24 February 2006
Alberta Must Resist the Temptation to Create a High-Speed Inter-City Rail Link
"We conclude that the traffic estimates used in decision-making for rail
infrastructure development are highly, systematically and significantly misleading." - Bent Flyvbjerg, Nils Bruzelius and Werner
Rothengatter, from Megaprojects and Risk: An Anatomy of Ambition.
Politicians in boom economies are often tempted to blow a few billion dollars on projects touted as feasible by their proponents.
Alberta's Infrastructure Minister Lyle Oberg faces this siren song over a proposed high-speed rail link between Calgary
and Edmonton.
The idea has been around since the 1970s and was given new life in 2004 when the Calgary-based Van Horne Institute claimed
such a project was fiscally sensible. On Monday, Oberg said Albertans would be surveyed next month to see if interest in such
transportation was high enough to justify a more in-depth feasibility study.
The Minister shouldn't waste his time. There may be some people who would jump on a high-speed rail service but their
rides would be heavily subsidized. Forecasts for rail passenger traffic are always higher than the number of people who later flow
through the turnstiles. Earlier this week, the president of the Van Horne Institute, Peter Wallis, told the Calgary Herald that the
passenger levels in the 2004 study were conservative and that, "The ridership was sufficient to ensure that the service would be
profitable in the farebox... on Day 1."
But in Megaprojects and Risk: An Anatomy of Ambition, three European professors who studied political megaprojects noted that
pre-construction forecasts for the opening year were wildly optimistic. Actual passenger volumes ranged from just 5% of
predictions (for the Calcutta Metro) to 18 % for the U.K.-France Chunnel and 25% for the Paris Nord TGV line. In Alberta,
Van Horne forecast almost one-quarter of daily travellers between Calgary and Edmonton would exit cars, buses and airplanes
and take a train if it existed. If that's optimistic, the fare box will be anything but profitable on day one or any other day.
Another problem is that the original forecasts for a "feasible" high-speed Alberta train assumed the project
chosen would be a $1.8-billion upgrade to Canadian Pacific Railway tracks, not the gold-plated
$3.7-billion variety similar to France's TGV line and also offered up by Van Horne. But even the cheaper version was not
feasible by any normal definition, i.e., without massive taxpayer subsidies.
Buried at the back of the 2004 study was this admission: "For the purposes of this study, it has been assumed that
government funding would be advanced on a grant basis as necessary based on project cash flow requirements... As a consequence, no
interest charges are applied to any funding advanced during construction or on debt." There were other highly dubious claims and
assumptions in order to buttress the high-speed case: taxpayer principal (though not interest) would be repaid over
20 or 30 years, all existing bus passengers would switch to rail, the government would see new tax revenues - this even though rail
passengers would previously have paid taxes on bus or airline tickets or gas.
The claim that a high-speed train link is feasible was hollow two years ago. But in Alberta's current environment, where
labour shortages and skyrocketing project costs are routine, it's in the realm of fantasy. Last summer, Shell Canada said the cost of
its Athabasca Oil Sands Project would be $7.3-billion - almost double the $4-billion price tag attached to
the project in April, 2004. Syncrude Canada Ltd. also announced in 2005 that its own oilsands expansion would end up with an
$8.1-billion price tag - $4-billion higher than initially forecast. Canadian Natural Resources noted the cost for its
oilsands project, Horizon, rose by $2-billion, in part because of higher steel prices. CNR has deliberately stretched the
project out over time and several phases in order to avoid even higher costs.
In general in Alberta, more upward pressure on project prices can be expected. Alberta's government notes $37.4-billion in
private and public sector infrastructure projects are about to start or have already begun; $100-billion in capital
projects are expected in Alberta by 2020. All of that demand on labour and other input costs makes the economies of a
"feasible" passenger rail service even more fanciful.
Alberta's population is too low and the costs of building a high-speed passenger rail line are higher than ever. This plan
deserves derailment.
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