The Vic Auditor General has found that the Port Philip Channel Deepening Project (CDP) isn’t delivering the promised benefits.  Saying “I told ya so” can be very satisfying, but only if someone is listening and I’m not sure that they are.

The Victorian Auditor General’s Office has just released an assessment of the Port of Melbourne Channel Deepening Project (CDP), finding that the global financial crisis had reduced the benefits of the project and:

Adverse market conditions for ship owners and operators are currently precluding any practical realisation of cost savings as a result of the CDP and the use of larger ships.

In 2007-08 Economists at Large made submissions on the economic assessment of the CDP, finding that the benefits were overstated and that there had been no sensitivity analysis done on key parts of the assessment such as  an assumption of constant world economic growth.  The Auditor General charitably says that the financial crisis “could not have been reasonably envisaged”, but isn’t that what economic modelling and sensitivity analysis is for?  At the time we said:

The impact of a recession would be considerable and current economic conditions would call for caution. A range of potential values comparing Melbourne container growth to world trade would be more appropriate, including lower and upper boundaries. It should also address the likely impacts of a significant economic slow down. Should a slowdown arrive in the early years of the CDP operation, when its financial operations are most vulnerable to a loss of custom, the project’s net benefits would be severely undermined. This adds to the concern that this is a high risk project.

Yet despite this being a risky project, it was evaluated with a discount of 6%.  The CDP was particularly sensitive to the discount rate as all costs were upfront and the vast bulk of benefits are twenty years in the future.  At a discount rate of 15% it had an NPV of zero under the original assumptions.  At the very least the project should have been delayed for fifteen years….as we said 5 years ago.

So this “told ya so” rant would be very cathartic, if only someone was listening.  Today’s Age reports, however, that there is bipartisan support for massive port developments, albeit in different places around Melbourne.  Only in the second last paragraph does anyone call for a “comprehensive and transparent cost-benefit analysis” but even then it is only to support the option they’d already chosen.  Shouldn’t you do the analysis and then choose your option?

All over Australia there are desperate calls to address infrastructure issues, but almost nowhere will you find timely and objective economic assessment.  Please send examples to the contrary!

Here is our 2008 submission to the Victorian Standing Committee on Finance and Public Administration:   Ecolarge 2008 CDP submission FINAL