A $4.5 billion highway upgrade linking Sydney and western New South Wales will be far more costly than beneficial to taxpayers, according to a federal agency.
Infrastructure Australia has evaluated the business case for the proposed works to the eastern and western sections of the Great Western Highway between Katoomba and Lithgow.
It found the cost of building two dual carriageways between Lithgow and Little Hartley and Blackheath and Katoomba outweighed the benefits.
The evaluation concluded it would have a net loss of $579.5 million.
"Based on the evidence provided in the business case, the costs of the east and west sections will exceed the benefits," the report said.
The federal agency is required to evaluate projects that are nationally significant or in cases where the federal government is being asked to contribute $250 million or more.
Infrastructure Australia said the business case did demonstrate that the project would improve travel reliability and improved local amenity.
"However, the largest economic benefit is derived from avoided routine maintenance of the existing road," it said.
Cost blowout
Infrastructure Australia did acknowledge that while the NSW government had demonstrated the capability to procure and deliver the works, there were some risks.
It warned the cost of the highway's upgrade could rise further due to the availability of materials and labour and biodiversity and Aboriginal heritage offsets.
"Delivering the project within the approved funding envelope, addressing community stakeholder feedback and meeting environmental approval conditions are key delivery risks," Infrastructure Australia said.
The dual carriageways are set to be linked by an 11-kilometre tunnel, which would be the longest in Australia.
This part of the project, known as the central section, is yet to be funded and is considered key to the dual carriageways' success.
"A significant proportion of the whole-of-program travel time savings and freight vehicle operating cost savings depend on delivery of the central section, which is still in development," the report said.
The NSW government announced last week that work on the upgrade would be halted after the federal government did not allocate further funding in the latest budget.
The project has divided communities in the Blue Mountains, with some keen to see the upgrade begin and others fearful of the impacts.
The Hartley District Progress Association president Renzo Benedet said it believed the evaluation of the business case, which was not publicly released, improved transparency.
"The report lends support to the decisions that were made by the federal government last week," Mr Benedet said.
"Certainly, from our perspective, it supports our view that this project will become a white elephant."
NSW government defends project
In a statement, Deputy Premier Paul Toole said the Great Western Highway had been put in the "too hard basket" for too long.
He said the difficult topography, as well as the heritage and environmental features of the Blue Mountains, carried a cost.
Mr Toole had earlier said the project would make a "huge difference" to the community.
Regional Transport and Roads Minister Sam Farraway said the project's benefit-to-cost ratio was impacted by the terrain, and the tunnel would deliver significant advantages.
The ABC has contacted federal Infrastructure and Regional Development Minister Catherine King for comment.
