Federal agency Infrastructure Australia (IA) has concluded the cost of upgrading the Great Western Highway from Katoomba to Blackheath in NSW's Blue Mountains and from Little Hartley to Lithgow in the state's Central Tablelands exceeds the benefits.
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After evaluating the business case, IA said the project would have a net loss of over half-a-billion dollars - $579.5 million to be exact.
The evaluation summary also found that the central section - the proposed 11-kilometre tunnel from Blackheath to Hartley - would be "critical to the delivery of benefits for the whole program".
The summary also raises the prospects of cost increases to the $4.5 billion project, including from a competitive labour and materials market. The project is also awaiting final environmental approval which could add to the cost of acquiring land or biodiversity credits to offset the impacts of the project.
"Delivering the project within the approved funding envelope, addressing community stakeholder feedback and meeting environmental approval conditions are key delivery risks," it said.
On the plus side, the report concluded productivity gains from the upgrade are likely to be significant, with travel time savings, reduced vehicle operating costs, particularly for road freight, and improved safety and resilience to road users.
"However, until the central section is delivered, these benefits will be relatively modest for the east and west sections. In addition, if the central section is not constructed, potentially 37 per cent of the benefits for the east and west sections may not be realised.
"The entire project (including the tunnel) is projected to increase road capacity from 750 to 4,000 vehicles per hour. At the forecasted growth rate, the upgrade is expected to provide sufficient capacity for 33 years of growth, providing confidence that further major upgrades are unlikely for many years."
Initially, there were four options for the upgrade - a 'do minimum' option, surface upgrades, a short tunnel and a long tunnel.
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The IA report said: "Overall, the costs of both infrastructure and non-infrastructure options have not been analysed at a sufficient level of detail to provide confidence that the preferred option is the best option...
"Based on the evidence provided in the business case, the costs of the east and west sections will exceed the benefits."
President of the Hartley District Progress Association, Renzo Benedet, said the summary showed that investing any more funds in the project "is only squandering more money on a project which was always going to be a white elephant".
He pointed out the report said "we are not confident the scope of the east and west sections is most appropriate" and the end result would be a saving of "only five minutes" on travel time between Katomba and Lithgow.
"There should not be any construction of the east and west sections. The project should be shelved," Mr Benedet said.
"It was the NSW Government's decision to break-up and assess the 34km Katoomba to Lithgow upgrade into three separate parts. Two of those parts have been shown to be economic failures by the IA report."
Deb Brown, president of the Medlow Bath Residents Association, said her community still did not know whether TfNSW was going to continue to treat Medlow Bath as a stand-alone section and award contracts before the end of the year.
