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The Cross City Tunnel scandal should lead to more public scrutiny of private infrastructure deals
By Matthew Moore
October 31, 2005
The political train smash the Cross City Tunnel is fast resembling, one lesson is increasingly clear:
the days of secret government contracts are doomed.
The fury of motorists and taxpayers who find Bob Carr’s tunnel a long way short of the “visionary plan” the former premier promoted, has shocked not only the politicians in Macquarie Street but the investment
banks, construction companies, the legions of law firms and former premiers on the lookout for a slice of
future deals called public-private partnerships, or PPPs.
Politicians on both sides have always instinctively resisted publishing details of their contracts with
private companies, insisting they are full of commercial-in-confidence material that must be kept secret. But with the debacle of the Cross City Tunnel deal dragging on, just about all the players in NSW seem to
favour full disclosure of contracts.
A new business lobby group set up by the Tourism and Transport Forum to push for public-private
partnerships, Infrastructure Partnerships Australia, says its member
s, which include companies in the
Cross City Tunnel consortium, want all contracts to be public.
“We are in favour of disclosure,” said the group’s spokesman, Glenn Byres. “Disclosure serves everyone
well … it tells the community why a project was done in a particular way.”
It’s the same with the Australian Council for Infrastructure Development, whose chief executive, Dennis
O’Neill, has clearly sensed the dark public mood about the tunnel deal and says “transparent public
scrutiny” is vital if public-private partnerships are to succeed.
Mark Bethwaite, chief executive of Australian Business Limited, is even more blunt: contracts such as the
Cross City Tunnel should be on the public record.
The NSW Opposition Leader, Peter Debnam, has pledged that in any government he heads, contracts
will be published as a matter of course.
It happens routinely in the US and New Zealand and it’s happening in Victoria under the Bracks
Government. With Morris Iemma’s Government forced to support the release of more than 2000 pages of
tunnel documents once deemed too sensitive for public eyes, it seems it’s even happening in NSW.
Such is the sudden enthusiasm for full disclosure, the Roads Minister, Joe Tripodi, ousted the head of his
Roads and Traffic Authority, Paul Forward, on the dubious grounds he failed to sufficiently disclose a
recent agreement which added 15 cents to the tunnel toll.
But this new openness has limits. Contracts for the new M7 motorway in Western Sydney remain secret,as do those for the Lane Cove tunnel.
And the contracts for one of Sydney’s most controversial PPPs, the Harbour Tunnel, are no closer to
being revealed than they ever were. When asked if the public could now see what arrangements they
have long been tied to by the Harbour Tunnel documents, Iemma could only respond with a forced laugh
and a limp line: “It’s a long time ago.”
Tripodi offered a different explanation for refusing them, claiming that if he let them go there was “a real
prospect … of a financial penalty for NSW taxpayers”. What he meant by that cryptic warning he did not
Secrecy though is just one part of the PPP debate ignited by the tunnel. More fundamental is the
question whether they are good value for anyone other than the politicians and the bankers. At about
$3.60 a trip, many motorists have branded the tunnel a rip-off.
The reason the price is so high is buried in the more than 2000 pages of documents in which the
consortium reveals it has budgeted for a return of 16 per cent on its investment each year for the next 30
That fat return means the toll must climb ahead of inflation for years and will be well over $8 a trip by the
time the tunnel consortium hands the project over to Government in 2035.
The president of the Australian Institute of Project Management, David Dombkins, reckons it’s absurd that
governments are doing such deals. It’s like buying a house on a credit card instead of a housing loan, he
Governments are attracted to PPPs because it means the private sector borrows the money and state
borrowing levels are not affected. But with NSW Government borrowings at virtually zero, Dombkins says
the Government should be using its capacity to borrow money cheaply at close to 6 per cent, building the
project itself and delivering tolls of about a third what the private sector wants.
“I just object to the community paying exorbitant deals for infrastructure,” he said. “It’s a highly profitable
business where the returns they are getting are extraordinary.”
Dombkins also rejects the claims that PPPs transfer the risk to the private sector and says that with the
Harbour Tunnel, the airport rail link, the M2 and M4 and the Eastern Distributor, the risks have been
borne by taxpayers who’ve paid more than they should.
He says the Government should go back to a version of the model used to build the Sydney Harbour
Bridge, where the government borrowed the money and set the toll at a level to pay the debt over a
defined period; there was little need to vary it.
He also complains that governments are setting themselves up for a failure by signing 30-year contracts
that do not have the flexibility to deal with a huge range of variables. What if the City of Sydney or the
Government wants to charge people to bring cars into the city like London is doing, he asks. It would be
better to have the tunnel owned and operated by the Government or with a flexible contract where
government retains a high degree of control.
Gary Sturgess, the head of the cabinet office under the Greiner government, and now an advocate of
PPPs in Britain, says while there are always some problems, the outcry over the tunnel contract has been
“a little shrill”.
Handing over financing of projects to the private sector brings “a really sharp discipline”, collapsing
construction times and making a host of cost savings the public sector would struggle to achieve.
Byres agrees taxpayers have got good value from the most common PPPs, toll roads, and reckons the
new ones have trimmed returns for operators.
“Five to 10 years ago it was 19 per cent, now it’s down to 12 per cent and governments are working out
how to drive it down further,” he says.
He said much of the criticism of the tunnel is confused. “You can’t say the tunnel is designed to pour
money into the pockets of the developers and then say it’s a white elephant.”
Despite the beating he’s taken over the tunnel, Iemma is adamant PPPs are here to stay and there are
no plans for government to start funding these projects.
To placate the critics, he has ordered a review of the way the Government handles PPPs, but it will look
only at toll roads, and not other projects such as the desalination plant at Kurnell.
The Cross City Tunnel has shown how hard it is to predict traffic flows. Predicting Sydney’s weather over
the next 20 or 30 years could be a lot harder still – one of the reasons Dombkins is so opposed to having
the private sector building and running a desalination plant to sell drinking water the city might not need.
It would be far better for the Government to oversee the project itself, contracting out the various
elements but retaining enough control to adapt when unforseen circumstances emerge.
“The last thing you would do is set up the desalination plant as a PPP project,” he says.