Victorian election 2014: East West Link could cost almost $18b, academics say

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ABC Victoria: Victorian election 2014: East West Link could cost almost $18b, academics say By Jean Edwards 11 November 2014

Report says true cost of East West Link could be much higher

Melbourne’s East West Link road project could cost Victorian taxpayers as much as $17.8 billion, a report has found.

A report by 10 transport planners and financial analysts from Melbourne, RMIT, Monash universities said the bill was similar to the estimated $18 billion cost of the Wonthaggi desalination plant.

“The East West Link is of doubtful economic value in terms of benefits achieved by the project relative to costs,” the report said.

The academics estimated the annual government payments to the private operators would be about $400 million in the early stages once the road was opened, and would amount to $12.7 billion in nominal terms over 25 years.

They included the state’s capital contribution of $2 billion, interest costs of $2.2 billion and operating expenses of $900 million to arrive at the total bill.

RMIT University’s Professor Jago Dodson said it was a huge amount of money.

“What is troubling about it, I think, is that the upfront cost of $6.8 billion for construction is actually only a relatively minor proportion of the cost,” he said.

Estimated East West Link costs

$12.7 billion annual payments to operators over 25 yrs
$2 billion Victoria’s capital contribution
$2.2 billion interest costs
$900k operating expenses

“Much of the cost of the project will be in the so-called availability payments, which are the on-going payments the Government will make up to 2045, which is 25 years from when the project starts operating.

“That’s a long period of time to be spending around half-a-billion dollars worth of Victorian Government money.”

The first stage of the tunnel would link the Eastern and CityLink/Tullamarine Freeways by a four-kilometre tunnel.

The Victorian Government would contribute $2 billion, the Federal Government $1.5 billion, and the private Lend Lease-led consortium $3.3 billion.

The analysts estimated a toll set at $5.67 in 2021 would lead to total losses of $6.3 billion over the life of the contract.

A lower toll would result in a deficit of $9 billion.

Government rejects report findings

Treasurer Michael O’Brien refused to clarify how much the Government would have to pay the consortium each year.

But he rejected the report’s findings, saying the figures were out by “many billions of dollars”.

“They are not within cooee of the facts because they are not actually interested in the facts,” he said.

“They are interested in running a political agenda against a major road projects.”

They are not within cooee of the facts … they are interested in running a political agenda against a major road project

Mr O’Brien also attacked the report’s authors and questioned their motives.

“I don’t feel the need to engage with a bunch of left-wing academics with a clear anti-roads agenda,” he said.

“It was a political document and it was completely wrong.”

Opposition spokesman Martin Pakula again called for the Government to release the contracts and tell people what the tolls would be.

He said the tunnel would “effectively mortgage the future of Victorians for decades to come”.

“The Government will be paying for years, if not decades, availability payments to the builder of this road if the road was to go ahead under a Napthine Government, but they refuse to tell Victorians what that is,” he said.

Mr Pakula said the Treasurer could not criticise the report while refusing to release the Government’s costings.

“If Michael O’Brien wants to contest these figures, he can very simply release the contracts and tell Victorians the real cost of Denis Napthine’s dud tunnel,” he said.

Labor has promised to rip up the contract if it wins the state election.

East-West link comes with ‘considerable risk’

Professor Dodson said at that cost, the project came with considerable risk.

“It’s actually very hard to see how it’s going to meet its expected levels of vehicle traffic through the tunnel,” he said.

“I think there’s some considerable uncertainty about the viability of the project at a reasonable level of toll that most motorists would tolerate, because if you want to raise more revenue you can put your toll up, but then fewer people are likely to use your tunnel.”

The academics estimated the annual financial loss would be about $250 million.

The background on the Victorian Government’s planned multi-billion-dollar East West Link project.
Professor Dodson said they were confident their calculations were robust, even though the Victorian Government refused to release the full business case for the East West Link.

“If we had a full business case released for this project we would then be able to give it a high level of scrutiny and adjust our calculations to make them more accurate, but I think we’ve done as best a job as most analysts could have done using the publicly available information to make these calculations,” he said.

The academics argued the project should be abandoned, with the savings used to fund better public transport.

The report said interest savings of $77 million could pay for a tripling in Melbourne’s smartbus services.

The estimates excluded the cost of the Commonwealth’s $1.5 billion contribution, the expected cost of the project’s second stage and toll revenue.

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