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Transport & Logistics

Light Rail Transit – Costs versus benefits

10 Dec 2013, by Informa Insights

With light rail projects being undertaken in nearly every state in Australia, we spoke to Dr Chi-Hong (Patrick) Tsai, Senior Research Analyst at the Institute of Transport & Logistics Studies to see what the most efficient funding options are.

Light Rail Transit (LRT) systems have recently been retrofitted in urban areas of increased congestion and transport demand. How can LRT be best integrated into existing transport systems in order to deliver reliable services, while also being as efficient as possible?

Dr Tsai: Most LRT projects proposed in Australia are relatively small and standalone systems rather than being

Chi Hong Tsai
Chi Hong Tsai

designed for the backbone of a city’s public transport network, so the new LRT services need to provide seamless transfer between multi-modal systems covering the integration of network design, timetables, ticketing and fare structures with the existing systems. Fare integration, in particular, needs to be implemented as transfer penalty would influence people’s decision in mode choice.

 Recovering the costs of LRT construction is not always possible through fares alone. As a result of this governments need to seek innovative funding options in order to deliver services. What are some of the most cost effective ways to fund LRT over the long run that will allow the maximum value for users and government?

Dr Tsai: The most profitable public transport systems around the world achieve a considerable amount of income through non-operational activities, such as joint land development and Transit-Oriented-Development. In the case of Hong Kong MTR, more than half of its income is from non-operational activities. The government needs to think about how to maximise the value from the land development along the LRT corridors in order to cover the huge capital cost.

How can we assess the benefits of installing new infrastructure, such as light rail, as opposed to building new roads? Figures show that building new roads increases capacity without significantly decreasing traffic. Is it fair to say that the expense of rail installation can be excused by its long-term benefits in reducing congestion?

Dr Tsai: New road infrastructures will certainly increase the capacity in the short-term, but in the long-term it will also create “induced demand” which will ultimately meet the capacity at some point and this is why motorways usually need widening after one or two decades of operation. When investing in rail infrastructures, we are designing systems that can last for 50 -100 years with future opportunities of upgrading. Given that the resource is limited, we need to wisely optimise our transport investment for the long-term benefits.

The Sydney Light Rail project has been projected as delivering 10, 000 new jobs and $4 billion in economic benefits while costing $1.6 billion to deliver. There have been some suggestions that businesses along the suggested corridor will lose foot traffic during the construction stages. Are there ways to minimise the impact of this? Or do you think the long-term benefits of LRT will outweigh this down side to the construction?

Artist impression of Sydney light rail Image source: Transport for NSW
Artist impression of Sydney light rail
Image source: Transport for NSW

Dr Tsai: It is inevitable to have some disruptions during the construction phase. A comprehensive traffic management plan must be implemented to mitigate its impact on traffic and pedestrian flow. However, once the construction is completed, the LRT will offer a better walking environment and reduce the traffic congestion along the corridors. This will provide more opportunities for local business than it currently is. I would expect the long-term benefits will outweigh the cost during the construction.

We’ve seen a recent worldwide trend in the installation of LRT, what do you think have been the most efficient funding options used?

Dr Tsai: Public private partnerships (PPP) could be an option for future public transport investment. This business model which engages the funding from private sector has been successful in some cases in Europe and Asia. In Australia, previous PPP projects have not met the expectation and thus the government needs to set up a robust and rigorous PPP framework and guideline for future investment.

Should LRT projects factor in the maintenance costs of operating the infrastructure in order to improve safety?

Dr Tsai: Certainly the maintenance costs ought to be taken into account of the Economics Appraisals not only for improving safety but also for ensuring the financial viability of LRT projects.

What are your thoughts on the most cost-effective transport in general? Where do you see Australian transport in 50 years, and how will governments come together to pay for it?

Dr Tsai: Most Australian capital cities have had a fairly wide train network serving as the backbone of public light rail bannertransport network. Given the budget constraint, future transport investment should aim to link those areas which are not covered by the train network by using more cost-effective systems either by bus, LRT or Bus Rapid Transit (BRT). In terms of financing, the government should encourage more engagement with private sectors and improve the current PPP model. Past experiences have shown that the private transport operators are unlikely to self finance by the transport revenue itself. One way to encourage more funding from private sectors is to provide incentives such as land development which has been successful in some cases in European and Asian cities.

The Deputy Prime Minster, Warren Truss, and Shadow Minister for Infrastructure and Transport, Anthony Albanese, have both pledged support for the HSR link along the east coast of Australia. Albanese stated at the AusRAIL conference at the end of November that every $1 of investment in HSR will lead to a $2.15 return. Why do you think it’s taken so long to open the discussion to funding HSR? And what are your thoughts on practical funding options for such an immense project?

Dr Tsai: The issue of HSR is that it is expensive regardless how much return the government can get for every $1 spent. It is an investment that will take more than 50 years to cover the cost. On the other hand, the advantage of the HSR is that it has great potential for land development along the corridor. If the benefits from the land development can be justified, it will be more likely to attract private investors and hence create more funding options.

*Dr Chi-Hong (Patrick) Tsai is a Senior Research Analyst in the public transport team of ITLS. Patrick completed his PhD degree in Civil Engineering in 2013, and he will also be joining the long line of expert speakers at the Light Rail 2014 conference.

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