'Taxpayers lose' in sweetheart toll deal

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‘Taxpayers lose’ in sweetheart toll deal
By Rick Wallace and Imre Salusinszky
The Australian
May 19, 2006

The financial watchdog has been asked to investigate an unorthodox deal between the Bracks Government and a toll road operator that will help bankroll the state’s multi-billion-dollar transport overhaul.

The Auditor-General was urged to step in after claims the “sweetheart deal” deprived Victorian taxpayers of hundreds of millions of dollars.

The controversy over the funding has taken the gloss off the state Government’s $10.5 billion transport package, which includes $2.9 billion for rail, $1.4billion for buses and $2 billion for arterial roads.

In a move criticised as “fabulously generous” to toll road operator Transurban, the Bracks Labor Government has given up the right to $2.9 billion of payments over 30 years for $775million up front.

Transurban was to have paid the money in yearly instalments over 30 years, but negotiated a deal to cash it in at a discount rate provided it assisted the Government with upgrading 75km of roads.

The company’s shares shot up more than 2 per cent when the package was announced on Wednesday. They climbed another 1.6per cent yesterday to $6.81 – increasing its stock market value by more than $225 million over two days.

The move allows the Government to fund the West Gate and Monash freeway upgrades in its package without depleting the budget surplus. But experts said the deal compared unfavourably with borrowing the money and retaining the annual payments.

The payments are comparable to rent on the roadways and, when paid out up-front, the total is discounted to reflect the declining value of money over time.

Infrastructure specialist Peter Fitzgerald, who has worked as a consultant to the Bracks Government, said the move meant the Government had cashed in the payments at a discount rate of 9.7per cent, almost three percentage points above market value.

“The discount rate is very generous in favour of Transurban,” he said. “It also reflects the desire to get the deal done and get the cash earlier.

“On that basis there may well be hundreds of millions left on the table to the detriment of the taxpayers. The alternative is government borrowing on which the pricing is closer to 6.8 per cent than 9.7 per cent.”

Opposition Leader Ted Baillieu, who asked Victoria’s Auditor-General to investigate the deal, said the arrangement was a bonus for Transurban and a blow to taxpayers.

“We find that the Government has taken $2.9 billion and converted that into some $600million. This is not a good deal for taxpayers,” he said. But Treasurer John Brumby defended the deal and predicted it would meet with the Auditor-General’s approval. “The deal has been independently assessed and market tested to ensure we achieved best value for money,” he said.

The debate came as a NSW parliamentary committee concluded the state had plenty to learn from Victoria about the delivery of infrastructure through public-private partnerships, even though the southern state has had a chequered history with such projects.

The second report of the inquiry into Sydney’s Cross City Tunnel fiasco details evidence that PPPs in Victoria are subject to more centralised control than in NSW, with fuller public disclosure of contract details.

The committee recommends NSW Treasury continue to collaborate with Victoria, as well as with other jurisdictions.