Freight outcomes from Regional Rail Upgrades

Tabled: 18 March 2020

1 Audit context

Regional Victoria is a significant contributor to Australia’s national and export economy.

In 2017–18, Victoria’s total food and fibre exports were worth $14.1 billion, ranking the state as Australia’s largest agriculture producer. During this period, Victorian grain exports were worth $1.5 billion.

Victoria also has large deposits of rutile and zircon mineral sands. All major mining and mineral sands processing operations stopped for these minerals in 2017 but may resume if market conditions become favourable.

When ready for sale, commodities are transported by road or rail to national markets or Victoria’s three main export ports at Geelong, Melbourne and Portland.

These commodities, their freight transport mode, and their role in Victoria’s economy highlight the importance of the projects examined as part of this audit.

1.1 The important economic role of freight networks

For many primary industries, the cost of moving goods to market is a substantial part of overall production costs. Transporting freight over long distances to port is historically cheaper by rail than road, as rail can transport heavier and higher volumes over longer distances.

Investment by government in the road network, as well as the use of larger vehicles, has steadily improved road transport productivity. These trends, when combined with substandard rail network performance and a lack of investment in rolling stock and rail facilities at ports and terminals, have contributed to rail’s decline as an economically advantageous freight mode.

This has led to increasing supply chain costs for regional exporters who now move freight by road, due to an unreliable and inefficient rail network.

Figure 1A shows the value and impact of freight and logistics to Victoria.

Figure 1A
Freight and logistics in Victoria

Figure-1A-freight-and-logistics-in-Victoria.png

Source: VAGO, based on Delivering the goods: Creating Victorian Jobs, Victorian Freight Plan 2018–50, Transport for Victoria, July 2018.

Recognising the importance of the freight sector to Victoria’s economy, the government endorsed the Freight Plan in July 2018.

The Freight Plan identifies a suite of short, medium and long-term initiatives to prepare Victoria’s freight and logistics sector for future growth, challenges and changes.

1.2 Focus of this audit

This audit examined two freight-related regional rail upgrade programs:

  • the MBRP (funded for $440 million), which includes the FPRSP (funded for $130 million).
  • the RRR project (funded for $1.75 billion, which is primarily for non-freight components).
Murray Basin Rail Project

The Murray Basin is a regional area in North West Victoria that produces and exports grains, mineral sands, fruit, vegetables and wine.

Although mineral sands are not currently transported by rail, agricultural produce is exported on the road and rail network to the ports of Melbourne and Geelong.

In 2014, the Victorian Government announced funding for the MBRP. According to a brochure released by PTV that year, the MBRP would ‘better connect key freight centres in Victoria with our ports and encourage competition and private investment in our rail freight network’.

The government committed to invest up to $220 million towards this project. In April 2016, the Australian Government matched this amount.

Freight-Passenger Rail Separation Project

In June 2018, the Victorian Government announced $130 million in funding for the FPRSP. This amount comprised $95 million from the state and a $35 million contribution from the Australian Government, which the state government allocated to Stage 2 of the Ballarat Line Upgrade (BLU).

The project seeks to deliver rail track and signalling improvements in the Ballarat precinct to maximise benefits for both the MBRP and the BLU, alongside passenger rail. The government allocated the delivery of the project to RPV, with V/Line and DoT seeking freight industry feedback on the project.

Key expected outcomes from the project are to:

  • separate broad-gauge passenger service rail pathways from standard-gauge freight services through the Ballarat station precinct
  • enable 42 weekly return freight paths from the Murray Basin region through Ballarat, with the ability to increase this to 65 if required, via the Ararat to Maryborough line
  • allow greater line speed for freight services within the Ballarat rail corridor by improving track geometry.

By separating freight and passenger rail paths and reducing interfaces with passenger trains and passenger platforms, the project aims to enable faster and more reliable paths through Ballarat for freight trains.

Regional Rail Revival

The RRR is a $1.75 billion program to provide faster and more reliable services for every regional passenger train line in Victoria by 2022. Three freight-relevant upgrades within this program are on the Warrnambool, Gippsland and Shepparton lines.

Although these three projects do not focus on freight, they accommodate existing freight services and seek to preserve their future use. Figure 1B describes the scope of these three projects.

Figure 1B
Freight-relevant works in the RRR program

Figure-1B-freight-relevant-works-in-the-RRR-program.PNG

Note: A train path refers to the infrastructure capacity (signalling, level crossings and rail) required to run a train on a given route over a specific time period. Because of logistical issues, such as limited train paths and resource requirements, train operators must pre-book a path for a set time.
Source: VAGO, based on RPV, Regional Rail Revival, 15 October 2019, regionalrailrevival.vic.gov.au.

Shepparton line upgrade and freight study

RPV is delivering the Shepparton Corridor Upgrade (Stages 1 and 2) project as part of the RRR program. It is not included in the RRR funding agreement with the Australian Government and was fully funded by the Victorian Government ($345.9 million) in the 2017–18 and 2018–19 budgets.

In October 2019, DoT began a study to identify infrastructure improvements to maintain and enhance freight capacity on the Shepparton Line. This study, known as the Shepparton Rail Freight Planning Study, is Stage 1 of a $10 million two-stage project funded by the Victorian and Australian governments.

The objectives of the study are to:

  • maintain and enhance freight capacity, efficiency and reliability
  • mitigate the impact of increased passenger services on freight operations
  • provide freight paths to meet demands over the next 20 years
  • accommodate longer and heavier freight trains
  • facilitate increased use of rail for freight purposes
  • facilitate cheaper rail freight services.

The study is still in draft form so we did not assess it as part of this audit.

Ballarat Line Upgrade

The RRR program scope also includes the $557 million BLU.

The BLU project aims to deliver benefits for passengers, with works that enable extra services during peak and off-peak times and improvements to selected stations.

Although we have not examined this upgrade as part of our audit, the Victorian Government expanded the scope of BLU to include the FPRSP, prior to its pause in April 2019, pending the review of the MBRP business case.

1.3 The Murray Basin Rail Project

In 2014, the state government announced and funded the MBRP. This project intended to deliver freight rail line upgrades to rail infrastructure around the Murray Basin.

A key aim of the project was the standardisation of rail for the Yelta to Maryborough, Sea Lake to Maryborough, and Manangatang to Maryborough lines. That same year, PTV—the original client for the project—released a brochure containing the project scope map, shown in Figure 1C below.

Figure 1C
MBRP project scope map

34166 FIG-1C MBRP project scope map.png

Source:  VAGO, based on Murray Basin Rail Project Summary Brochure, PTV, 2014.

By identifying these corridors for upgrade, PTV reiterated three key issues that the MBRP aimed to address:

  • Lack of capacity due to lines only having an allowable 19 TAL for most freight trains operating on the network.
  • Lack of competition between rail operators due to lines in the Murray Basin only allowing access to broad-gauge trains, and no access to other competitors operating standard-gauge rolling stock.
  • Lack of competition between ports due to the Port of Portland being solely serviced by standard gauge, while the Port of Geelong and Port of Melbourne are serviced by broad and standard gauges.

Intended benefits and scope of the project

In 2014, PTV published the Murray Basin Rail Project Summary Brochure.

This brochure identified that the project was expected to lead to:

  • up to an extra 500 000 tonnes of grain transported by rail per year
  • 20 000 fewer truck trips annually to the ports of Geelong, Melbourne and Portland
  • 276 construction jobs during the project’s implementation
  • 1 130 kilometres of standardised rail gauge (including the Murrayville line)
  • direct investment by rail operators in new rolling stock and bulk handlers in new loading facilities
  • flow-on investment at the ports of Geelong, Melbourne, and Portland due to increased competition and as a direct result of the need to handle higher tonnages per train
  • improved safety and liveability for communities in the region and near the ports as a result of reduced truck numbers.

DoT formalised the scope of the MBRP in the business case in July 2015. The business case characterised the MBRP as a ‘low complexity’ project.

The high-level objectives of the MBRP, according to the business case, are to:

  • improve transport efficiency in the Murray Basin region
  • complete Mildura to Geelong rail standardisation and enhance access to the Geelong, Melbourne and Portland ports for Victorian exports
  • enable further logistical flexibility and ease of use of the Victorian rail network to support a shift to rail, thereby improving road safety, reducing road congestion and lowering road maintenance costs
  • maximise opportunities to leverage private sector investment in the network and complementary infrastructure to support a commitment by government.

The business case for the MBRP also set three high-level benefits that were expected to accrue from the project, with eight supporting key performance indicators (KPI), as shown in Figure 1D.

Figure 1D
MBRP—benefits and KPIs

Figure-1D-MBRP-benefits-and-KPIs.PNG

Source:  Improving the competitiveness of the Murray Basin region, Transport Network Initiative—Final Business Case, DEDJTR, July 2015.

The business case identified four options to deliver these objectives and benefits. The preferred option is shown in Figure 1E.

Figure 1E
Preferred option rail configuration

34166 FIG-1D Preferred option rail configuration.png

Note:  The ‘t’ used in the diagram (ie: 23t) refers to TAL.
Source:  Improving the competitiveness of the Murray Basin region, Transport Network Initiative—Final Business Case, DEDJTR, July 2015, page 15.

Key elements of this preferred option include:

Standard gauge refers to railway with a track width of 1 435 millimetres. It is the most commonly used gauge in the world. As of November 2018, Victoria has 1 904 kilometres of standard gauge track.

  • standardisation of the entire existing Murray Basin freight rail network
  • reinstatement of the Maryborough to Ararat line, which the previous private sector lessee closed in January 2005
  • improved connectivity to the national standard gauge network at both Geelong and Ararat
  • conversion of all standard branch lines to 21 TAL standard gauge.

Figure 1F shows how the business case set out these works across four stages.

Figure 1F
Four stages of the MBRP as covered in the business case

 

34166 FIG-1E Works DES-01.png

Source:  VAGO, based on Improving the competitiveness of the Murray Basin region, Transport Network Initiative—Final Business Case, DEDJTR, July 2015, page 16.

A railway sleeper refers to a component of rail infrastructure that supports the metal rail of railroad tracks. Sleepers are laid perpendicular to the rails and support the load when trains pass. Sleepers are usually made of concrete or wood.

By April 2017, the government identified the need to undertake additional works through Ballarat. As a result of the MBRP and BLU, DoT advised the government that Ballarat would become a railway bottleneck due to ageing infrastructure, increasing transport demands and conflicting requirements between freight and passenger services.

Following the increased passenger services to be delivered as part of the BLU on the Ballarat Corridor, the government determined that the original MBRP scope was no longer a viable solution to address the increased demands on the Ballarat corridor.

The government subsequently identified works between Maryborough, Ballarat, and Warrenheip as the preferred option to address this issue. It named this option Stage 4b. The government recommended that Stages 2, 3 and 4 (seen in Figure 1F) of the project proceed for delivery while it would undertake a full review of scope and operations for Stage 4b to ensure that there was clear separation of freight from passenger operations. Figure 1G identifies the intended features of Stage 4b.

Figure 1G
MBRP 4b scope

34166 FIG-1G v2-01-01-01.png

Source: VAGO, based on information from DoT.

Dual-gauge refers to railway that allows the passage of broad and standard-gauge trains.

In March 2018, the government renamed Stage 4b to Stage 5 of the MBRP. A key benefit expected from this stage was that it would enable standard-gauge freight trains to run from Melbourne or Geelong through Warrenheip to Maryborough. Passenger and freight trains could also run on the dual-gauge track from Ballarat to Maryborough. These works would also allow for the increase in weekly freight paths after the BLU.

In June 2018, the government incorporated Stage 5 into the scope of the BLU project (within the RRR program) and into what would become the FPRSP.

In April 2019, prior to the public announcement that the MBRP would not achieve timing expectations, the government deferred further work on the FPRSP, pending review of the MBRP business case.

Budget for the project

A P50 estimate is a statistical methodology used to describe the outcome of a risk event. This particular estimate states that there is a 50 per cent likelihood that the final project cost will not exceed the funding provided.

A P90 estimate states that there is a 90 per cent likelihood that the final project cost will not exceed the funding provided.

In August 2014, the Victorian Government allocated $220 million for the MBRP (based on a P50 estimate). The Australian Government matched this in April 2016, bringing the total to $440 million.

An independent assessment included in the business case identified the cost of the preferred option as approximately $454 million (real, using a P90 estimate). This assessment provided assurance to government that the cost of the project matched the allocated funding.

Timeline for the project

The 2015 business case stated the project would be completed by December 2018.

Contractor selection

In December 2016, V/Line ran a procurement process to select a design and construct contractor to deliver Stages 2 to 4 of the MBRP.

V/Line divided the scope of works into two work packages. Under the proposed contract agreement, the award and delivery of Work Package 2 (Stages 3 and 4) would depend on the contractor’s delivery of Work Package 1 (Stage 2) within expected time frames. Figure 1H shows the scope of the two work packages.

Figure 1H
Scope of work packages

Figure-1H-scope-of-work-packages_0.PNG

Source: VAGO, based on information from V/Line.

A provisional sum is an allowance that parties insert into the contract agreement for works that are not yet defined in enough detail to be accurately priced. In the V/Line and MMJV design and construct contract agreement, the provisional sum items were rail flaw remediation, track and civil remediation, and activation of additional level crossings and signalling activities.

In May 2017, V/Line selected the MMJV as the successful tenderer. The next month, both parties signed the contract agreement for $275 million, which included $22 million in provisional sums.

The MMJV began Work Package 1 in September 2017. One month later, it reported that it could not complete the expected works within the project schedule. To address this, the MMJV submitted a recovery proposal to V/Line, which V/Line agreed to.

Work continued until 22 March 2018, when ONRSR identified a safety breach at one work site. While ONRSR ultimately did not attribute responsibility for the breach, V/Line immediately issued a stop work notice to the MMJV on all works being undertaken. Soon after, V/Line, in consultation with DoT, agreed that the delivery of Stages 3 and 4 would not proceed as originally procured. V/Line and DoT also assessed the option of V/Line directly delivering Stages 3 and 4 as the managing contractor.

In May 2018, the MMJV signed a settlement agreement with V/Line to formally resolve matters arising from the ceased contract works.

1.4 Agency roles and responsibilities

Figure 1I shows the agencies responsible for delivering the freight outcomes examined in this audit.

Figure 1I
Agencies examined as part of this audit

 

34166 FIG-1L DoT DES.png

Source: VAGO, based on publicly available information.

Department of Transport

On 1 July 2019, DoT, PTV, and VicRoads merged. DoT is now responsible for planning and operating the transport system in Victoria.

DoT works closely with the Major Transport Infrastructure Authority (MTIA) in delivering major transport projects across Victoria. MTIA comprises five project teams, including RPV.

Freight Victoria also sits within DoT. The government established it to coordinate the development of an efficient freight and logistics system. This includes leading the delivery and reporting of the priorities and actions under the Freight Plan.

RPV project team within MTIA

RPV is a project office within MTIA responsible for the delivery of key rail transport infrastructure projects in Victoria. This role includes planning and site investigations, stakeholder engagement, and construction delivery and project commissioning.

In June 2018, the Minister for Transport Infrastructure (formerly the Minister for Public Transport) appointed RPV as the delivery agency for future stages of the MBRP, replacing V/Line.

In April 2019, V/Line and RPV jointly developed a proposal for $23 million in urgent maintenance works on the Manangatang line.

In August 2019, DoT confirmed RPV would develop and deliver the RRR.

V/Line Corporation

V/Line is the accredited rail operator and network scheduler for regional rail and coach services and maintains 3 520 kilometres of railway track used by both passenger and rail freight operators in Victoria.

DoT directed V/Line to deliver the works required for Stage 1 of the MBRP. It completed these works in September 2016. V/Line procured a design and construct contractor to undertake Stages 2 to 4 of the project.

In June 2018, the transfer of project delivery roles to RPV limited V/Line’s role to completion of Stage 2 and urgent maintenance on the Manangatang line, which the Minister for Transport Infrastructure approved in July 2019.

1.5 What this audit examined and how

This audit analysed whether regional rail upgrades are improving rural freight outcomes in a timely and cost-efficient way. Specifically, we examined whether:

  • governance arrangements for the selected regional rail upgrades supported informed decision-making
  • agencies delivered selected regional rail upgrades according to approved scope, time, cost, and quality expectations
  • the selected regional rail upgrades have realised expected benefits for freight.

We conducted this audit in accordance with the Audit Act 1994 and ASAE 3500 Performance Engagements. We complied with the independence and other relevant ethical requirements that relate to assurance engagements. This audit cost $520 000.

1.6 Report structure

The remainder of this report is structured as follows:

  • Part 2 provides a summary of the various freight-related rail upgrades.
  • Part 3 examines issues and lessons from delivery of the upgrade projects.
  • Part 4 examines the achievement of intended outcomes and benefits.

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