The Age: Napthine grants millions in special compensation for East West Link after builder threatens to walk. September 30, 2014. Clay Lucas and Josh Gordon
Premier gives no compensation detail if East West link is scrapped
Speaking to Neil Mitchell, the Premier did not disclose the compensation fee agreed should the East West contract be terminated.
Taxpayers will be forced to pay hundreds of millions of dollars in compensation to the builders of the East West Link if the toll road is abandoned, after the Napthine government caved in to demands for a special deal.
After months of speculation and years of controversy, the government on Monday signed a $5.3 billion contract with the East West Connect consortium to build the toll road.
It came just hours after the High Court quashed a bid by Brunswick resident Anthony Murphy to halt signing of the contracts.
Denis Napthine, centre, signs the EWL contract with Terry Mulder and Ken Mathers. Photo: Eddie Jim
But in an extraordinary development, The Age has obtained confidential advice handed to the government last week revealing it hastily drafted a special compensation deal – a so-called “side letter” – after East West Connect threatened to walk away.
The clause means that the consortium will be no worse off financially if court cases against the road succeed.
The consortium told the government it would not sign the contract without the special compensation clause.
Brunswick resident Anthony Murphy leaves the High Court on Monday. Photo: Luis Ascui
In advice to Treasurer Michael O’Brien, senior government officials warn the special compensation deal could create a precedent for future projects. It gives the East West Connect consortium the right to claim termination payments from the government – even if the contract is ultimately deemed invalid as a result of a Supreme Court challenge to the road by Yarra and Moreland councils.
The compensation would come on top of a “kill clause” revealed by The Age last week, believed to be worth about $500 million.
The Age can also reveal that building the road will consume so much electricity that a new, large power switching station will have to be built in Royal Park.
Premier Denis Napthine, speaking on Monday after the contracts were signed, refused to reveal details about compensation if the road was not built.
“We know there will be penalties for not building this essential piece of infrastructure,” he said.
Dr Napthine also said the route had been finalised and would be unveiled on Tuesday.
The contract was signed despite the public still not knowing the level of tolls to be charged for use of the road, the location of off-ramps at either end of its 4.4-kilometre-long tunnel, or the location of ventilation stacks.
Labor has vowed to dump the project should it win the election.
The government advice obtained by The Age says the government was told by both senior barrister Allan Myers, QC, and the Solicitor-General that the separate compensation deal was not needed.
The assurance detailed in the advice guarantees that, in the event of a court decision voiding the project agreement, East West Connect will be in the same commercial position as it would have been if the contract was valid.
And the advice shows the government was so desperate to lock in the project that a special meeting of cabinet last week handed Mr O’Brien sole responsibility for negotiating with the consortium.
It also indicates the government was likely to keep secret the special deal until just before the election, when it would have been required to be disclosed in the budget update.
Mr O’Brien said Labor was opposed to roads that it had not proposed. “The left wing in the inner city in Victoria, and in Melbourne in particular, have got this fetish against roads whenever they don’t build them,” he told 3AW.
On the kill clause, Mr O’Brien said it was not different to any other infrastructure project. “The circumstances in which damages are payable depend on exactly when a termination takes place, and the circumstances of the termination.”
He agreed the compensation would be in the hundreds of millions of dollars.
Labor is standing by its pledge to rip up the contract for the project, with deputy leader James Merlino saying the party’s legal advice was clear. “Denis Napthine’s so-called contract isn’t worth the paper it’s written on,” Mr Merlino said. “There is no legally binding contract for the East West Link.”
The opposition says the election will be a choice between the government’s plan for a “dud tunnel” and Labor’s plan to remove 50 level crossings. “The only irresponsible person here is Denis Napthine, signing a sham contract before an election and throwing away $8 billion,” he said.
Greens leader Greg Barber said the full contents of the contracts must be made public immediately.
Earlier on Monday, Brunswick’s Anthony Murphy won in the Court of Appeal, which set aside a Supreme Court decision on Murphy’s case against the road and ordered a retrial.
They found Mr Murphy was denied procedural fairness because he was not granted access to vital documents.
His lawyers sought an immediate injunction in the High Court to prevent the government from signing contracts, but it was denied, High Court judge Susan Crennan saying the risks to the state and consortium outweighed the risks to Mr Murphy.
Mr Murphy vowed to fight on. “The government is still trying to keep the business case secret and we need to see that as part of the retrial.”
With Richard Willingham