A $440 million rail project was meant to improve western Victoria's century-old network, but the revised business plan suggests some key components be scrapped after a cost blowout.

When the Murray Basin Rail Project was announced in 2014, it was touted as an opportunity to fix a century-old rail network and speed up and simplify the process of getting tonnes of produce to port.

But work on the $440 million project stopped in 2019 when the funding ran out with half of the upgrade incomplete.

"The original business case was significantly deficient in a number of ways. That original scope massively underestimated [the cost]," said Transport Infrastructure Minister Jacinta Allan.

"I'm going to be very open and direct with some of the challenges we are facing.

New funding to reverse upgrade problemsThe revised plan, released publicly on Tuesday, includes re-railing an 88-kilometre section of track that was completed between Maryborough and Ararat in 2017 using poor-quality legacy rail.

It will also put back some infrastructure such as sidings at Maryborough, Donald, and Merbein that were removed as part of the first project, along with additional network improvements including passing loops to reduce congestion.

But the report rejects the possibility of further converting broad gauge, 1,600-millimetre, sections of the rail network on the Sea Lake and Manangatang lines to the standard gauge 1,435mm — a key part of the original project.

The plan will also introduce electronic train orders and upgrades to rail signalling systems to make it easier to coordinate and schedule trains.(ABC News)The authors found that that objective of the original project was "not cost effective" and would create significant disruptions to Ballarat passenger services.

"The Department of Transport will continue to assess the need for these works into the future," the authors said.

The Victorian Government says it will seek $195.2 million from the Commonwealth to get the work done.

The Infrastructure Minister, Michael McCormack, said the Commonwealth had "already committed more than $240 million to this Victorian-owned and operated asset", and that it had been the Victorian Government's responsibility to deliver the project.

"I look forward to hearing the views of industry and communities on the proposal," Mr McCormack said.

Manangatang farmer Brian Barry described those lines' exclusion from the revised plan as "one of the most monstrous bits of news that I have ever heard in my entire life".

Mixed response from grain handlersThe Government's plan would introduce upgrades to rail signalling systems at Maryborough and Ararat, and introduce electronic train orders to make it easier to coordinate and schedule trains.

It is something that freight handler Graincorp has long been calling for.

But Graincorp's Peter Johnston says the company was disappointed the revised plan abandoned the original goal of standardising the entire network.

"We have to focus on getting the freight part of rail right in Victoria. I don't think it should be a trade off between passenger freight and rail freight," Mr Johnston said.

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Victorian Farmers Federation president David Jochinke said farmers could not accept what has been proposed without an indication there would be future improvements to the network.

"It's always been about pushing the freight costs down," Mr Jochinke said.

"At the moment the additional costs of running two gauges, the additional costs of having slow trains on these lines, is borne by agriculture."
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Reid Mather, chief executive officer of the Rail Freight Alliance lobby group, said the Government was "asking taxpayers to effectively fund what went wrong the first time".

"To accept anything less than the original scope of the project is a complete slap in the face for primary producers, Victorian exporters, and the Victorian people."

A 'missed opportunity'The revised business case comes off the back of an auditor general's report in March which slammed the state's handling of the upgrade as "deficient" and "inadequate", and which described the project as a "significant missed opportunity".

That report found works on the original project were bogged down by more than 80 "variations, notices of delay, and extensions of time requests" from the original contractors, McConnell Dowell and Martinus Rail, which "heavily impacted V/Line's time, cost, and risk contingency baselines".

The project has exhausted its allocated $440 million budget.(Supplied: Graeme White)Mr Jochinke said the Victorian Government's plan did not provide enough clarity around its plans for the network's future.

"For us it is about having a standardised system, making sure we're hitting those axle weights and those speeds that make the freight movements affordable and efficient for everyone," he said.

"If this is a Stage 2A or a Stage 2B for the final project, we could understand. But this cannot be the final landing spot."

Mr Johnston said the Government was trying to make the best of a bad situation.

"They've been dealt a fairly poor hand of cards and these problems need to be addressed," he said.