DISCUSSION FORUM D F Australia suffers toll concession failures 16 Jul 2013 T Paul Grad, T T Correspondent, Australia, and Peter Kenyon, T T L I , . While officials, politicians and investors are still reeling from the financial crisis involving several toll highway tunnels in Australia, traffic experts are providing a better understanding of what happened, and why, and what to E , . M do to avoid the same mistakes in future. P G and P K report for T T . , , . I Australia has some of the finest highway tunnels in . the world, but for the private investors who trusted traffic usage projections from leading and A good read. Sound assessments and risk profiling respected consultancy firms the story has been a needs to be applied to these PPP projects. The goose tale of insolvency and disappointment. Most of the does not always lay the golden egg. privately owned toll highway projects constructed I . I A in the last 15 years in Australia have fallen into L B receivership or administration within a short time of opening to traffic when it became clear that toll . I revenue from actual traffic usage would be well short of covering its contribution to the D . ARUP/PBA construction costs. , WRONG. Class action lawsuits are now being initiated by investors who believe they were misled by overly I understand this tactic, and by no means condone the optimistic usage forecasts, and construction methodology used by those to build these models, but we need to remember, false projections are easy to companies are becoming wary of bidding future target, but if these organisations were not able to concession projects. substantiate or, more likely, ‘sell’ these claims and projections initially, the financiers would not have Not all toll tunnels in Australia have failed supported the project and would not have had the financially. Some have been highly successful. But opportunity to build these wonderful pieces of for all cases of failure, the traffic forecasts were infrastructure. two or three times higher than the actual traffic T S usage when opened. This has led to the conclusion S L I . that there was something wrong with the F . procurement concept and the financial structure of the toll concessions. T , F
Deal values tunnel at half its construction cost 13 Nov 2013
Peter Kenyon, T T
The long-running saga of the Sydney Cross City Tunnel has taken another turn following announcement that private transport operator Transurban has moved closer to acquiring the asset at a knockdown price and expanding its growing portfolio of toll roads in the Australian capital.
The 2.1km twin running tunnel, completed as a 30-year PPP concession at a cost of about Aust$1 billion in 2005, is currently in administration for a second time after a consortium comprising Royal Bank of Scotland (RBS), EISER Infrastructure Partners and Leighton Contractors placed the asset into voluntary receivership in September. Their decision to pull out followed a row with the New South Wales Government over unpaid stamp duty of $63 million which became payable when the consortium acquired the tunnel from its original owners for approximately $700 million in 2007.
The latest deal to acquire $475 million of head debt (at a discount of 21% on the actual $600 million owed by principal investor RBS), plus a further $27 million dependent on traffic volumes, values the asset at just $500 million - half of its original construction cost. It is considered unlikely that another group will come forward C C T and make a rival bid for the tunnel now that Transurban has agreed a price to purchase the outstanding head debt.
As 75% owner of the Eastern Distributor highway, which links with the Cross City Tunnel, Transurban is in a better position to improve traffic flows and generate increased toll income than any potential rival. Transurban also either owns or part owns the city's Lane Cove Tunnel as well as the M2, M5 and M7 motorways.
The original concession based its financial projections on anticipated usage levels of 70,000/day in 2005 rising to 90,000 by 2013. During the first six months of this year an average of just 36,000 vehicles used the Cross City tunnel.
In the case of the Brisbane Airport Link, the most recent toll concession collapse after opening in August 2012, the construction joint venture suffered substantial construction losses now estimated at Aust$500 million.
Under its bid of $4.8 billion for a 45-year PPP concession, Thiess/John Holland, as part of the Leighton Group and in partnership with Macaquerie investment bank, assumed all construction and usage risk, with the Queensland State Government contributing Aust$47 million of taxpayers' money. The Government's contribution was settled eventually at $267 million, but the subsequent collapse into administration of BrisConnections, the operating company formed by Thiess/John Holland/Macacquerie, effectively resulted in the Australian taxpayer gaining usage of a world class asset at very low capital cost.
Meanwhile, Hochtief of Germany, as parent company of the Leighton Group and therefore of the construction JV, has revised its procurement risk strategy in a way that makes it unlikely that either it, or its subsidiaries, will become involved in future Australian projects that are offered on a PPP basis, unless the risk is shared more equally with the public sector. Former Leighton Chief Executive David Stewart said in the aftermath of the BrisConnections troubles: