Victorian desal plant and east-west link disasters are off the rails, by Kenneth Davidson, The Age November 25, 2013
The key fact is that the people of Victoria will pay $11.25 billion for a traffic jam being shifted into the middle of a hitherto magnificent park –
Secrecy in public policy-making involves the corruption of proper process. Victorians would be horrified if they knew more about the costs of the water desalination contract and the disaster involved in the (apparently bipartisan) determination to enter an equally disastrous contract to build the east-west road link.
Here are some things we do know.
Unless the major political parties come to their senses, Victorians, either as taxpayers or water users and motorists, will be paying a billion dollars a year for two to three decades for a desalination plant from which we are unlikely to draw water, and for a road link that will shift the peak-hour traffic jam at Hoddle Street to a new traffic jam at Royal Park.
The architects of the east-west link have decided in their wisdom to increase the number of lanes each way from two to three. And therefore, the Eastern Freeway ”funnel” into the tunnel will have its lanes increased from two to three.
Bingo! Our car-mad politicians, and the banksters and superannuation fund managers who want to repeat the financial boondoggle of the desal plant, can kill two birds with one stone. Not only is peak traffic through the system increased from 4000 to 6000 an hour, but the extra lanes on the Eastern Freeway will be built over the grass verge in the middle, making the construction of the Doncaster rail link impossible.
Checkmate. It sure beats the cock-and-bull argument that the rail network is already operating at capacity, meaning we have to build the $9 billion Metro tunnel before the city loop can handle extra trains from Doncaster.
A Doncaster rail link would cost about $1.5 billion. With improved signalling, it would mean the current 18 trains an hour maximum through the loop at peak times could be lifted to 24. The capacity of the Doncaster line would be equal to three extra traffic lanes in each direction along the Eastern Freeway. It would make a real contribution to reducing congestion in the eastern suburbs.
Its big drawback would appear to be that it doesn’t cost enough. It is clear that the investment bankers and superannuation funds – which have incredible liquidity thanks to compulsory superannuation – are reluctant to invest in government bonds yielding about 4 per cent when they can bamboozle silly state governments into deals that can yield 8 to 12 per cent. They use the bogus argument that states shouldn’t go into debt.
It defies logic. The government is paying $650 million a year for a desalination plant for no water. Even now, the government could refinance the debt with long term, 25-year bonds at 4 per cent. This would cost $380 million a year. The net saving would free up $270 million a year – enough to finance the Doncaster railway and to replace 50 suburban level crossings, and leave money to spare.
This raises the question: if the Bracks/Brumby government had decided we needed an extra 150 gigalitres of water for Melbourne (we didn’t), it could have weighed up the desal proposal against cheaper alternatives such as water conservation and recycling.
Similarly with the east-west link. What is the Napthine government trying to do with its $450 million a year? Build a road and enrich financiers, or find the cheapest way to reduce congestion, pollution and traffic accidents?
Framed this way, the case against the east-west link is a no-brainer – unless the real purpose is to maximise the incomes of Very Important People in the finance industry.
Last week, state Treasurer Michael O’Brien said the link wouldn’t blow the budget; that the budget cost would be far less than the headline cost of $6-$8 billion.
”We have explained to rating agencies how we have accounted for it in the budget and the fact that they have considered that and reconfirmed our stable AAA rating indicates what we have put forward is very affordable,” he said.
But the rating agencies don’t have much credibility since they accepted payment for handing out AAA credit ratings willy-nilly for billions of dollars of sub-prime mortgages that proved to be worthless, precipitating the global financial crisis of 2008.
The ”headline” cost doesn’t have much significance. A cost of $450 million a year over 25 years is $11.25 billion whether the headline cost (net present value) of the payments is $4.9 billion or $7.3 billion, which in turn depends on whether it is discounted by 8 per cent (the return the banksters want) or 4 per cent (which is the risk-free cost of capital for a AAA government).
The key fact is that the people of Victoria will pay $11.25 billion for a traffic jam being shifted into the middle of a hitherto magnificent park – on top of $18.6 billion for the unnecessary desalination plant – unless the contracts are renegotiated.
And here’s one other thing we know: refinancing the $6.5 billion capital cost of the desal plant with cheaper public debt is early repayment of debt – the opposite to creating sovereign risk.