Transurban shuns east-west project. Matt O’Sullivan, Business Reporter, The Age August 2 2013
The Napthine government’s proposed $8 billion east-west tunnel project ”just doesn’t make sense for us”, CityLink operator Transurban has said. Transurban chief executive Scott Charlton said on Thursday the project did not suit his company’s ”strategic approach and risk profile”.
And he cast doubt on the government’s proposed funding model for the project. ”It just doesn’t work for us the way they have proposed it,” he said.
Transurban – Australia’s largest toll road operator – had been expected to show interest in the east-west project because it would connect with CityLink. But Mr Charlton said the availability funding model tended to be ”very highly leveraged” with lower returns because the risks on traffic usage remained with the government. Fairfax Media has reported previously that Victorian taxpayers face hundreds of millions of dollars in risks from the project, including a government promise to foot the bill if construction is hampered by industrial action linked to government policy.
The government is also offering to pick up the tab if toll revenue turns out to be lower than anticipated; if interest costs on debt are higher than predicted; or if construction is delayed by events that ”prevent construction milestones being met”.
The expression-of-interest documents for the $6 billion to $8 billion project reveal that the government – ultimately the taxpayers – will bear at least some risk for every possible contingency outlined under the public-private partnership arrangements.
The state government wants to start construction on the tunnel next year. It has estimated as many as 100,000 vehicles a day will use the link.
State governments have been forced to look for alternative ways of building infrastructure projects in the wake of the unravelling in recent years of over-hyped partnerships between governments and the private sector.
Investors have become reluctant to commit funds to new infrastructure following the failure of toll roads such as Brisbane’s $4.8 billion Airport Link and Sydney’s Lane Cove and Cross City tunnels.
The companies that ran those toll roads went belly-up after traffic fell well short of the forecasts on which billions of dollars in funding was raised.
Under the Victorian government’s plans, the state will retain control of the company that collects tolls on the east-west link for a number of years before selling it.
A study earlier this year, led by University College London, said that tolls on the east-west tunnel would have to be three times the current cost of an average trip on CityLink for investors to make a profit.
It said motorists would have to be charged at least $10.50 for investors to get a return. The probability that many motorists would baulk at such a steep toll and take other roads instead, such as Hoddle Street, would put pressure on the government to toll the Eastern Freeway, the study’s authors predicted.
The government has committed $294 million to the east-west link project in this year’s budget.
While Transurban was not interested in tendering for the project, Mr Charlton said it supported the tunnel and was keen to talk to the government about how it would connect with CityLink.
On Thursday, Transurban unveiled a more than tripling of its annual net profit to $175 million. Its earnings in the previous year had been hit by a write-down on an underperforming US toll road.
Transurban boosted revenue from CityLink, its largest toll road, by 6.5 per cent over the year. The company earns half its revenue from CityLink.