A figure of about $220 million per kilometre is the price of building and operating Newcastle's new light rail, according to cabinet-in-confidence papers seen by the ABC and Fairfax Media.

The business plan, which estimates total spending of over $600 million, was approved by the State Government, despite advice that the project's costs outweighed benefits.

The costs included over $200 million to shut down and repurpose Newcastle's heavy rail corridor, close to $250 million to build the light rail, as well as a $250 million for life-time operational costs.

The papers also reveal the decision to shut down Newcastle's heavy rail was made before final light rail costings were completed. The early closure is detailed as a "sunk cost" in the cabinet-in-confidence plan.

A cost breakdown suggests that with total benefits of just $260 million, the project will eventually slug the state economy an extra $100 million over 20 years.

Where the money is going: Prior removal of heavy rail $210 million

Prior removal of heavy rail $210 million Light rail capital cost $250 million

Light rail capital cost $250 million Light rail planning and development $10 million

Light rail planning and development $10 million Urban renewal funding requirement $50 million

Urban renewal funding requirement $50 million Funds from sale of development land $45 million

Funds from sale of development land $45 million Operation and maintenance $250 million

Operation and maintenance $250 million Nominal costs $600 million+

The light rail project was first promised by the State Government in 2013, as part of a plan to revitalise Newcastle. It is expected to open in late 2018.

Transport Minister Andrew Constance confirmed a $650-million package to fund a slew of revitalisation works, including an unidentified amount towards light rail.

"Since the truncation of the heavy rail line, Newcastle has undergone a revitalisation that has seen population grow by 4.6 per cent and employment rise by 9 per cent," he said.

"The truncation of the line has also allowed us to commit to building affordable housing and the university in the corridor."

Documents show funding contradiction

Poor value for money is raised as a "red-flag" issue in expert advice within the Cabinet documents.

A low benefit-cost ratio (BCR) of less than 0.5 is highlighted as a worst-case scenario for the transport project, meaning just 50 cents of value is returned per dollar spent.

The papers also reveal Restart NSW — an infrastructure body — rejected the plan, because of laws which block investment in projects with a benefit-cost ratio below 1.0.

The funding instead comes from the NSW Transport Capital Plan, which is a general revenue fund.

NSW Transport Minister Andrew Constance says Newcastle has undergone a "revitalisation". ( AAP: Dan Himbrechts )

This contradicts previous announcements suggesting the project funds were directly sourced from the privatisation of Newcastle's Ports.

The project funding also includes a $44 million in revenue, from the sell-off of development land along the railway corridor.

A risk of a property slump, halting development demand, is put forward as another financial risk in the business case. Experts warn that on average just 120 units are sold in Newcastle CBD each year, and an almost 30 per cent increase in sales is needed to sustain the project.

Other unanticipated risks, such as hefty costs of rehabilitating any contaminated, or mining-impacted land along the development corridors are also cited.

The Cabinet document states it "does not examine alternatives to light rail".