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Thursday 5 April 2018

Tom Ferris is a Consultant Economist specialising in Better Regulation. He lectures on a number of PAI courses and contributes blogs regularly to PAI. He was formerly the Department of Transport’s Senior Economist.

 

MetroLink is one of the biggest investment projects – costing between €3- and €4bn – announced as part of the Government’s new National Development Plan 2018-2027, February 2018.[i] Box A provides an overview of MetroLink. While publication of the cost benefit analysis (CBA) on MetroLink is to be welcomed, it would have benefited from the provision of more details.

What is MetroLink?

The MetroLink Project is the development of a north-south urban rail project that will run between the corridor of Swords and Sandyford, connecting key destinations including Dublin Airport and the Dublin City Centre, along the 26 kilometre route.

A large portion of the line will be underground, including where it passes the under the Dublin City Centre and Dublin Airport. The underground section will terminate close to the Charlemont stop on the LUAS Green Line South City Area, where the metro will rise up and connect to, and run southwards on the LUAS Green Line. The LUAS Green Line will be upgraded to Metro standard as part of the project.

There will be a total of 26 stations (including 15 new stations); 3,000 additional Park and Ride places, and a journey time of about 50 minutes from Swords to Sandyford.


Source: http://www.metrolink.ie

Cost Benefit Analysis

Before Exchequer resources are expended on capital projects, they must meet all of the relevant appraisal processes required under the Public Spending Code In particular, the Code requires cost benefit analysis to be undertaken on big capital projects. Put simply, cost benefit analysis is the method used to evaluate the various direct and indirect costs and benefits of investment proposals.[ii]

The new dedicated website on MetroLink includes a section on the CBA carried out on the project[iii]. The CBA is only 28 pages long, and five of those are devoted to the index and information about those who undertook the CBA. In general, the report describes well the statistical techniques and tools adopted for the CBA. A new tool called “TUBA” is included. It is a transport economic appraisal software developed by Atkins Ltd on behalf of the Department for Transport in the UK. An appendix running to seven pages lists the different parameters used in “TUBA”, but not in a consumer-friendly way. It would have been useful for the general reader if examples were given of how parameters, such as value of time, carbon factors, or fuel factors, were actually applied in the process.

What about the results? The report does present the overall results in a set of simple tables. Table A pulls together the results in a single table.

Table A: MetroLink – Results of Cost Benefit Analysis

Capital Costs

(€bn)

Present Value of Costs(€bn)

Benefits

(€bn)

Benefit-to-Cost Ratio (BCR)
[1] [2] [3] [4 = 3/2]
3.0 2.243 6.778 3.02
3.5 2.528 6.778 2.68
4.0 2.812 6.778 2.41

Source: http://www.metrolink.ie/#/cost-benefit-analysis

The table shows that the MetroLink scheme is forecast to generate around €6.8bn in transport user benefits over a 60-year period. Capital expenditure is estimates at between €3bn and €4bn. The costs are shown in terms of “net present value”, in order to compute the “benefit-to-cost ratio” (BCR). The final column of the table shows a BCR ranging from 2.41 to 3.02. According to the report.

“This indicates that investment in MetroLink is worthwhile, based on economic benefits alone and the scheme will provide a High level of VfM [Value-for-Money]”.[iv]

Some concluding comments

The CBA on MetroLink gives little detail as to the actual application of the different tools and models. In general terms, explanations are given as to what was done to produce the overall result, but the analysis would have benefitted from more work by way of sensitivity analysis. Because we live in an uncertain world, risks and uncertainties need to be built into forecasts of costs and benefits. The MetroLink CBA does include a range of costs. It is noted that:

“Due to the high level nature of the cost estimates, a range of costs have been tested to provide upper and lower estimates of the potential BCR for MetroLink. The estimates are provided for the purposes of this appraisal only and should not be used or relied upon for any other purposes”. [v]

However, as regards benefits, only a single estimate has been presented (see Table A). It would have been useful to see what a lower estimate of benefits would mean in terms of overall results.

Finally, the point should be made that publishing the results of the CBA of MetroLink is very positive. Not all cost benefit analyses on public projects are published. And yet it is in the public interest that people should be made aware of the costs and benefits of projects being funded from the public purse. Of course, the real test comes when there is a “look-back” on completed projects to see how costs and benefits actually measure-up against the original projections. How will the MetroLink story be told in 60 years’ time?

Notes


[i] Read Tom’s article on the National Development Fund’s monetary allocations here.

[ii] Read Tom’s 2017 article on Cost Benefit Analysis here.

[iii] View the CBA on the MetroLink website here.

[iv] As per Metrolink CBA, available here.

[v] Ibid.

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