Andrews Government faces massive compensation bill to axe East West Link

Herald Sun: Andrews Government faces massive compensation bill to axe East West Link. 20 January 2015

UPDATE: PREMIER Daniel Andrews has backed away from his pre-election stance that taxpayers would not pay compensation to dump the East West Link toll road.

Mr Andrews said the consortium contracted to build the 6.6km road would be refunded for any work it had done on the project before it was cancelled by Labor.

But he would not say what further compensation would be paid to the East West Connect consortium, saying negotiations were ongoing.

“There are issues around costs that have been incurred, and we were very clear about, it’s appropriate to refund people costs that have been incurred,” he said.

“That’s a usual practice, whether you are building a house worth two or three hundred thousand dollars or a much bigger project.”

Mr Andrews said he couldn’t say how much taxpayers would have to pay in total to scrap the contract for the project.

“It would be inappropriate for me to put a number on it. We are going to work through these issues responsibly, carefully… I am not going to run a commentary on it.”

Mr Andrews was asked whether the government would consider legislating to invalidate the contract and avoid compensation.

“I wouldn’t rule that out,” he said.

He said the previous government had left Labor a “mess” to deal with, and should “hang their head in shame”.

“Having said that we need to work through, and we are, the mess that has been left to us.”

The premier said he had a clear choice on whether to break his promise on scrapping the “dud” East West Link or deal with the contract signed by Premier Denis Napthine.

“I will not break the commitment I made before November 29th,” he said.

“We are not building this project, it is a dud project.”

Deputy Premier James Merlino told 3AW today: “There will be a settlement reached with the consortium, there was always going to have to be.”

But he refused to reveal more details including possible financial costs, saying: “I’m not going to conduct negotiations over the airwaves.”

The Herald Sun can reveal that key members of the consortium that signed the contract to build the Link want at least $1.2 billion to walk away from the dumped project.

Banks and superannuation funds that financed the deal are leading the hardline push.

But they are at odds with partner and construction giant Lend Lease, which is understood to be taking a more cautious approach for fear a fracas may dent its chances for future government jobs in Victoria.

It’s understood that Lend Lease favours a settlement amount in the hundreds of millions of dollars.

The Herald Sun can confirm that, in the wake of weeks of frantic negotiations with the consortium, there is a dawning acceptance within the Labor Government that it will have to write a taxpayer-funded cheque to rip up the contract for the 6.6km road.

The Government has engaged businessman and former MCG Trust chairman John Wylie and gun Arnold Bloch Leibler lawyer Leon Zwier to help it argue its case.

Mr Wylie was heavily involved in complex government business cases such as the privatisation of Qantas and of the state’s power industry.

Uncertainty about the looming cost to taxpayers of compensation poses problems for Budget planning.

It could also embarrass Mr Andrews, who repeatedly said the contracts — signed by the Napthine Government in September — were worthless.

Four days before the election, he said: “Be very clear about this: there will be no compensation paid.”

Mr Andrews revealed in September that he planned to dump the $6.8 billion toll road and said then he expected “some modest compensation”.

Opposition Leader Matthew Guy said Labor only had itself to blame for the scale of the compensation payout.

“Labor knew their claim that (East West Link) had no binding contract was wrong. It will now cost $1 billion to scrap a roadway that Melbourne needs,” Mr Guy said on Twitter today.

The consortium that won the contract for the $6.8 billion toll road includes Lend Lease, French group Bouygues, and Spanish company Acciona.

A complex network of institutions, including local and international banks and super funds, financed the deal.

A source said CEOs of the major partners, including from overseas, came to Melbourne before Christmas, and “made clear they would be pursuing their legal rights as contained in the contracts’’.

This was understood to relate to the sum the group believed it would be owed.

Some CEOs expressed their displeasure.

“It was a really ugly meeting,’’ the source said.

Treasurer Tim Pallas’s office said commercial-in-confidence negotiations were under way.

“Mr Wylie and Mr Zwier have agreed to work towards a fair and appropriate outcome for Victorian taxpayers in the circumstances where the Government has decided that the project will not proceed.”

A spokesman for the consortium declined to comment.

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