly in the news. One would therefore be entitled to expect the Victorian government by now to be aware that business as usual has gone completely off the radar.

One has only to go to Amazon com to find a hundred or so books written in the last ten years about the coming energy and fuel crisis, most restating and reaffirming projections made for peak oil production and then decline to start around about now.

If that were not enough, in the past few days, on July 11, 2008, the CSIRO came out again and warned that the cost of petrol could rise to $8 a litre in the next 10 years.

Yet SEITA and the Government still seem to be basing their traffic projections for the next 30 years on a series of totally obsolete oil price trends. On this achronistic basis they openly state that they forecast 30,000 additional vehicles to be travelling along Moorooduc Road in five years time.

What sort of reasoning is this? How can spending $700,000,000 dollars be justified in these circumstances? And how can all the suffering by people and animals who live in the path of this freeway be justified?

After allowing for a 10% increase on $22 a litre fuel price of 2002, which they think might reduce the number of kilometers motorists might travel by 2.9%, SEITA diminish this feeble concession to reality with the rationale that motorists will deal with higher prices by using more fuel efficient vehicles or better driving techniques:

“However, in reality motorists adjust much more to fuel price rises in relation to fuel consumption, either through more fuel efficient vehicles or better driving techniques to conserve fuel.”

But, over the last six months motorists have flocked to public transport. So much so that Connex has ripped the seats out of trains to make standing room only! The metropolitan public transport network is at breaking point. There is no argument about this. The state has asked the Federal government to put funds into public transport.

What will happen if the Frankston and Mornington Peninsular region doesn’t get better public transport?
Is the poor public transport situation from Frankston down through the Peninsular one that ConnectEast, with its shareholders in mind, hopes the government will preserve? This would partly protect ConnectEast's investment. SEITA write, for a project meant to serve the Peninsular for more than thirty years into the future:

“This situation is likely to be even more relevant for the Frankston Mornington region where limited alternative transport options exist.”

This notion is problematic on a few grounds – to say the least. It would mean leaving the public to wear high petrol costs with no reliable public transport option, so that, if people could not pay for petrol, they would not be able to travel to work, shops, doctors, schools, hospitals. Presumably people would, as SEITA hopes, prioritise petrol costs in order to continue to travel for vital and income earning reasons.

SEITA does not canvas, and neither has the government, openly, the logical corollary to continuing very high petroleum prices. It is this: high petrol prices will bankrupt many businesses and leave many people unemployed or underemployed. In the short term businesses will cut whatever costs they can and pass costs on to consumers. The first cost-cut will be wages. Higher costs for products, higher costs for private transport, and lower wages and more unemployment, is a recipe for a sustained, possibly permanent economic depression. Some might describe such a situation as an economic and social collapse.

Colin Hampton,Frankston Councillor/SEITA advisor pushes for tollway through Pines Flora and Fauna

It looks like this tollway project, which SEITA says was on the Melways maps 40 years ago, has just gone out of date and should be abandoned. We could save ourselves the trouble of the last 50km or so. Yet, only a week or two ago, Colin Hampton, Frankston councilor and member of SEITA advisory council, at meeting with low attendance, pushed through support for SEITA’s Option 1, which is the one that goes through ecologically sensitive territory and divides the Mornington Peninsular in two, severely curtailing the few remaining chances for viable wildlife corridors.

What's what:

SEITA stands for the Victorian Southern and Eastern Integrated Transport Authority which was formed by the Victorian Government to manage private public tollway-construction ‘partnerships’. SEITA managed the selection of the private sector bids and now oversees the State's ongoing commitment to this project. In October 2004, ConnectEast was awarded the contract to fund, design, build, own and operate EastLink for a period of 39 years. ConnectEast was listed on the Australian Stock Exchange in November 2004.

Who's responsible

The members of the advisory council to SEITA was set up with John Nicol, as 'Independent Chair'; Janet Holmes à Court, Deputy Chairman; and Frank Corr, Northern Community Representative; Norman Galbraith, Central Community Representative; Geoff Griffiths, Southern Community Representative; Cr Mick Morland, Casey City Council; Mr Tim Tamlin, City of Greater Dandenong; Cr Colin Hampton, Frankston City Council; Mr Ian Bell, Knox City Council; Ms Lydia Wilson, Manningham City Council; * Cr Tony Dib, Maroondah City Council; Cr Craig Shiell, Monash City Council; Cr Tim Rogers, Mornington Peninsula Shire Council; Cr Chris Aubrey, Whitehorse City Council.

The responsible minister is John Pallas, Minister for Roads and Ports.
Your Victorian leader is John Brumby.

(See also: “What Can YOU Do To Stop Road Tunnels Destroying Royal Park and Democracy?”
“Roads to wildlife extinction,”
“Wildlife Campaigner: "SEITA preferred Frankston bypass route will severely impact wildife"”)


Mr MULDER (Polwarth) — (...)The government is on the defensive here today with the latest revelations about the public transport woes of the Brumby government. Here they are rolling them out one after another, trying to defend what is an absolutely appalling record in public transport delivery in the state of Victoria over the last nine years.

The fact of the matter is that when the current Premier, who was formerly the Treasurer, turned up here in 1999 he had the money courtesy of the former government — and he has had the time. All of the predictions have been there in relation to public transport growth. What has the current Premier and former Treasurer done in relation to improving the public transport network throughout metropolitan Melbourne? He has done absolutely nothing in the last nine years.

The Premier, the disgraced former Minister for Transport and member for Thomastown, and the struggling Minister for Public Transport who never wanted the job in the first place, share the blame collectively for what public transport users are putting up with as we speak. The Premier and former Treasurer has his fingerprints all over this disaster, from fast trains through to the myki smart card. These are projects that were signed off by the former Treasurer, who is now the Premier of this state. The Premier knew how to stitch up the ambitious member for Altona. He was right — she was not up to it, she was out of her comfort zone and out of her depth when she was rolled into the role of being the Minister for Public Transport in Victoria.

What are we facing? There is predicted patronage growth of 28 per cent for trains, predicted patronage growth of 13 per cent for trams, all by 2011, which is just around the corner. That is the type of patronage growth that we are expecting here in Melbourne — and the government has known this all along and has chosen to do absolutely nothing about it.
Yesterday’s Melbourne mX newspaper states:

… Brumby’s admission today that almost one in five passengers risked being stranded by overcrowded trains, trams and buses by 2011.

One in five passengers risked being stranded at a railway station, at a tram stop or at a bus stop by 2011.
What has the government done about it? It has done absolutely nothing. The article goes on further to say:
Under the government’s predicted passenger growth figures, added services will fail to absorb even half the extra travellers.

What is the government doing about it? The government knows the situation we are facing by 2011 and yet the government, the Premier and the Minister for Public Transport simply put their heads in the sand and do nothing about it whatsoever. The article continues:

Brumby told 3AW the answer was to squeeze in commuters.
The government wants to squeeze them in:
The government will cram a predicted 28 per cent growth in passengers into an 11 per cent growth in capacity, he said.
I think that is what you would call an insertion. That is what is going to happen to our public transport system and those people who take up the offer to travel on public transport in Victoria. The article further quotes the Premier and states:

‘Our goal is to make it fit’, Brumby said, ‘The objective is to carry the increased number of passengers’.

How on earth are you going to carry the increased number of passengers when you simply do not have the rolling stock to carry them — and that is the position that we are facing here in Victoria. All this is supposed to be fixed with 18 trains and a handful of trams on loan courtesy of the Yarra Trams parent company. The so-called early bird free train travel is up for review in two years and there is every chance that it will be declared a dead duck. As Bernie Carolan from Metlink said, it has not set the world on fire.

We then have the Premier’s brainchild known as Flex in the City, and it would appear that Melbourne commuters are going to suffer the same fate as some of the actors in the Premier’s take of that tacky television show, because there is no joy for public transport commuters out of the Premier’s Flex in the City. It seems to have almost died a natural death. We have heard almost nothing much of that particular project since it was announced. There just does not appear to have been any planning at all. Government members are in their offices hoping like hell that fuel prices are going to fall overnight, sitting alongside the Minister for Water, who is staring at the sky hoping it is going to start to rain. That is exactly what this government is all about in relation to planning for the public transport network and services generally right across the state of Victoria.

There is interest in the Sydenham line, which runs out to Kororoit. It will reach capacity in a year’s time — in a year’s time there will not be room to squeeze in any more passengers commuting on that Sydenham line.

Connex did a presentation recently that appeared on its website, but the page that referred to this impending disaster somehow or other seems to have disappeared.

It was within the presentation made by Connex, but when it was put onto its website somehow or other this particular page, which embarrassed the government in the lead-up to the Kororoit by-election, appears to have disappeared. You have to think about the poor people in the Kororoit electorate having to put up with a rail service that is going to be at capacity within 12 months, having to face death-trap level crossings and rail lines that are at capacity, and — as was revealed from an examination of yesterday’s leaked expression-of-interest document for the franchising of Melbourne’s train and tram network — having to deal with an admission that public transport in areas such as Kororoit are ‘deficient’. Yet we have member after member from the Labor side rising to their feet and trying to talk up the government’s commitment to and involvement in public transport in the Kororoit area.
Looking at the report about the leaked document, it is the state secret that is not really a secret, the expression of interest that is not really an expression of interest but a draft that is not a stamped draft, and that can change.

This is a leaked document that the Liberal Party released yesterday. The document talks about the capacity of Melbourne’s train and tram network and how the contracts will be run in the future. There will be capped fines for operators, with no incentive for an incoming operator to improve services for 15 years, and the ability for tenderers to factor in the capped fine amount when preparing their tenders by simply including that amount as a cost of doing business on the public transport network in Melbourne. Patronage growth for trains will go up 28 per cent and on trams it will go up 13 per cent, but there will only be an increase of 11 per cent in the capacity of trains to cope with this growth.

As I pointed out before, public transport services in the outer metropolitan and regional areas are deficient. The government will have to fork out up to $5 million to assist each tram network tenderer, including the current operator, Yarra Trams. The free lunch the minister had with transport operators in Paris has come at a very high cost to taxpayers. It was a very expensive feed of escargot in Paris for the minister.

Potential bidders who have seen this very close and cosy relationship unfold between Yarra Trams and the Minister for Public Transport have been frightened away from tendering for tram contracts in Victoria. The government is now offering each potential bidder for the tram contracts up to $5 million to help prepare their bids, and of course this $5 million also flows on to Yarra Trams. It is not being extended to the train contracts but is simply for the tram contracts. It is an appalling situation. The relationship that has formed between the minister and this company has grown to such an extent that it has turned potential bidders away from what should be a very lucrative business in Victoria. It has them in a state of fear, and they are not prepared to tender."

An honourable member — "Labor mates."

"Mr MULDER — Labor mates — you can smell it coming a mile away. The situation is that $5 million is on offer. If you go to the contract site, you find the current contracts are there. If you went and had a look at the Yarra Trams annual reports and all the other information that is published in relation to train and tram patronage rates and service delivery rates in Victoria, I do not think it would be all that hard to put together a tender — and $5 million jumps into your hip pocket simply because of this situation and the perception that the government has created out there in the general and business communities that this is already a done deal. The trams are on loan from the Yarra Trams parent company. How convenient and what great timing that is — they arrived just prior to the tenders closing! Why did we not buy new trams? Why do we have to go through the situation of drip-feed, hire-purchase arrangements? This is an absolute disgrace."

ASSEMBLY Wednesday, 25 June 2008, pp. 2482-2484