The Australian: Talks on East West Link compo to start 23 December 2014
The new Victorian government has canned plans for the East West Link project. Source: Supplied
NEGOTIATIONS are to begin today over potential government compensation for the cancelled East West Link amid market speculation of a growing rift between lenders to the $6.8 billion toll road project and the construction consortium led by Lend Lease.
The unwinding of a $3.5bn debt facility, arranged by a group of financiers including the Commonwealth Bank, has emerged as a key issue in resolving the dispute between the state and the consortium.
Potentially complicating negotiations, the interests of the lending group have diverged from those of Lend Lease, which was to build the ill-fated project.
Market sources said this was because Lend Lease frequently bids for government projects and needs to maintain a good relationship with the state, while the banks are more concerned with recovering compensation.
However, a spokesman for the consortium said it was “united”.
The consortium, which is made up of Lend Lease, French group Bouygues and Spain’s Acciona, last week sent contract breach notices to the government.
The breach notices were sent because although work on the project was suspended by the new Labor government on December 11, the contract has not yet been cancelled.
Canning the toll road project was a key election promise of the new government, led by Daniel Andrews, which won power last month.
About 20 banks and other financial institutions are now involved in the debt syndicate following the CBA’s decision to sell off its $780m share in the weeks following the original deal in early November.
Three other big banks — Credit Agricole, Mizuho and Westpac — also took on $780m each, according to a November 3 report published by specialist website IJGlobal. The remaining $380m was divided between Industry Funds Management, United Overseas Bank, Australian Super, MassMutual, ScotiaBank, QBE and HESTA.
It is believed the facility has been drawn down.
Sources said the lenders have formed a special group to tackle the compensation issue.
Under the East West Link contract, a draft of which was released by the Andrews government last week, the consortium is to be compensated for the cost of unwinding the loan, plus the cost of paying out contractors and closing down the project.
However, a side letter signed by former treasurer Michael O’Brien in the dying days of the outgoing Liberal government reportedly includes more generous terms including compensation for income forgone in the event of the project’s cancellation. Market sources said it was likely to come in below $400m. Mr Andrews declined to comment.