#EWLink’s real cost to Victorians: Could easily be $10b for stage 1

This article by The Age’s Josh Gordon last week raises a really good point about the East West Link Stage 1 that needs to be remembered:

The up-front cost of $2 billion contributed by the State is not the total actual cost to Victorians.

It’s also not the construction cost — long thought to be upwards of $6 billion, but now finalised at $6.8 billion.

The consortium building it provides $3.3 billion. The Federal Government (which, remember, refuses to fund urban public transport) is providing $1.5 billion. The state is providing $2 billion.

East West Link: eastern section, western gateway in Royal Park

But the consortium doesn’t do this stuff out of the goodness of its heart; it needs to make its money back, plus a profit.

The state has to pay Availability Payments to the consortium for 25 years. We don’t yet know how much they are because the Business Case has been kept secret, but Josh Gordon “conservatively” speculates that it could be $200 to $300 million annually, but it could be more. That means the Availability Payments would add up to be something in the range of $5 billion to $7.5 billion — a tidy profit to the consortium for a $3.3 billion up-front outlay (though they’d also be paying maintenance costs during that time).

The cost to the state would be offset by the tolls. Again, we don’t know how much they will be or how much income they will bring in. Even if the business case was public, estimates for toll roads are notoriously inaccurate, with many Australian toll roads taking years to get to anywhere near their “steady state” volume of traffic and income levels.

And tolls may extend well beyond the contract period of course.

So remember: when the state government says it’s costing $2 billion, it’s actually costing us a great deal more than that:

$2 billion initially from the State
+ $1.5 billion from the Feds (from taxpayers around Australia)
+ perhaps around $6.5 billion (maybe more, maybe less) in Availability Payments and tolls paid by motorists
+ more in toll money if they continue after that.

That $2 billion road is actually something like a $10 billion road, for 5.5 kilometres. And that’s just, the eastern section, stage 1. — for a road which is unlikely to have any lasting impact on traffic congestion.

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5 Replies to “#EWLink’s real cost to Victorians: Could easily be $10b for stage 1”

  1. Thanks for explaining the financial side.
    I’m unclear as to why there needs to be an “Availability Payment”. The State gives the operator the land, funnels traffic into their road, and the operator charges a toll. What more do they want?

  2. @Roger, yeah that’s how it works on Citylink: the operator gets the tolls. If the tolls aren’t enough to cover the construction and operating costs, they lose out, though in Citylink’s case they’re making huge amounts of money, perhaps in part because they were given existing roads to upgrade/widen and then impose tolls on.

    In the case of EWLink (eastern section), the government gets the tolls, and pays Availability Payments to the operator. This means if the toll revenue isn’t as high as expected, the risk is with the taxpayer, not the operator.

    PeninsulaLink is different again. No tolls involved; the government just pays Availability Payments to the operator.

    Just going back to Citylink, Stephen Mayne isn’t anti-motorway, but had some interesting things to say about the contracts in this article: http://www.crikey.com.au/2006/05/24/a-catalogue-of-botch-ups-at-australias-biggest-tollroad/

  3. Has the Government stated whether the availability payment contract has an end date? I’ve heard “25 years is the life of the project” bandied about quite a bit, so I presume that means an end date… but of course “commercial in confidence, hush hush…”.

    I’m actually failing to see where East West Connect have any real risk. I suppose their could be some cost blowouts during construction, but realistically once construction has started if EWC put their foot down and refused to finish the project without higher availability payments no government would risk re-tendering and would cave in to their demands.

  4. The East West link, (Or the Eddington freeway as I prefer to call it) could have been done at a much lower cost than what the reality is.

    While I have been somewhat open minded about stage one, if I get into parliament at this election, I aim to oppose stage #2.

    For $10B, we could have done the following,

    ++ 500 brand new V/Locity DMU trains
    ++ 2,000 brand new E class trams

    Or, the shpping list I would want is,

    ++ $500M for 30x Long range DMUs to replace the N sets
    ++ $2,000 for 400x new E class trams
    ++ $500 for 40x V/Locity DMUs, round up the fleet to 100 sets
    ++ $800 for 1,000x brand new ‘premium standard’ buses, to better that of the SmartBus

    Grand total of $2,8000 M. That is a long way short of $10,000 M of just one freeway.

    There should be plenty left over for rail standardisation all over Victoria, and the Melbourne Airport railway too.

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