The Age: Universities’ analysis shows East West link bill to reach $17.8 billion. November 11, 2014. Royce Millar, Ben Schneiders and Josh Gordon
An artist’s impression of Melbourne’s East West Link.
The Napthine Government’s signature infrastructure project will cost Victorian taxpayers as much as $17.8 billion, and will be a drain on the public purse until the mid-2040s, the first major analysis of the controversial East West Link shows.
A report by 10 leading transport planners and financial analysts from three Melbourne universities concludes the East West price tag will be “comparable” with the Wonthaggi desalination plant, the cost of, and secrecy around which, contributed to the defeat of the Brumby government in 2010.
It estimates the large annual payments to the private operators at about $400 million in the early years after construction is complete, and the road is being used. “This is a staggering sum of money by any standards,” said Professor Jago Dodson from RMIT University. “And it is money that could be put to far better effect in resolving Melbourne’s transport inadequacies.”
Flemington Bridge station and cycle spiral. Photo: Artist impression
The 10 academics – five of whom are professors at RMIT, Monash and University of Melbourne – used the limited public information available on the project to estimate the costs to the Victorian public purse.
They call for the scrapping of the toll road and redirection of funds to rail and tram tracks, new signal systems and the coordination of public transport through a new agency.”We need to make our existing transport assets more productive. Creating loss-making assets is a terribly poor investment strategy.”
The report says the interest costs on state government borrowings alone, $77 million a year, could pay for a threefold increase in Melbourne’s smart bus services.
Artist’s impression of the eastern “soundwave”.
As Labor did with its desalination deal, the Napthine government has refused to release key aspects of the East West contract, including the schedule of annual availability payments to the Lend Lease-led consortium.
On Monday, Premier Denis Napthine also refused to detail the likely cost of the East West toll, telling the ABC’s Jon Faine only that it would be “competitive” and “comparable” to current tolls on East Link and CityLink.
The academics expect the government’s annual “availability” payments to the consortium to start at about $360 million, rising to nearly double that figure by 2045. The state’s $2 billion capital contribution, and the interest paid on government borrowings on that capital, take the total future cost to Victorian taxpayers to $17.8 billion.
Eastern “soundwave” interior. Photo: Artist’s impression
This total does not include the Commonwealth’s contribution of $1.5 billion or the even greater expected cost of the second stage of the road that will extend it beyond City Link to the Western Ring Road.
The first stage of the cross-city East West road will link the Eastern Freeway with CityLink/Tullamarine via a four-kilometre tunnel.
Just as the Brumby government was with its desalination project, the Coalition is coy about the annual cost over time of the East West Link. Labor was embarrassed when The Age revealed that figure for the desalination plant in 2010. At the time, and since, the Coalition made much of the nominal cost of the Wonthaggi plant.
Hoddle Street overpass.
The equivalent nominal figure for the construction and maintenance of the desalination plant – before the cost of water is added – is $18.3 billion. Treasurer Michael O’Brien used this figure to criticise Labor about the desalination plant on Monday.
Unlike Melbourne’s other toll roads – CityLink and EastLink, tolls for which are collected by the private sector – the state government will collect the tolls on East West.
This is an acknowledgement of the fact that an affordable toll will not be sufficient to cover the cost of the project.
The academics estimate that a toll fixed at $5.67 – a similar cost to a trip through the Burnley tunnel on CityLink – would lead to total losses of more than $6.3 billion over the life of the contract. A lower toll would leave a shortfall of more than $9 billion.
Traffic forecasts for toll roads have been notoriously unreliable in Australia. If the project fails to meet its usage targets, government losses could be much higher.
In the limited detailed it has released, the Napthine government has costed the project at $6.8 billion, including $3.5 billion in state and federal government money.
This figure is the net present value estimate, discounting the cost of the project over time to arrive at a current-day estimate of the cost. The $17.8 billion estimate is the nominal value or the cash payments over 25 years.
A well-placed industry source has detailed to The Age how much they believe the East West project will cost. That source provided a similar, slightly lower estimate, than the universities’.
The source said the annual availability charge would be about $400 million to $410 million in the first two years after construction. This includes $20 million to $25 million in operating and maintenance costs and other payments to cover the costs of debt and equity for the consortium.
The source expected of the annual government payments to drop after two years if, as expected, the government tips in $1 billion into the consortium at that point.
Both government and infrastructure industry insiders close to the project expect the government to sell the tolling rights to the private sector in the future.