Re-routing risks of WestConnex project via taxpayer lauded

By , 10/08/2019 12:21

Industry groups have welcomed the state government’s decision to fund the first stage of its $10 billion WestConnex motorway before seeking private sector investment to help complete it.

The O’Farrell government has set aside $1.8 billion for the project, which will link the M4 to the M5 via Sydney Airport and Port Botany.

In a significant departure from the traditional model for public-private partnerships for large infrastructure projects, traffic usage levels will be established before private investment is sought.

This means the state will shoulder all the initial risk and once it can be shown that motorists will use the road at a particular toll level, it will opened to the private sector to invest.

The earmarked funds are to be spread across four years, with $111 million next financial year – plus $29 million for related preparatory works – followed by $413 million in 2014-15, $629 million in 2015-16 and $647 million in 2016-17.

It is likely the first work – by a government-owned company – will be widening a section of the M4, on which a toll will be reintroduced.

Once traffic patterns are established, the state-owned company will then be able to borrow against toll revenue forecasts and eventually raise private funds.

Brendan Lyon, the chief executive of peak industry group Infrastructure Partnerships Australia, said a model that used earlier stages to help pay for later stages ”has got a lot to commend it”.

”Provided [the government is] aware and awake to the additional risks that are being taken on … then I think that this really does start to look like something that’s both achievable and do-able,” he said.

The decision to shift the initial risk from the private sector back to the taxpayer also reflects the difficult history of privately funded projects. The Cross City Tunnel and the Lane Cove Tunnel went broke due to inaccurate traffic forecasts.

Treasurer Mike Baird said the global financial crisis had significantly changed financial markets.

”We have seen a marked reduction in both the amount of the private capital available and the level of risk the private sector is prepared to take,” he said.

The budget papers said raising money from the private sector once traffic volumes were known ”can significantly reduce forecasting risk”, which would in turn lower the project’s cost of capital. The business case for the project is yet to be finalised, a point seized on by the Greens and Labor, who warned the taxpayer could end up taking on all of the risk of a project still shrouded in uncertainty.

A total of $14.6 billion was allocated to public transport, roads and maritime services, and infrastructure in the next 12 months.

This includes $806 million for the north-west rail link and $353 million for the south-west rail link, and $133 million to support the rollout of Opal, the new integrated ticketing system.

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