Gold Coast Cruise Ship Terminal Business Case FOR INFORMATION ONLY. Economic Analysis Gold Coast City Council. Technical Report D December, 2012

Transcription

1 Gold Coast Cruise Ship Terminal Business Case Economic Analysis Gold Coast City Council Technical Report D December, 2012

2 Document Control Job ID: Job Name: Economic Analysis Client: Gold Coast City Council Client Contact: Luke Adair Project Manager: Ashley Page Telephone: Document Name: GCCST Technical Report D - Economic Analysis FINAL.docx Last Saved: 14/12/2012 2:06 PM Version Date Reviewed Approved Working Draft 23 November, 2012 Final Report 12 December, 2012 ARP ARP Disclaimer: Whilst all care and diligence have been exercised in the preparation of this report, AEC Group Limited does not warrant the accuracy of the information contained within and accepts no liability for any loss or damage that may be suffered as a result of reliance on this information, whether or not there has been any error, omission or negligence on the part of AEC Group Limited or their employees. Any forecasts or projections used in the analysis can be affected by a number of unforeseen variables, and as such no warranty is given that a particular set of results will in fact be achieved. i

3 Executive Summary Economic Impact Assessment The economic impact assessment use an Input-Output modelling framework to identify the level of economic activity and demand that may be supported by the development of the Gold Coast Cruise Ship Terminal (GCCST). The assessment identifies the development (approximately $90 to $95 million capital expenditure) of the GCCST will provide a positive and beneficial stimulus to the Gold Coast economy, supporting between $15 million and $30 million in direct and flow-on gross value added activity in the Gold Coast economy between 2013/14 and 2022/23, and more than $30 million per annum thereafter (Figure ES.1). The majority of economic activity supported on the Gold Coast by the GCCST would be generated through additional passenger and crew expenditure. Figure ES.1. Annual Direct and Flow-On Gross Value Added Activity Supported by the GCCST in the Gold Coast, by Financial Year (Year Ended June) $45 $40 $35 Gross Value Added ($M) $30 $25 $20 $15 $10 $5 $ Construction Maintenance Dredging Crew Spend Source: AECgroup. The main industry supported during operation of the GCCST will be transport, postal and warehousing, primarily as a result of direct passenger expenditure on tours and transport within the Gold Coast, but also due to operation of the GCCST facility. The industries of retail trade and accommodation and food services will also receive a large share of economic activity supported by the GCCST, primarily through direct passenger and crew expenditure on services provided by these industries. Economic Analysis The economic analysis examines the net economic benefit (cost) of developing the GCCST. The economic analysis examines the flows of benefits and costs over time and converts values to present value terms to identify the overall net present value of the development to the Queensland economy. The economic analysis of the proposed GCCST for the financial years ended June 2014 to June 2043 provided the results outlined in Table ES Facility Operation & Pilotage Services Passenger Spend ii

4 Table ES.1. Economic Analysis Results Discount Rate PV Costs PV Benefits NPV BCR 4.0% $230.0 $332.5 $ % $183.8 $225.2 $ % $156.2 $161.0 $ % $130.5 $ $ Source: AECgroup Key findings of the economic analysis include: The development of the GCCST is economically desirable across discount rates up to 10.5%, with the benefits outweighing the costs of the development to Queensland at discount rates below 10.5%. Sensitivity testing indicates the net present value (NPV) of the development has a 90% probability of ranging between -$1.4 million and $68.5 million at a 7% discount rate based on the benefits and costs examined. Key findings of the sensitivity testing include: o o The analysis is sensitive to the discount rate used, and is not economically desirable at discount rates above 10.5%; and The analysis is highly sensitive to demand projections, the proportion of demand that is net new to Queensland, and expenditure by passengers/ crew members disembarking. Variances in these values provide the greatest fluctuation in NPV and benefits cost ratio (BCR). In particular, activity supported by passenger (and crew) expenditure is critical to providing an economically desirable development. As such, providing a product that encourages both cruise organisations and cruise passengers to visit the Gold Coast is paramount. Factors influencing cruise organisation and passenger preferences are outlined in Technical Report B: Market Sounding and Demand Assessment. A range of costs and benefits were identified but not quantified for inclusion in the economic analysis due to data limitations (e.g., disruptions to Seaway access; increased vehicle traffic; potential benefits to other third party operators; reputation and brand awareness of the Gold Coast; potential for boutique cruises; and potential for a Race Week or similar style event). It is uncertain whether inclusion of these costs and benefits would, on balance, increase or decrease the NPV and BCR of the economic analysis. However, in comparison to the costs and benefits included these impacts are expected to be immaterial, with the potential exception of economic benefits that could be realised if the GCCST encouraged a Race Week or similar style event/ festival on the Gold Coast. Limitations of the Economic Analysis There are several limitations in the economic analysis which may influence the outcome of the assessment, these include: The demand profile assumes the costs for cruise organisations to visit the GCCST are comparable to other facilities. The implications for demand of higher (or lower) costs to access GCCST compared to other facilities has not been incorporated into the demand assessment. The demand profiling does not examine whether cruise ship visitors to the Gold Coast would otherwise visit the Gold Coast by other transport means, or whether this would shift demand from another transport form (e.g., air) to cruise shipping. This assessment examines the potential benefits of developing a terminal in the Gold Coast to assist in meeting anticipated growth in cruise demand in SEQ, not the relative benefits compared to an alternative facility. The assessment does not examine the potential for existing port infrastructure in Brisbane to be upgraded to increase cruise ship capacity, or for other terminals to be developed in SEQ (e.g., Luggage Point). Passenger and crew expenditure per visitor is assumed to be in line with expenditure of passengers and crew on transit vessels travelling to Port of Brisbane. This may not iii

5 wholly reflect the expenditure profile of cruise ship passengers and crew to the Gold Coast. This is tested in sensitivity analysis. Valuation of environmental impacts has been based on information from Costanza et al (1997). It is recognised using a benefit transfer approach applying values from Costanza et al (1997) may not fully reflect the true economic value of these environmental resources, however, in the absence of primary research to value these resources this is considered the most appropriate and applicable approach. This is tested in sensitivity analysis. The assessment assumes that sand requirements to offset coastal erosion are, over time, at a minimum in line with the quantum of dredged spoil achieved through ongoing maintenance dredging. Where the quantum of dredge material exceeds the required amount of sand for replacement of coastal erosion, the beneficial value ascribed to dredge material may be overstated. Sensitivity testing has been undertaken to examine scenarios where the value of dredge material is lower than used in the base analysis. Additional coastal analysis is required to test the validity of this assumption further. Key Actions Many of the decisions that determine whether or not the GCCST provides an economic benefit are external to Gold Coast City Council (GCCC). However, there are pro-active steps GCCC can consider to demonstrate its support for an economic beneficial and sustainable terminal, including: Continuing its work to engage the cruise lines to understand their requirements, and the needs of their passengers. Work with Gold Coast tour operators, the rest of the tourism sector and the broader Gold Coast economy to identify opportunities to provide services to cruise passengers and crew. It is imperative the Gold Coast experience is attractive to cruise passengers not only in terms of facilitating passenger expenditure but also in encouraging repeat visitation in the future. Ensure tourism development initiatives focus on developing and growing all tourism markets within the Gold Coast, and ensure any adverse impacts of competition between different transport alternatives and tourism markets are minimised. iv

6 Table of Contents DOCUMENT CONTROL... I EXECUTIVE SUMMARY... II TABLE OF CONTENTS... V 1. INTRODUCTION BACKGROUND PROJECT OBJECTIVE PURPOSE OF THIS REPORT IMPACT ASSESSMENT METHODOLOGY/ APPROACH MODELLING DRIVERS CONSTRUCTION PHASE MODELLING DRIVERS OPERATIONAL PHASE MODELLING DRIVERS MODELLING RESULTS CONSTRUCTION PHASE ACTIVITY OPERATIONAL PHASE ACTIVITY ECONOMIC ANALYSIS METHODOLOGY/ APPROACH SCOPE AND BOUNDARY OF THE ECONOMIC ANALYSIS GEOGRAPHIC SCOPE BASE MODELLING PARAMETERS SCENARIOS EXAMINED COSTS AND BENEFITS EXAMINED IN THE ECONOMIC ANALYSIS OTHER COSTS AND BENEFITS NOT INCLUDED IN THE ECONOMIC ANALYSIS MODELLING RESULTS SUMMARY OF BENEFITS AND COSTS SUMMARY AND COMPARISON OF RESULTS SENSITIVITY ANALYSIS LIMITATIONS RISK MANAGEMENT AND MITIGATION KEY FINDINGS AND IMPLICATIONS REFERENCES APPENDIX A: INPUT OUTPUT METHODOLOGY APPENDIX B: ECONOMIC ANALYSIS METHODOLOGY APPENDIX C: IMPACTS TO MARINE HABITAT v

7 1. Introduction 1.1 Background Cruising holidays in Australia have continued to increase in popularity despite the relative flatness of the broader Australian tourism sector. The cruise shipping sector in Queensland has recorded considerable growth in recent years including an increase of 24.8% in passenger days at Port between 2009/10 and 2010/11. However, current port infrastructure limitations including the restriction on large vessels passing under the Gateway Bridge in Brisbane and the requirement for as yet unfunded dredging activity at the Port of Cairns, may constrain future growth. The Gold Coast is Australia s premier tourism destination offering visitors a broad range of experiences. While the Gold Coast does not have a dedicated cruise ship facility, the opportunity to establish a facility has been identified as having potential to grow the State and regional tourism and cruise industry. Establishment of a dedicated cruise ship terminal facility and associated operators would provide significant economic benefits for the Gold Coast region. 1.2 Project Objective The focus of this study is to provide an industry tested, financial and economic assessment of establishing and operating a cruise ship terminal on the Gold Coast. The outputs from the overall study will be used to inform a business case being developed by the Gold Coast City and submissions to State and Federal Governments for financial support, should Gold Coast City Council determine to support the development. The overall study will include the delivery of five (5) technical documents: Industry Overview; Market Sounding and Demand Assessment; Financial Feasibility; Economic Assessment (this document); and Collated Information to Support the Business Case. The overall study aims to address the following critical questions: How likely is it that the Gold Coast could generate enough cruise ship traffic for the terminal to be financially viable? What would be the likely economic impact to the Gold Coast of constructing and operating the cruise ship terminal? 1.3 Purpose of this Report The purpose of this report is to provide an assessment of the economic implications of a cruise ship terminal on the Gold Coast for the Gold Coast and Queensland economies. The report uses findings from the previous technical reports to identify economic impacts and drivers for economic change in the economy. Impacts are then examined within two separate yet linked analyses: An impact assessment using an Input-Output modelling framework to identify the level of economic activity and demand that may be supported by the development within the Gold Coast Local Government Area (LGA). Additional detail on the methodology used in the economic impact assessment is provided in Appendix A. An economic analysis examining the net economic benefit (cost) of developing a cruise ship terminal. The economic analysis examines the flows of benefits and costs over time and converts values to present value terms to identify the overall net present value of the development to the Queensland. Additional detail on the methodology used in the economic analysis is provided in Appendix B. 1

8 2. Impact Assessment 2.1 Methodology/ Approach Economic modelling in this section estimates the economic activity likely to be supported by the Gold Coast Cruise Ship Terminal (GCCST) development. An Input-Output model is used to examine the direct and flow-on 1 activity expected to be supported within the Gold Coast economy. Modelling drivers used in the assessment are described in section 2.2. A description of the Input-Output modelling framework used is provided in Appendix A. Input-output modelling describes economic activity by examining four types of impacts: Output: Refers to the gross value of goods and services transacted, including the costs of goods and services used in the development and provision of the final product. Output typically overstates the economic impacts as it counts all goods and services used in one stage of production as an input to later stages of production, hence counting their contribution more than once. Value added: Refers to the value of output after deducting the cost of goods and services inputs in the production process. Value added defines the true net contribution and is subsequently the preferred measure for assessing economic impacts. Income: Measures the level of wages and salaries paid to employees of the industry under consideration and to other industries benefiting from the project. Employment: Refers to the part-time and full-time employment positions generated by the economic shock, both directly and indirectly through flow-on activity, expressed in FTE positions. The economic impact assessment examines the medium demand scenario outlined in Technical Report B: Market Sounding and Demand Assessment. In undertaking the assessment, it is assumed that 100% of all vessel calls to the Gold Coast present new economic activity to the regional economy (i.e., without this development, economic activity associated with facility, vessel, passenger and crew expenditure would not occur in the Gold Coast). Additional detail regarding this assumption is provided in section Modelling Drivers Construction Phase Modelling Drivers Estimates of the construction cost for developing the GCCST are provided in section 2.3 of Technical Report D: Financial Feasibility. For the purposes of modelling these cost estimates have been allocated to construction related expenditure, direct expenditure on manufactured goods (such as buoys, fenders and piles), and expenditure on professional services (see Table 2.1). It has been assumed: All direct construction related activity will occur within Gold Coast with the exception of dredge crew mobilisation; Buoys and fenders are assumed to be purchased locally, however, piles are assumed to be imported to the region; and Approximately 20% of professional services will be sourced locally, with the remainder sourced from outside Gold Coast. 1 Type I flow-on impacts have been presented in this report, which represent the production induced industrial support activity associated with the direct activity of the project. 2

9 Table 2.1. GCCST Development Cost Estimate (a) Expenditure Category Total Spend ($M) Activity in Gold Coast % $M Construction and Engineering Activity $ % $79.2 Manufactured Goods (b) $3.1 56% $1.7 Professional Fees $7.8 20% $1.6 Total $ % $82.5 Note: (a) Project costs outlined in this table are based on 2012 dollar values inflated using projected construction cost growth of 2.9% per annum. Values are then presented in real terms (i.e., excluding price growth due to inflation of an assumed 2.5% per annum). (b) Includes direct expenditure on manufactured products such as buoys, fenders and piles. Source: Gold Coast City Council An indicative timeline for construction and construction expenditure is outlined in the figure below. Figure 2.1. GCCST Development Expenditure by Financial Year (Year Ended June) $60 $50 Expenditure ($M - Real) $40 $30 $20 $10 $ Preliminaries & Site Properation Shoreline Protection & Navigation Aids Services & Miscellaneous Contingency Source: Gold Coast City Council Dredging Terminal & Floating Dock System Design, Approvals & Project Management Operational Phase Modelling Drivers Vessel Calls Estimates of the number of vessel calls anticipated to come to the Gold Coast through to financial year 2024/25 are presented in Technical Report B: Market Sounding and Demand Assessment. Estimates are presented across four ship types: Ship type 1: Less than 500 passengers (average of 355 passengers; 201 crew); Ship type 2: 500 1,250 passengers (average of 767 passengers; 360 crew); Ship type 3: 1,250 2,000 passengers (average of 1,771 passengers; 761 crew); and Ship type 4: More than 2,000 passengers (average of 2,425 passengers; 896 crew). For the purposes of economic modelling, the demand profile has been extended over a 30 year period (2013/14 to 2042/43). In projecting vessel demand beyond June 2025, it is assumed the high rate of market growth between 2015/16 and 2024/25 cannot be sustained long term. As outlined by Deloitte Access Economics (2012), market 3

10 penetration (i.e., domestic passengers as a percent of population) would be above 5% by 2024/25, which is above existing market penetration in mature markets such as North America (3.1%) and UK (2.6%). Post 2024/25 it is assumed market penetration rates will hold steady over the longer term. In projecting cruise vessel calls, medium series population projections from the Queensland Treasury (2011) have been used to project growth in passenger demand by ship type (see Figure 2.2), which holds to the assumption that market penetration rates and ship type distributions remain at 2024/25 levels. Figure 2.2. Projected Cruise Vessel Calls to the Gold Coast, Year Ended June 2014 to Cruise Vessels by Ship Type Source: AECgroup. Ship Type 1 Ship Type 2 Ship Type 3 Ship Type Operating Costs and Revenues of the Facility Estimates of the operating costs and revenues associated with GCCST facility operation are provided in sections 3 and 4 of Technical Report C: Financial Feasibility. Key operating costs identified are outlined below, with each anticipated to commence in 2015/16: Ongoing maintenance dredging: Annual dredging of approximately 385,000 cubic metres of material at a cost of approximately $3.85 million per annum; Terminal operation: Estimated at $100,000 per annum for a 2,000 square metre facility; Employee expenses: Fixed total employee cost of $198,000 per annum plus variable staff costs of $7,500 per vessel; General site security: Estimated at approximately $15,000 per annum; Maritime security: Estimated at approximately $5,000 per vessel; and Repair and maintenance costs: Estimated at approximately 0.8% of the initial capital value of appropriate assets. Operating revenues will be generated through berthing fees charged to cruise ships for use of the GCCST. Assumed berthing fees for the GCCST are outlined section 4 of Technical Report C: Financial Feasibility and summarised in Table

11 Table 2.2. Berthing Fees Ship Type Fee per Vessel Ship Type 1 $26,768 Ship Type 2 $29,541 Ship Type 3 $54,736 Ship Type 4 $59,818 Source: AECgroup Other Activity Generated by Cruise Ships Berthing at the GCCST In addition to the revenues and expenses of the GCCST facility, visiting cruise ships will generate demand for tugs 2 and pilotage services. Costs for tug and pilotage services are not included in the port fees outlined in section It is anticipated that tugs will be primarily sourced from Brisbane when they are required as local service providers are not available. As these services are provided from outside the Gold Coast region they are considered an import for the purposes of this economic impact assessment, and are thereby excluded from the assessment on the local Gold Coast economy. Pilotage services, on the other hand, are assumed to be sourced from within the Gold Coast economy. Pilotage service fees have been assumed to be in line with those currently levied for the Southport Pilotage Area by Maritime Safety Queensland. The table below outlines the fees structure applied. Pilotage fees are applied to the number of cruise ships arriving at the GCCST by ship type. Table 2.3. Pilotage Fees (Southport Pilotage Area) Ship Length Fee Minimum Fee $ >80m to 150m $20.15 per m >150m to 200m $18.33 per m >200m to 250m $14.65 per m >250m $12.83 per m Note: Ship charges per metre are for every metre of ship length between the low and high bounds. Values are cumulative. For example, a 160m ship would incur a charge of $ (150 80) x $ ( ) x $ Source: Office of the Queensland Parliamentary Counsel (2012) Passenger and Crew Projections Estimates of the number of passengers and crew anticipated to come to the Gold Coast through to financial year 2024/25 are presented in Technical Report B: Market Sounding and Demand Assessment. Projections to 2042/43 have been developed (see Figure 2.3 and Figure 2.4) based on projected vessel calls outlined in Figure 2.2 and assuming the average number of passengers and crew per ship type remains constant. Passenger and crew projections have been broken down by Australian passengers/ crew and overseas passengers/ crew. The following assumptions were used: Approximately half of all vessel calls to the Gold Coast are assumed to be Australian based ships, with the other half international based ships. This is in line with transit vessel calls to Brisbane in 2011/12 (Cruise Down Under, 2012). Approximately 90% of passengers on Australian based ships are assumed to be Australian residents, with the remainder international passengers. For international based vessels, approximately 15% of passengers are assumed to be Australian residents, with the remainder international passengers (Cruise Down Under, 2012). Approximately 55% of crew on Australian based ships are assumed to be Australian residents, with the remainder international crew. For international based vessels, approximately 2% of crew are assumed to be Australian residents, with the remainder international crew (Cruise Down Under, 2012). 2 This includes services for pushing and towage cruise ships, as well as tethering and stevedoring. 5

12 Figure 2.3. Projected Cruise Ship Passengers to the Gold Coast, Year Ended June 2014 to , , , ,000 Passengers 80,000 60,000 40,000 20, Source: AECgroup. Australian Passengers Overseas Passengers Figure 2.4. Projected Cruise Ship Crew to the Gold Coast, Year Ended June 2014 to ,000 60,000 50,000 40,000 Crew 30,000 20,000 10, Source: AECgroup. Australian Crew Overseas Crew Passenger and Crew Expenditure Average passenger and crew expenditure estimates for transit vessels visiting Brisbane (as outlined in Cruise Down Under, 2012) have been applied to the Gold Coast in this study (see Table 2.4). This is considered appropriate given the location of the Gold Coast 6

13 in proximity to Brisbane, similar experiences offered, and anecdotal evidence that many cruise ship visitors arriving in Brisbane travel to the Gold Coast while in port. Table 2.4. Average Passenger and Crew Expenditure by Nationality, Transit Vessels (Brisbane) Expenditure Item Passengers ($) Crew ($) Australian Overseas Australian Overseas Food and Drink $44.96 $39.02 $32.90 $74.70 Organised Tours $54.29 $ $0.00 $7.67 Entertainment $25.27 $37.49 $0.00 $9.54 Shopping $27.60 $63.36 $ $41.75 Transport $14.68 $20.91 $3.05 $11.43 Other $5.81 $6.67 $0.00 $4.92 Total $ $ $ $ Source: Cruise Down Under (2012). In estimating total passenger and crew expenditure in the Gold Coast, average expenditure per passenger and crew member have been applied to passenger and crew projections outlined in However, not all passengers and crew disembark at each vessel call. Market sounding (as outlined in Technical Report B: Market Sounding and Demand Assessment) identified on average 80 to 90% (85% used) of passengers and approximately 50% of crew will disembark at a transit port like the Gold Coast, and only this proportion of passengers and crew are included in estimating visitor spend. This is in line with findings from surveys of cruise ship passengers and crew (Cruise Down Under, 2012). 2.3 Modelling Results Construction Phase Activity Construction phase activities for the project are estimated to occur over two years (2013/14 and 2014/15). Assumptions used in the modelling relating to construction expenditure and timing are presented in section The estimated economic impact of construction activities from the project in the Gold Coast are outlined in Table 2.5 below. The estimates represent the aggregate impacts over the construction period (i.e., they do not represent annual average estimates of impacts). Table 2.5. Total (Aggregate) Economic Impacts of Construction Activity, Gold Coast Impact Output ($M) Gross Value Add ($M) Income ($M) Employment (FTEs) Direct Impact $82.5 $27.9 $ Flow-On Impact $43.3 $19.1 $ Total Impact $125.8 $47.0 $ Note: Totals may not sum due to rounding. Source: Gold Coast City Council, AECgroup. A disaggregation of construction phase impacts on gross value added (GVA) activity is presented in Figure 2.5. As can be seen, the majority of impacts are expected to occur in the first year of construction, which coincides with a large proportion of the capital dredging activity. 7

14 Figure 2.5. Annual Direct and Flow-On Gross Value Added Activity During Construction by Financial Year (Year Ended June) $35 $30 Gross Value Added ($M) $25 $20 $15 $10 $5 $0 Source: AECgroup Direct Impacts - GVA Flow-On Impacts - GVA Operational Phase Activity Operational phase activity has been broken down by four key components: Passenger and crew expenditure impacts; Facility operation impacts; Pilotage services impacts; and Dredging impacts Impacts from Passenger and Crew Expenditure Impacts from passenger and crew expenditure have been examined in terms of the economic activity supported per 1,000 passengers/ crew members disembarking at the Gold Coast. This is summarised in Table 2.6. The estimates in the table are applied to the number of Australian and overseas passengers/ crew disembarking (as outlined in sections and ) to identify total impacts. Table 2.6. Average Economic Contribution from Passenger/ Crew Expenditure per 1,000 Passengers/ Crew, Gold Coast Impact Australian Passenger Output ($ 000) Gross Value Add ($ 000) Income ($ 000) Employment (FTEs) Direct $172.6 $78.3 $ Flow-On $89.6 $39.5 $ Total $262.2 $117.8 $ Overseas Passenger Direct $369.8 $170.6 $ Flow-On $183.4 $82.9 $ Total $553.2 $253.5 $

15 Impact Australian Crew Output ($ 000) Gross Value Add ($ 000) Income ($ 000) Employment (FTEs) Direct $171.7 $96.1 $ Flow-On $80.9 $35.2 $ Total $252.5 $131.3 $ Overseas Crew Direct $150.0 $70.9 $ Flow-On $78.9 $33.6 $ Total $229.0 $104.5 $ Note: Totals may not sum due to rounding. Source: AECgroup Impacts from Facility Operation Impacts from facility operation have been examined in terms of the economic activity supported per cruise ship arriving at the GCCST. This is summarised in Table 2.7. The estimates in the table are applied to the number of cruise ship visits (as outlined in section ) to identify total impacts. Table 2.7. Average Economic Contribution from Facility Operation per Cruise Ship, Gold Coast Impact Output ($) Gross Value Add ($) Ship Type 1 Income ($) Employment (FTEs) Direct $26,768 $11,899 $5, Flow-On $12,623 $5,895 $2, Total $39,391 $17,794 $8, Ship Type 2 Direct $29,541 $13,132 $5, Flow-On $13,931 $6,506 $3, Total $43,472 $19,637 $8, Ship Type 3 Direct $54,736 $24,332 $10, Flow-On $25,813 $12,054 $6, Total $80,549 $36,386 $16, Ship Type 4 Direct $59,818 $26,591 $11, Flow-On $28,210 $13,174 $6, Total $88,027 $39,765 $17, Note: Totals may not sum due to rounding. Source: AECgroup Impacts from Pilotage Impacts from pilotage have been examined in terms of the economic activity supported per cruise ship arriving at the GCCST. This is summarised in Table 2.8. The estimates in the table are applied to the number of cruise ship visits (as outlined in section ) to identify total impacts. 9

16 Table 2.8. Average Economic Contribution from Pilotage per Cruise Ship, Gold Coast Impact Output ($) Gross Value Add ($) Ship Type 1 Income ($) Employment (FTEs) Direct $2,518 $1,119 $ Flow-On $237 $111 $ Total $2,755 $1,230 $ Ship Type 2 Direct $3,075 $1,367 $ Flow-On $290 $135 $ Total $3,365 $1,502 $ Ship Type 3 Direct $4,030 $1,792 $ Flow-On $380 $178 $ Total $4,410 $1,969 $ Ship Type 4 Direct $4,331 $1,925 $ Flow-On $409 $191 $ Total $4,740 $2,116 $ Note: Totals may not sum due to rounding. Source: AECgroup Impacts from Dredging The average annual impacts of maintenance dredging are outlined in Table 2.9 below. Maintenance dredging is assumed to commence in the 2015/16 financial year and be undertaken each year thereafter. Table 2.9. Annual Economic Impact from Maintenance Dredging, Gold Coast Impact Output ($M) Gross Value Add ($M) Income ($M) Employment (FTEs) Direct Impact $3.9 $1.7 $0.5 6 Flow-On Impact $0.9 $0.4 $0.2 3 Total Impact $4.8 $2.1 $0.8 9 Note: Totals may not sum due to rounding. Source: AECgroup Summary of Operational Impacts Over Time The impacts outlined in the sub-sections above have been combined to identify the overall economic impacts of operational phase activity each year between 2013/14 and 2042/43 (30 years). Figure 2.6 presents the annual level of gross value added activity (including both direct and flow-on activity) anticipated to be supported in the Gold Coast economy by the GCCST over this period. The figure shows the majority of gross value added activity will be supported by passenger expenditure, with crew expenditure also a large contributor. 10

17 Figure 2.6. Annual Direct and Flow-On Gross Value Added Activity During Operation, Gold Coast, by Financial Year (Year Ended June) $45 $40 $35 $30 $25 $20 $15 $10 $5 $ Gross Value Added ($M) Facility Operation Pilotage Services Maintenance Dredging Source: AECgroup Passenger Expenditure Crew Expenditure The main industry supported during operation will be transport, postal and warehousing, primarily as a result of direct passenger expenditure on tours and transport within the Gold Coast, but also due to operation of the GCCST facility (Figure 2.7). The industries of retail trade and accommodation and food services will also receive over 10% of gross value added activity, primarily through direct passenger and crew expenditure on services provided by these industries. Figure 2.7. Average Annual Gross Value Added Activity Supported in the Gold Coast by Industry, Direct and Flow-On Transport, postal and warehousing Retail trade Accommodation and food services Professional, scientific and technical services Manufacturing Construction Arts and recreation services Other services Financial and insurance services Rental, hiring and real estate services Administrative and support services Information media and telecommunications Wholesale trade Electricity, gas, water and waste services Public administration and safety Agriculture, forestry and fishing Education and training Mining Health care and social assistance Ownership of dwellings Source: AECgroup 0% 5% 10% 15% 20% 25% 30% 35% 40% Proportion of GVA Impacts by Industry 11

18 The annual level of employment supported by operation of the GCCST in the Gold Coast economy is outlined in Figure 2.8. As with gross value added activity, the majority of employment will be supported by passenger expenditure, followed by crew expenditure. Figure 2.8. Annual Direct and Flow-On Employment Supported During Operation, Gold Coast, by Financial Year (Year Ended June) Employment (FTE) Source: AECgroup Facility Operation Pilotage Services Maintenance Dredging Passenger Expenditure Crew Expenditure 12

19 3. Economic Analysis 3.1 Methodology/ Approach The economic analysis identifies if the benefits delivered by the proposed GCCST are anticipated to outweigh the costs of the GCCST. The economic analysis uses a discounted cash flow (DCF) framework and applies this framework across the entire range of benefits and costs that may accrue as a result of a project to a community or group of stakeholders. The strength of the method is that it provides a framework for analysing complex and sometimes confusing data in a logical and consistent way. The economic analysis assesses the impact of the GCCST by comparing the with and without scenarios, and is useful in assessing the net benefits accruing to society as a whole as a result of a project. The economic analysis method considers the effect of real resource costs and benefits, and excludes, for example, taxes and subsidies, which are regarded as transfer payments from one part of the economy to another. A detailed overview of the steps undertaken in the economic analysis process is provided in Appendix B, and is consistent with accepted methodologies for project appraisal outlined by the Australian Government (2010), COAG (2007), Australian Government Department of Finance and Administration (DFA, 2006) and Queensland Government Department of Infrastructure and Planning (DIP, 2008). 3.2 Scope and Boundary of the Economic Analysis Geographic Scope The State of Queensland is considered an appropriate geographic boundary for conducting the economic analysis. That is, the economic analysis presents findings examining costs and benefits accruing to all stakeholders within the state of Queensland. Impacts accruing to stakeholders outside Queensland have been excluded from the economic analysis Base Modelling Parameters Key assumptions applied in the economic analysis include: Modelling has been undertaken between financial years ending June 2014 and June 2043 (30 years). While benefits and costs are expected to accrue beyond this time period, modelling has not been undertaken past 30 years due to uncertainty of benefits and costs in the long term, as well as the affects of discounting making values beyond this period small. All values are expressed in real terms. A base discount rate of 7% has been used for demonstration purposes, with additional discount rates also examined (4%, 10% and 15%). As all values used in the economic analysis are in real terms, the discount rate does not incorporate inflation (i.e., it is a real discount rate, as opposed to a nominal discount rate). 13

20 Decision Criteria: The Net Present Value (NPV) and Benefit Cost Ratio (BCR) will be the primary decision criteria for the economic analysis. The NPV of a project expresses the difference between the present value (PV) of future benefits and PV of future costs, i.e.: NPV = PV Benefits PV Costs. The BCR provides the ratio between the PV of benefits and PV of costs, i.e., BCR = PV Benefits / PV Costs. Where the economic analysis results in a: Positive NPV and BCR above 1: the development of the GCCST will be deemed as being desirable. NPV equal to zero and BCR of 1: the development of the GCCST will be deemed neutral (i.e., neither desirable nor undesirable). Negative NPV and BCR below 1: the development of the GCCST will be deemed undesirable Scenarios Examined The economic analysis examines the proposed GCCST (project case) against a scenario where the GCCST does not proceed (base case) to identify the net impacts of the development over time Base Case The base case assumes: The land in which the facility is to be situated would continue its existing use over the assessment period. Dredging of the seaway to enable cruise ships to enter would not occur. Alternative options would be required to replace sand due to coastal erosion and storm damage at Gold Coast beaches. Use of the seaway for recreational and commercial activity will continue as per existing uses, building over time as population expands. No alternative cruise terminal facilities are developed in Southeast Queensland (SEQ). While it is possible other facilities may be developed if the GCCST does not proceed, this assessment examines the potential benefits of developing a terminal in the Gold Coast to assist in meeting anticipated growth in cruise demand in SEQ, not the relative benefits compared to an alternative facility Project Case An outline of the project specification is provided in section 2 of Technical Report C: Financial Feasibility. Key aspects of the project case include: The development site was chosen in part due to the limited impact it will have on existing Broadwater infrastructure and uses. The development is assumed to incur negligible impacts on any existing passive or commercial value attached to the site compared to the base case. Demand estimates for cruise vessels, passengers and crew are presented in Technical Report B: Market Sounding and Demand Assessment, and extended to year ended June 2043 in section of this report. These demand profiles have been used within the project case to identify the benefits and costs of the project. Given projected growth in the cruise market, and considering the Port of Brisbane is capacity constrained in its existing state (Deloitte Access Economics, 2012), it is assumed for the purposes of this analysis that all cruise vessel visits to the GCCST represent a net increase in vessel visits to Queensland. That is, while there may be a reallocation of existing transit cruise visits to SEQ between Port of Brisbane and GCCST, this will allow other cruise vessels to access Port of Brisbane that may otherwise not be able to due to capacity constraints, in particular at the Portside Terminal due to access issues arising from the Gateway Bridge. Development of the 14

21 GCCST is not assessed to result in a draw down on or transfer of activity at Port of Brisbane. This assumption is tested in sensitivity analysis. A study by Raybould and Mules (1999) identified the tourism value of maintaining the northern beaches of Gold Coast at approximately $5.5 million per erosion event, inflated to 2012 Australian dollars (ABS, 2012b). This outlines the value of instigating measures to prevent or fix erosion on the Gold Coast. The base case outlines that alternative options for replacing sand due to coastal erosion would be required if ongoing maintenance dredging as part of the GCCST were not to be undertaken. The economic analysis therefore has used the cost saving from alternative dredging activity rather than the tourism value. This is assumed to be in line with the cost of undertaking the ongoing maintenance dredge activity as part of the GCCST. 3.3 Costs and Benefits Examined in the Economic Analysis Benefits and costs examined for the project case are compared against the base case to identify the net change resulting from development of either option examined. Summaries of the benefits and costs included for economic analysis modelling purposes are presented in Table

22 Table 3.1. Costs and Benefits of the GCCST Impact Description How Included Data Sources Costs Initial Construction Cost (incl. Dredging) Ongoing Dredging Cost Facility Operating Costs Repair and Maintenance Costs Infrastructure Replacement Costs Environmental Costs The Gold Coast Cruise Ship Terminal will involve engineering and design works, facility construction, and capital dredging. Ongoing maintenance dredging will be required each year to maintain navigation depths. The GCCST facility will incur fixed and variable operating costs such as staff and utilities, as well as contracted services such as cleaning, security and landscaping. Ongoing facility (terminal and dock system) repair and maintenance will be required. Over time, infrastructure developed as part of GCCST will need to be replaced as its useful life is exceeded. Dredging of the seaway entrance channel is expected to result in the removal and/ or disturbance of seagrass and benthos that exist within or near the seaway. These communities play an important role in overall ecosystem function, providing habitat for a number of aquatic species and a source of organic matter for nutrient cycling. Ongoing maintenance dredging means seagrass and benthos affected will likely be permanently removed. The initial construction cost and timing is included as per section The full development cost is included in the economic analysis Ongoing dredging costs and timing are as per section Facility operating costs and timing are as per section Includes tug fee subsidy of approximately $25,000 per tug required (as outlined in Technical Report C: Financial Feasibility) o Number of vessels requiring tugs: Year 1: 100% of cruise ships require tugs Year 2: 50% of cruise ships require tugs Year 3: 30% of cruise ships require tugs Year 4 onwards: 20% of cruise ships require tugs Number of vessel calls as per section Repair and maintenance costs and timing are as per section Infrastructure replacement costs and timing are as per section Discussion of how marine habitat impacts have been included is provided in Appendix C Gold Coast City Council Gold Coast City Council Gold Coast City Council AECgroup AECgroup AECgroup Gold Coast City Council (unpublished) Costanza et al (1997) RBA (2012) ABS (2012b) 16

23 Impact Description How Included Data Sources Benefits Facility Revenues Beneficial Use of Dredge Material Benefit from Induced Passenger Spend The facility will generate revenues through berthing fees for cruise ships berthing at the GCCST. Material dredged during ongoing maintenance dredging will be used to maintain beaches in the Gold Coast and replace sand lost through coastal erosion and storm damage. One of the key outcomes of a cruise ship terminal on the Gold Coast will be the attraction of cruise ship passengers and their spend to the Gold Coast market. This will provide a boost to economic activity within the Gold Coast (and potentially beyond). Passenger expenditure will result in some additional costs to business (e.g., costs of goods sold, potentially some additional demands for labour). As such, the full expenditure of passengers has not been included, but only that which represents a net increase in economic value to the economy. Revenues as per section Cruise Down Under (2012) Deloitte Access Economics (2012) EC3 Global (2012) Queensland Treasury (2011) Sydney Ports Corporation (2012) Port of Melbourne Corporation (2012) Port of Brisbane (2012) Ports North (2012) Tasmanian Ports Corporation (2012) Newcastle Port Corporation (2012) As outlined in section , this is assumed to be equivalent to the value (and timing) of ongoing maintenance dredging Total passengers: As per section Passengers disembarking: 85% (80% to 90%) Average spend per passenger disembarking: As per section o Australian passenger: $ o Overseas passenger: $ Assumed cost to business of goods sold: 50% of passenger spend (based on input-output transaction tables developed for project as per Appendix A) Assumed wage cost to business as percent of revenue: 30% (based on input-output transaction tables developed for project as per Appendix A), of which only half is included in the economic analysis under an assumption that not all businesses will require additional staff hours as there is likely existing capacity within current staff Gold Coast City Council Cruise Down Under (2012) Deloitte Access Economics (2012) EC3 Global (2012) Queensland Treasury (2011) ABS (2012a) AECgroup 17

24 Impact Description How Included Data Sources Benefit from Induced Crew Spend Benefit from Induced Repeat Visitation As with passengers, some cruise ship crew will disembark at the Gold Coast and their expenditure will provide an increase in economic value to the economy. Passengers disembarking at the GCCST and enjoying their experience on the Gold Coast may be encouraged to revisit the Gold Coast some time after their cruise visit. This is supported by findings from Tourism Queensland (TQ, 2012) that indicate approximately 61% of cruise visitors to Queensland indicated they were very likely or likely to revisit. Total crew: As per section Crew disembarking: 50% Average spend per crew member disembarking: As per section o Australian crew: $ o Overseas crew: $ Assumed cost to business of goods sold: 50% of crew spend (based on input-output transaction tables developed for project as per Appendix A) Assumed wage cost to business as percent of revenue: 30% (based on input-output transaction tables developed for project as per Appendix A), of which only half is included in the economic analysis under an assumption that not all businesses will require additional staff hours Repeat visitors: o Total cruise passengers: As per section o Proportion of cruise passengers indicating they are likely to revisit: 61% (31.2% very likely, 29.8% likely) o Assumed proportion of cruise passengers indicating likely to revisit that do revisit: 75% of very likely and 50% of likely o Assumed proportion of revisitation that represents net new activity: 25% - this accounts for: People revisiting that would have come to the Gold Coast regardless of the cruise visit Those that would revisit via another cruise ship as these visitors are already accounted for in cruise passenger demand projections Assumed timing of revisit: o Within 1 year of cruise: 25% o Within 1-2 years of cruise: 25% o Within 2-3 years of cruise: 20% o Within 3-4 years of cruise: 15% o Within 4-5 years of cruise: 15% Average spend per repeat visitor: o Australian visitor: $885 o Overseas visitor: $1,149 Assumed cost to business of goods sold: 50% of visitor spend (based on input-output transaction tables developed for project as per Appendix A) Assumed wage cost to business as percent of revenue: 30% (based on input-output transaction tables developed for project as per Appendix A), of which only half is included in the economic analysis under an assumption that not all businesses will require additional staff hours Cruise Down Under (2012) Deloitte Access Economics (2012) EC3 Global (2012) Queensland Treasury (2011) ABS (2012a) AECgroup Deloitte Access Economics (2012) EC3 Global (2012) Queensland Treasury (2011) ABS (2012a) TRA (2012) TQ (2012) 18

25 Impact Description How Included Data Sources Benefits to Third Party Tug and Pilotage Services Cruise vessels will require tug and pilotage services to navigate the channel, providing additional revenues to Queensland tug and pilotage services. As with passenger and crew expenditure, there is an associated cost with providing these services, and only the net increase in economic value to the economy is included. Tug Services: o Average charge out rate per tug: $55,000 (assumes tug services are sourced from Port of Brisbane) o Number of vessels requiring tugs: Year 1: 100% of cruise ships require tugs Year 2: 50% of cruise ships require tugs Year 3: 30% of cruise ships require tugs Year 4 onwards: 20% of cruise ships require tugs o Assumed cost to tug operators to provide services: 65% of call out rate (based on input-output transaction tables developed for project as per Appendix A) Pilotage Services: o Minimum fee: $ o Plus: >80m to 150m length: $20.15 per m >150m to 200m length: $18.33 per m >200m to 250m length: $14.65 per m >250m length: $12.83 per m o Assumed cost to pilots to provide services: 60% of call out rate (based on input-output transaction tables developed for project as per Appendix A) Number of vessel calls as per section Cruise Down Under (2012) Deloitte Access Economics (2012) EC3 Global (2012) Queensland Treasury (2011) Office of the Queensland Parliamentary Counsel (2012) ABS (2012a) 19