Project Appraisal of High-Speed Rail Project of Australia - Essay Example

Project Appraisal High speed rail project of Australia Author Author Affiliation Date Table of Contents Project appraisal 3 Project Appraisal of High Speed Rail in Australia 3 Defining HSR project of Australia 3 Background of the project 4 Concept analysis of HSR 4 Forecasting demand of HSR in Australia 5 Project Proposal 5 Economic assessment 6 Financial Assessment and cost of construction 7 Environmental and Social Assessment 8 Future of the Project 9 Key issues of the project 9 Conclusion 9 References 10 Project appraisal Project appraisal is an important decision making tool. Appraising the project means evaluating and analyzing the project and its feasibility.it analyze the project its need and also its cost effectiveness for future implementation.it also answer whether the selected project is fulfilling the demand and need of that time. On the basis of project appraisal in project management it is decided by the manager to select the project for further execution or reject it after detail evaluation. The various dimension of project appraisal are demand and need assessment, concept assessment, economic assessment, environment and sustainability assessment, social assessment, financial and cost estimation and future assessment of the project. These all dimensions of appraising project are responsible in presenting detail and clear analysis and evaluation of the selected project[Sit11]. Project Appraisal of High Speed Rail in Australia High speed rail is one of the biggest project of Australian Government. It is a High speed Rail with electric passengers trains operating at the speed of 250 km/hour which is operational in many almost 11 countries. The initiative had also took by Australian government to build this speedy train in Australia as well. This project has been under considerations and investigations by Australian government to make high speed rail network operational between Melbourne, Canberra, Sydney and Brisbane. This one of the significant project of Australia because it can reduce the aviation fuel, external cost of transportation, carbon dioxide emission and also freight or aviation traffic[Lai111]. The Project Appraisal of High speed Rail in Australia will describe the detail analysis of project its need, background, feasible alternatives and proposal of High speed rail of Australia. Moreover the project appraisal will also explain financial, economic, social and environmental assessment of HSR in Australia with its future implementations and critical issues. In this way Project appraisal on HSR of Australia gives detail analysis of the project on each dimension. Defining HSR project of Australia High speed rail project is defined as a propose-built, fixed-track mode of transport, which is capable of moving people at the speed over a long distance at the speed of 250 km/hr. Generally this high speed rail project is used as public transport in major cities of the developed and under-developed countries. The stations of high speed rail typically built at the populous and metropolitan areas of the countries. It is currently successfully operational in major 11 big countries like china, japan united states and many others. China has biggest and most successful high rail network of the world. Australia has also been considering High speed rail project for offering fast commuter service to its population. Proposed high speed rail network will connect Melbourne to Brisbane through Sydney Canberra and other regional centers along east coast of Australia. This will not only provide fast transport facility to its citizens but is can also have positive impact on national and regional economy. The construction of HSR on the east coast of Australia has also a potential of development of urban and regional communities that are connected to eastern coast of Australia. That is the reason this project has vital importance for Australian Government[Phi13]. Background of the project The construction of high speed rail network has been under investigation since early 1980’s but planning stopped in 2000 when government and its opponent consortium could not agree on the financing sources of Sydney-Canberra route. At the same time both proponent were agree on Melbourne-Canberra-Sydney-Brisbane network. Many talks and dialogues did not come to fruition because every time both proponents were not agree on financial sourcing of HSR[Sau10]. In July 2011 the first initial report was presented to give the overview on feasibility of high speed rail network and likewise second phase of previous report was introduced in 2013 which estimated other important heads of the project. Both reports act as project proposal for execution that was given to Australian government. Concept analysis of HSR High speed rail network operating in many developing countries like Japan, France Germany, Italy, Spain, Switzerland, Belgium, China and South Korea. The high speed rail network concept is very valuable for Australian travel market. Air travel dominates the inter-capital and intra-rural travel is exclusively car based. Rail has vital importance in the rural areas and fringe commuter market in Australia. Currently rail has low market share in travelling market because of less rail networks are operating in Australia. Thus, high speed rail will increase market share of travelling through rail but will also save the time of travelling of people of the eastern coast of Australia. It also gives alternative option of aviation travelling and offers cheap travelling by rail[Aus11]. Forecasting demand of HSR in Australia It has been calculated that if high speed rail constructs almost 46 to 111 million will use it for inter-city and regional trips and if fully operational till 2065 then approximately 86.3 million passengers will use the services of high speed rail in one year. It will reduce the air traffic by 60% passenger will start traveling through rail rather than on air flights. This will be more viable and economical solution for the passenger from middle class income group.it will increase national savings and time. Moreover it will also lessening the expense of aviation fuel which is currently the biggest expense of Australian Government. In high speed rail project link the Sydney-Melbourne is expected to be a largest market with almost 19 million population and second largest is Brisbane-Sydney with 11millons and third is Sydney-Canberra with 5 million passengers. These three markets will not only generate extraordinary sales because it will serve a big chunk of population of big cities. It will also bring various economic and social benefits for the big countries and their rural and urban areas. Project Proposal As a project proposal, Australian government has received two major reports that describe the feasibility and detailed analysis of high speed rail network of eastern coast of Australia.it has been divided into two phases. The first phase of the HSR study[Placeholder1] describes the construction of corridors and stations and their locations. It also explains the potential patronage and estimated cost but only related to corridors and stations because report explains that corridors and stations will consume big chunk of budget thus their estimation is important. Similarly, the second phase of the HSR study gives the detailed overview and appraisal on different dimensions of the high speed rail network of Australia. It supports the finding of former report and explains the demand and need of the rail network in Australia also provides cost estimation and economic potential. The second report[Dep13] also gives implementation plan, commercial appraisal, procurement and logistics support network that will support the future construction plan of high speed rail in Australia. Both reports provides detail proposal and feasibility study of HSR to Australian government. Economic assessment The economic assessment in project appraisal is used to estimate the economic benefits of the project. High speed rail network of Australia has many economic benefit for the general public as well as for the communities of the eastern coast. For estimating the economic cost the analytical methodology has been selected which includes cost-benefit analysis, computable general equilibrium and regional impact analysis. These all three economic dimensions shows the overall economic appraisal of HSR in Australia. The cost-benefit analysis estimates cost of transport system and benefits for user of operational high speed rail network. Likewise cost-benefit will also explains the impacts of externalities if any. Furthermore, Commutable general Equilibrium model of analytical approach elaborates the sectoral impact on other industries and HSR’s relative impact on GDP and employment rate. For instance, the commutable general equilibrium model is used to estimate the effect of high speed rail network on aviation and other transport service sectors of Australia likewise it also estimate the employment rate and its increase due to low transportation cost for more people. This new sector can increase both employment opportunities and increase in overall gross domestic product rate of Australia[Jak13]. In addition, the dimension of economic benefit analytical approach is regional impact analysis in which the integrated regional development would be estimated and also land use policies and land cost evaluation. The proposal on High speed rail network in Australia estimated that the construction of HSR would deliver number of economic benefits to Australian citizen. It will have positive impacts on economy of Australia. The cost-benefit analysis estimates the 7.7% return on investment which is very good for any public investment. This level of return would deliver positive set of benefits to economy. Moreover approximately 90% user benefits will generate as an economic benefits. The HSR will save money, time and transportation cost of the citizens of Australia. Interestingly, the future link of Sydney and Melbourne through high speed rail network would generate strongest economic return which is estimated 7.5% because two big cities of Australia will be connected it would also increase the employment rate and income of the people. Furthermore, the regional and urban development of east coast of Australia would also increase the standard of living of the communities those are living in the connected area. The HSR route will bring economic prosperity and development for all under-developed areas of the big cities of Australia[Dep13]. Financial Assessment and cost of construction The financial assessment id used to estimate cost and revenue of the project. Similarly, the financial assessment of HSR is also for financial cost estimation. For estimation of cost analysis of HSR the financial model has been selected. The financial model calculates construction expenses at various stages of development. The development cost components of financial process are as follow: Development cost component Assumed cost in $billions Pre-phase and preliminaries 1.7 Planning, design and procurement 3.0 Construction oversight 6.2 Commissioning 0.6 total 11.5[Dep13] The cost component includes the various construction cost like tunnels, bridges, permanent ways, signaling, power transmission expense, payment of workers and employees, station, control center, cost of purchasing lands for construction and many other related incurred costs. Moreover, the risk adjustment cost has also been estimated for future implementation of HSR. The risk adjustment of HSR comprises estimation of commercial ticket cost of sales, infrastructural cost, rolling stock maintenance, station utilities, and insurance and administration charges. The other risk hedging techniques have also been considered to avoid risk related to financial risk transactions like currency swamps etc. The financial risk hedging techniques are used for avoiding risk of procurement and logistic expenses in which foreign currency is involved during the construction[Jak13]. Overall, different expenses and financial assessment has been done on various stages of development. The return on investment would be very low at initial stages but ultimately the government of Australia can earn huge revenue from this investment. The estimated payback period is also favorable for the government. All stations have potential of generating sufficient operating income to cover all operational cost and asset renewable cost. Moreover in the sensitivity test only 30 % sensitivity has been calculated which shows that the risk ratio is somehow low in the HSR. As the initial stage has low financing return for this purpose, the proposal suggest to involve private financing sources in the HSR.it would be favorable for government use source of private sector finance. Value capture is also very significant of HSR project it is valuable in closing the commercial financial gap. This would provide the cushion to government financing as all financial components are positive. This cost estimation explains that financial feasibility is positive and it involves less risk and it would prove favorable investment for the government of Australia[Dep13]. Environmental and Social Assessment Climate change is one of the major concern of the world and Australian Government also have to consider climatic changes before the construction of any project. In the climatic changes, carbon dioxide emission is one of the main issue. The HSR in Australia is environmental friendly project. The renewable source of energy is used as a power of high speed rail network. Like Belgium is to build 20 wind power project alongside with its high speed rail network. It consumes less and cheap source for energy and have less carbon emission. Furthermore, high speed rail is more efficient in its use than other competing modes of transport[Can08]. Moreover, high speed rail network project has also social sustainability and it is also a corporate social responsible project. High speed rail project is also consider many social dimensions of urban and regional development. HSR will provide ease to all community of east coast of Australia.it will also improve community access to key social infrastructure. It will also provide fast and speedy access to health care centers, educational institutions and markets. In this way it will offer efficient public transport to Australian of eastern coast. Likewise when access would become efficient it increase the demand of specialized health care centers and other facilities around major cities. Moreover, the tourism and social inclusions will also increase.it will increase recreational leisure seeking activities. Tourism is recently contributed 2.5 % in GDP and brings $34 billion to Australian economy[Tou11]. After the completion of HSR project the tourist rate will also increase to double as it provides recreational transport facility to tourist of Australia. In this way it will improve mental and physical health of the people and provide quality and improved life to its citizen that is the reason it is considering as sustainable corporate social responsible project. Future of the Project These are expectations of recent Abbott Government[Ton13] and various stakeholders that high speed rail project would be completed in near future. As Government have central role in this project and primary public sector role will be executed through single HSR development authority. This authority will only accountable for all types of issues of high speed rail project of Australia. The HSR project will be funded by Government of Australia and other private financing sector. The key role of Government in this project would be in procurement of infrastructure material and purchasing of land for high speed rail project. While private sector will consider the role of building high speed, control and administration and its maintenance in this way project would be executed by both public and private sectors[Dep13]. Key issues of the project High speed rail project of Australia offers various benefits on the other hand it has also involves various risks and this is the only reason it is still in investigation and considering phase. High speed rail project has lack of certainty in future demand and revenue.it is fear and matter of concern for stakeholders that estimated cost will over run from the estimation and it will become huge burden for the national economy to bear[MsL13]. Conclusion To sum up the project appraisal of high speed rail in Australia it can be deduced that HSR is valuable project of Australia.it has many economic and social benefits. The financial estimation also gives positive standing but still this project is in debate and controversies because of its funding and future uncertainties which includes under estimation of cost, decrease of revenues and sales, depreciation and obsoleteness of technology. These risk and fears are creating difficulties in constructing high speed rail network in Australia. References Sit11: , (Khatua, 2011), Lai111: , (Laird, 2011), Phi13: , (Philip, 2013), Sau10: , (Jacol, 2010), Aus11: , (AustralianGovernment, 2011), Placeholder1: , (Australia, 2011), Dep13: , (Australia, 2013), Jak13: , (Sturmer, 2013), Can08: , (Council, 2008), Tou11: , (Australia, 2011), Ton13: , (Abbott, 2013), MsL13: , (O'Connell, 2013), Read More