Project data sinking quickly

Channel deepening economic justifications are pretty leaky according to ex Treasury Economist

Channel Deepening Project Data just doesn't hold Water


June 7, 2007

Richard McEncroe

THERE is much talk about the need to "future-proof" the Australian economy.

Andrew Bolt and Alan Jones notwithstanding, there is a consensus in the media, and, for that matter, the business, industrial, social and government sectors, that climate change is, well, real.

So, in 2007, can you imagine a state cabinet deciding to dig a massive hole in Melbourne's most important natural asset on the basis that it knows what the world will look like in 2035? I think not.

This is the totally irrational thing about the Port of Melbourne Corporation's (read Victorian Government's) determination to deepen the Port Philip Bay shipping channels. The public has heard much of the environmental risks of the channel deepening project. But how sound is the rationale?

According to the alleged analysis of the costs and benefits of the CDP in the supplementary environmental effects statement, the project will generate benefit to Victoria of some $1.something billion, depending on which particular set of assumptions you want to run with.

Well, that sounds good! Um, yes, it does, but when you look carefully at the assumptions underpinning that figure — the changing nature of the world, and hence Victoria's economy — and the fact that this figure is not "net" of all the genuine costs of the project, it looks very dodgy.

Be clear. This project is not about getting more product to Australia, it is about getting it here more cheaply.

The PricewaterhouseCoopers analysis commissioned by the departments of Infrastructure and Treasury and Finance — the very report that the Government is relying on for the "business case" for the project — acknowledges that the TEU capacity of ships entering the bay (that is, the number of 20-foot equivalent units, or "containers" ships can carry), is expected to be actually less than an undeepened channel can accommodate.

It is only one container less, but as a stand-alone statistic it does bring into question the Government's, and the port's, repeated assertions about the dire importance of the channel deepening project.

These container figures, like all the forecast figures in the analysis, are based simply on assumption, and one of the key assumptions is that not much will change in the next 30 years.

This is clearly foolish given the rate at which we are learning about climate change, and, as Treasurer John Brumby pointed out in his 2007-08 budget, the Victorian economy needs to prepare itself for major structural change as a result of climate change.

Further, when the bulk of the data is provided by the project proponent, and when that data is not externally scrutinised, figures need to be considered carefully. One of the key problems here is that the "shipping data" — the projected traffic post-deepening — has been provided to the independent panels by the port.

When those projected shipping figures are based on a view of the past, rather than a view of the future, there is cause for genuine community questioning.

For example, the port forecasts grain exports to 2035. Given the history of the Australian grains industry in the past 12 months alone — not to mention the rapidly changing weather patterns — I would have thought that assuming to know anything about what the grains industry will look like in 30 years is ambitious at best.

Not only does the port base its shipping figures on its assumed knowledge of the size of the nation's grain harvests in 30 years, it predicts that Victoria will have its existing share of exports from the pool — about 12 per cent.

Further, assumptions about consumer habits are hard-wired into the analysis. Are we really likely to be importing twice as much crude oil in 2035 as we did in 2005, as the analysis assumes?

The assumptions, the forecasts, have been developed by extrapolating past trends. This methodology is questionable in such a dynamic environment. This seems to be the antithesis of forecasting, more "rear-casting".

Accepting the port's shipping data unchallenged, and relying on it as the foundation assumption on which the remaining economic analysis is built, is wounding for the credibility of the report, both in terms of the reliability of the data and the independence of the process. Unfortunately, it also represents a missed opportunity to really advance the debate about the economic future of Victoria.

And, sadly, having spent more than $100 million on trial dredging and various assessments of the merits and dangers of this project (costs that curiously, and inexplicably, have not been included as "project costs" for the purposes of the cost-benefit analysis done to date), we are still none the wiser as a community about who is going to pay for the hole in the bay. We also don't know what scale of financial compensation for businesses might be required after the project and which entity will be responsible for those costs, or what real impact there may be on Victorian manufacturers.

But because all the key data for assessing the costs and benefits of the project has been provided by the project proponent, the developer, we really don't know if the project is required at all.

Richard McEncroe runs Esperanto Consulting and Communications


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