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The final cost for the Melbourne to Brisbane inland rail project could rise above the original $10 billion price tag, a Senate Estimates hearing was told on Monday.
As industry pundits continue to question whether the 1700-kilometre rail link could become a "white elephant", Department of Infrastructure and Regional Development Mike Mrdak confirmed the federal government was making a $8.4 billion equity injection into the project because the private sector would not receive a commercial rate of return.
Mr Mrdak said the private sector would expect a rate of return of between 11 and 13 per cent for a greenfield project, while the Australian Rail Track Corporation - which is receiving the government funding - only expected a return of 5 per cent to 5.5 per cent.
"It's pretty clear the project will not reach commercial rates of return. The business plans makes it clear the rates of return would not meet the private sector's rate of return," Mr Mrdak told Senate Estimates hearings in Canberra.
"The ARTC's rates of return reflect the Australian government as the long-term equity provider. It recognises in absence of ARTC no one would invest in interstate railway, only the government would."
The estimates hearing heard the $8.4 billion equity investment would be delivered to ARTC as and when required over the next seven years, rather than in one big payment. ARTC was expected to go to market for a design and contract this year as well as a public-private partnership to build the complex 126 kilometre link through the Toowoomba ranges to Brisbane.
Infrastructure Australia's business case warned about potential cost blow-outs for the rail link - the Commonwealth's biggest rail project in 100 years. Mr Mrdak said the final cost was still to be determined.
ARTC chief executive John Fullerton said the 1700 kilometre freight rail link between Melbourne and Brisbane would deliver returns from its first day of operations in about 2024-25 with the rail operator to re-coup funds through access charges.
When asked what would happen if the freight numbers do not live up to expectations, Mr Fullerton said the experience of the Adelaide to Darwin and Perth to Adelaide rail links showed the project could work.
"We're very confident about the numbers," he said. "The east coast is a substantially bigger market [than the Adelaide to Darwin rail link]."
Mr Fullerton also said the ARTC would be looking for Australian companies, including Arrium in South Australia, to bid for the contract to supply the 132,000 tonnes of steel (or 60 kilograms per metre) for the project, saying Arrium had provided for previous big projects.
It comes as Infrastructure Australia chief executive Phillip Davies said they had not been asked to consider Adani's 500 kilometre rail line from its proposed $21 billion Carmichael mine to Abbot Point coal terminal.
Adani has applied to the $5 billion Northern Australia Infrastructure Fund but Mr Davies said they had not been asked to assess the project and it had not been identified as a priority infrastructure project.
This article first appeared on www.afr.com
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