Canberra-Sydney high-speed rail bid was always too expensive

When John Howard told hundreds of people in the Great Hall of Parliament House that Speedrail's fast train from Canberra to Sydney marked the revival of rail, he already knew that the project had failed the first test.

The high-speed rail link was to be built at "no net cost to taxpayers". But in July 1998, a month before Mr Howard's announcement that Speedrail had won the bid, Cabinet was told the project was likely to require substantial commonwealth funding.

The four bids all demanded government subsidies, from $900 million for Speedrail to $2.8 billion for Transrapid's magnetic levitation bid.

Cabinet was told that none of the bids met the "no net cost to taxpayers" test. All had claimed to meet the test, but only by using "arguments of questionable merit", including calculating savings to the government on future infrastructure speeding, according to a submission to Cabinet.

None of the business plans were "particularly robust", and they all appeared to have over-estimated patronage.

"The major concern with the Speedrail bid is that its patronage forecast appears extremely high and this impacts on all elements of its bid," then transport minister Mark Vaile told Cabinet.

"It is unclear whether Speedrail will be able to convince the financial markets to finance the project based on these forecasts."

Speedrail projected five million passengers a year, almost twice as many as Capital Rail.

"A substantial Commonwealth contribution is likely to be required," Mr Vaile wrote.

"To limit its eventual exposure the Commonwealth could consider announced that its contribution to the funding of the project would be a limited to say $100 million or $200 million."

In August, Mr Howard announced the consortium, headed by Leighton and GEC Alsthom, as the successful bidder, describing Speedrail as "a pragmatic and visionary expression" of nation building.

"I assure the project of the unrelenting and continuing support of the federal government," he said, while being more cautious on funding.

"The proponents contend it will be achieved at no net cost to government in keeping with the original condition. And they estimate that the benefits to the nation will be in the order of $5.9 billion. There will be thousands of jobs created. There will be immense regional development."

Cabinet had heard in July that Speedrail wanted the government to pay for the land, costing $71 million, a $461 million upgrade of track through the Sydney suburbs, and $19 million a year in track access fees for 30 years.

It also wanted a tax concession of $446 million for eight years, more money than the tax offset scheme could provide, and despite the scheme having a limit of five years. Speedrail wanted to be exempted from import duties and sales tax, and wanted exclusive use of the track for at least 10 years, potentially conflicting with competition policy.

It also asked the government to refinance its loans after 15 years if it couldn't get private finance.

"This has the potential to place significant risk on the governments as a result of any overestimated patronage," Mr Vaile's submission warned.

Mr Vaile said there were "arguably good grounds" for the government to withdraw immediately, but that would "expose the Commonwealth to considerable political pressure and public criticism", given the expectations that had built up that the project would go ahead.

He also warned that continued involvement raised expectations and exposed the Commonwealth to the risk of legal action for damages if the project was terminated.

A "proving up phase" would come up with "a more realistic business plan", he said.

Cabinet was also given an evaluation from the independent project control group. It said while none of the projects met the no-net-cost test, Speedrail's proposal had the best chance of being developed to a point where it met the test.

Speedrail said the journey would take 81 minutes to central Sydney at a maximum speed of 320km/h, with 24 services a day and one-fares of $50-$115.

An election was held in October, with John Anderson becoming transport minister. At the end of November 1998, Cabinet's infrastructure committee decided to accelerate the proving-up process. But a year later, in November 1999 Speedrail submitted its final bid to the government, which, according to public statements by Mr Anderson at the time, required $1 billion in tax concessions.

Mr Anderson had spent much of the year mired in controversy over whether to confirm a second Sydney airport at Badgery's Creek.

Speedrail had also commissioned a report that would see the train extended from Melbourne through to Brisbane, eliminating the need for an airport at Badgery's Creek. But "one sensitive element of the plan is for regional airlines to move to Bankstown", a plan that "could upset rural passengers and constituents of Mr Anderson", according to media reports at the time.

On December 13 1999 Cabinet effectively halted the project. It agreed that any further decision on the high speed train would be made in the context of a second Sydney airport, and resolved to write to Leighton Holdings chief Wal King telling him the government "is not encouraging any further expenditure related to the [very high speed train] by Speedrail at this stage".

The next day, Mr Anderson denied reports in the Australian Financial Review that the project was dead in the water, and was quoted as saying that the government was still investigating the costs.