Auditor-General slams East-West link farce

By Leith van Onselen

The Victorian Auditor-General has produced a damning report on the East-West Link fiasco, claiming it will cost taxpayers a net sum of $642 million with “few tangible benefits”. From ABC News:

The auditor-general said the decision to proceed with the project and sign a contract with the East West Connect consortium was based on flawed advice.

“Following final settlement of outstanding costs, the state will have incurred in excess of $1.1 billion in costs on the project with little tangible benefit for taxpayers,” the report said.

It said key decisions were driven by an overriding sense of urgency to sign the contract before last November’s state election.

“Signing the contract in these circumstances was imprudent and exposed the state to significant cost and risk,” the report said…

The report said the risks increased when the state agreed to amend the contract to provide additional compensation to the consortium if the legal challenge to the project planning approval succeeded.

“The available evidence suggests that the state knew at the time that there was a significant risk that this would happen,” it said.

The auditor-general said the billion-dollar cost would be partially offset by the sale of properties acquired for the project, at an estimated $320 million.

The total cost of terminating the contract would be around $642 million, excluding state expenditure on the planning, development and procurement of the project

If it had been built, the entire East West Link project would have costs in excess of $22.8 billion in nominal terms, the report said.

The former Liberal Government should hang its head in shame over the East-West Link Project.

It is the Liberals that failed to disclose the facts from the full business case to the public and then rushed to sign the construction contracts before the November 2014 State Election.

Had the Liberals released the full business case to the public before signing the contracts, Victorians would have discovered that the East West Link project was estimated to deliver a benefit to cost ratio of just 0.45, and would have taken an estimated 56 years to pay-off, thus delivering negative economic outcomes to Victorians.

To make matters worse, the former Liberal Government then signed a side letter with the consortium partners agreeing to pay both their bid costs and “opportunity costs” even if the contracts were declared illegal, invalid or unenforceable, effectively creating a ‘poison pill’. In turn, Victorian taxpayers were left with two painful alternatives:

  1. Proceeding with the project at great cost and receiving negative returns; or
  2. Abandoning the project but paying massive compensation to the construction consortium.

Australia’s governments must recognise that sound infrastructure investment requires following due process, including transparent cost-benefit analysis, the weighing-up of alternative investment proposals, and choosing projects that provide the greatest net benefits to taxpayers.

The former Victorian Liberal Government (helped along by the Abbott Government, which provided some funding) failed on all counts with East-West Link.

The new Victorian Government seems to be doing better, however, yesterday announcing a new $5.5 billion road project – “The Western Distributor” – that will widen the West Gate Freeway from eight to 12 lanes, construct a tunnel under Yarraville, and provide a second river crossing over the Maribyrnong. The Government claims the new project easily passes a cost-benefit analysis:

The government says the business case has identified a cost benefit-ratio of $1.30, using conservative methodology.

…analysis using other BCR methods, such as those used by Infrastructure Australia, found the new toll road to deliver a $1.90 benefit for every $1 invested.

The project will be funded through government contributions, new tolls on the road and extending existing CityLink tolls.

The Government should release the modelling. On the face of it, the project makes good sense. Melbourne’s west is straining under relentless population growth and the West Gate Bridge has become a major choke point. And without significant infrastructure investment, congestion will soar, destroying living standards.

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Unconventional Economist
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  1. The more amazing thing is the Liberals are still arguing for it. Both State and Federal Liberal Victorian MP’s are still making the case for it.

    • You are too biased UE. You quote things as fact, where they are not , both sides got condemned, and you failed to mention that above – n a damning report, the Acting Auditor-General, Dr Peter Frost, says the 6.6km road was terminated “without full consideration of the merits of continuing with the project”. Its a sad state of affairs where good project get knocked on the head for mere political gain! Idiots all round … (

      Its a sad day you quote loses UE and you don’t have any idea what assumptions were used to generate them – quote positive studies for other studies generated by the contractors themselves with similar results (as if they would be negative).

      You should use H&H’s example, and have a bunch of hard numbers… including flow traffic, road toll rates, on-going maintenance, debt costs, etc, etc. Worked with a bunch of infrastructure analysts, who were always too optimistic – but at least they talked numbers… real numbers.

      • I doubt that Melbournians can afford the toll road to generate enough revenues to pay for it. That’s why there was an availability payment regime installed so that the full revenue risk is with the State. Paying out 670million now may actually be a saving, just depending on how they structure up with the alternative project that they go with in its place.
        The congestion efficiency savings aren’t there either – if you have ever used the eastern freeway you would realise that most traffic turns left at Hoddle St. The EWL would simply shift the bottleneck, not deal with the root cause.

        Better solutions:
        1 Rail Solution
        The Doncaster Rail would make much better sense, especially if there was a rail line that was then built to interconnect the ‘hub and spokes’ radial layout of the metro systems so that people could transfer without going into Richmond or FLinders St; and potentially an airport rail link.
        2. Port Solution – move your logistics and port hub out of the Melbourne catchment area so that trucks don’t need to cram the commuter routes – there are many ways to cut this onion
        3. Accept that Melbourne is overstacked and has a huge infra deficit
        If you want to drive everywhere and be there on time, choose another city – one that does not have an extra 2 million than it was designed for. Otherwise use the chopper service they have.

      • Happy to talk real numbers – worked on Clem 7 and Airport Link… those real numbers are fine if the private sector is signing up to them; however this was not the case with EWL

  2. Congestion has soared in the major cities to such an extent that we are now so far behind the population 8 ball that it would take decades of focus on new and imporved infrastructure to get us back to a moderately acceptable situation. At least it will give us something to do to create employment while the mining and automobile unemployment increases dramatically over the next 2 to 3 years.
    I just hope the state and federal governments have their act in order to triple the amount of infrastructure currently slated. I worry they have no real idea how big the resource and automobile related unemployment cliff actually is.
    It would be unforgivable to tolerate high unemployment while there is a once in a generation opportunity to catch up with infrastructure and replace aged infrastructure that is near, at or past its design life.

    • DodgydamoMEMBER

      Then building the backlog infrastructure that actually delivers the best nett economic benefit versus the spend is even more important, yes?

      • Yes DD. The resource construction and automotive industry shuttering cliffs are a huge opportunity to build productivity and lifestyle enhancing infrastructure and to maintain employment and social cohesion.
        But are they ready? Have they got the list of best (In terms of value added) national, state and local projects ready to go? Are they set up to let contracts and get started within a month or two?

    • It was done before Caretaker period which is only from the time the writs are issued to the election. Caretaker period in Victoria started on Cup Day last year.

  3. Michael O’Brien, then Treasurer, should be in jail for this.

    And as for the Treasury…well, the former Chief of Staff of the Treasurer was then serving in a key Dep Sec role (appointed under questionable process), responsible for reviewing the economics of the project…

    Overall an indictment on the Victorian Government and public service

  4. Did the Auditor General assess the Andrews CFMEU Government West East Link proposal…this will be another Victorian Labor debacle. And there’s been a few.

    • darklydrawlMEMBER

      3d1k, perhaps it will turn out to be (and you’re right, their track record on successfully rolling out major projects is less than stellar), but that comment is still beneath you and is cheap shot lacking your usual elan.

      You are usually better than that – besides, it isn’t really the point. Some members of the previous Liberal Government should be in court and facing a likely prison sentence for this behaviour.

      Personally I think they should be joined by several members of the Bracks / Brumby Government – mainly those who signed off on the Desal plant and Myki fiascos. A screw up is a screw up and you shouldn’t take sides in this. The taxpayers of Victoria have been ripped off several times over the past decade, no-one responsible has taken any heat, and that stinks.

  5. I’m a big fan of engineering projects, so I have to admit I am biased 🙂

    The problem is that they can’t widen the west gate bridge. It’s good they’re building something, and something has to done. The amount of construction in the west is staggering. The bridge they are proposing is IMHO only somewhat replicating the west gate bridge, whereas the tunnel would have been a true second river crossing.

    If you’re a truck driver going to Webb dock, great you might use the new toll road. But your average person stuck in traffic still needs to take the bridge, whereas the original tunnel would have been a true choice for a lot more people.

    Even though the tunnel had a poor cost benefit analysis, it would have solved another real problem that the eastern freeway just ends in a suburb, unconnected with the other freeways. The tunnel would have made that part of Melbourne much nicer. It would make it a lot easier to get to/from the west to the north east, which is currently a joke, with the road stupidly narrowing to one lane in that annoying park.

    I think they should start building many projects, since they take forever to get anything finished here. I watch those youtube videos of Chinese buildings and bridges going up in no time with envy. It’s a start, but that’s all.

    • What you don’t see are videos of those Chinese built bridges collapsing. But you can read about it in the news.

      • +1. The point is that there is nothing to be envious about Chinese bridge going up fast and cheap… Though Westgate bridge doesn’t have such a good history either.

      • They can do quality construction in China, like the Shang hai monorail. But wages, conditions and standards are lower in general, and I’d rather have safe workplaces than fast bridges.

        Ironic to make that point discussion the West gate bridge, but they say that the incident completely change health and safety standards across Australia and it was a long time ago.

      • Agree with both of you. But I think there’s happy middle-ground somewhere between Australian and Chinese standards.

  6. All this infrastructure in Melbourne so the unskilled uneducated illiterate foreign third world guestworker can get from his or her bed or room share hovel – to their place of illegal employment & vice.

    The third world foreign guestworkers in Melbourne are the ones who not make it in Sydney and a general view is the Melbourne ‘student’ or ‘tourist’ or ‘457’ or ‘nz back door Somalian etc’ is by far the worst & most useless of all.
    That’s the view within the guestworkers themselves.
    This bottom of the barrel layer has descended into Melb in plague like numbers.

    Over 550,000 of them in Melbourne, 1 in 7 on in temp visa, only there to steal.

    They all have their their fake ID and fake documents – working multiple jobs stealing those, and housing from Australians. The backbone of the stident & tourist visa rackets are the blackmarket labor rackets or vice & prostitution.

    The third world foreign guestworker hovel bed and room share slums in victoria now extend from Collins St out past St kilda and out way past the airport – 60 square km – all third world enclaves of fake & illegal immigrants living in ghettoes of squalor in units & houses that used to be Australia.

    Melbourne is the second largest third world slum in the Southern Hemisphere

    All these foreign guestworkers sucking the life out of Australia and send via wire xfer tens of billions of Australia dollars back to India, Pakistan, China, Korea, Nepal, Thailand, the Middle East in what they can loot & steal.
    NRI (non resident Indians)in Melb Victoria are the single highest source of individual guest worker income sent back to the agent & money lender racketeer in India.

    Whole districts of Isan in Thailand or Seoul Korea or Taipei in Taiwan or Zouhou in China live off their export to the ‘student visa’ prostitution syndicates that are flourish in Victoria in collaboration with the Chinese crime boss’s and Vietnamese drug syndicates.

    And of course we have our Indians where the epicentre of the blackmarket labor fraud is organised with the guestworkers, employers, colleges & agents all in collusion as the recent media of sage & Phoenix or 711 & spotless showed.
    Bridges and motorways or public infrastructure for this ?
    These people are never going to pay a cent tax or contribution to the congestion, filth & squalor they create.

    Have a look on the tram or the train or on the crowded grimy suburban back road / what do you see, Australians ?, assimilated immigrants ?
    You will see only a plague of non unassimilatable foreign non English speaking guestworkers all busy 24×7 in stealing and eroding your job, your house, your prosperity, your future.

    • Mods
      Mike is, quite simply, a hate monger.
      Was it bluey who got banned a while ago for his abusive rants?
      You should give this fool a warning to play the idea, not the culture.
      If he does have a good point to make he always ends up sh*%*ing all over it with the other 95% of his post.

    • I think Mike is just saying what many here say – he is simply more direct and doesn’t couch it in nice PC language.

    • So the guest workers are stealing all the good prostitution, cleaning and convenience store jobs from Australians?

  7. Ha no but repetition is a great mechanism on any forum :
    Like the question really is : does melbourne actually have growth judtifying infrastructure needs that are a tax & community burden.

    Is the usage of the new infrastructure funded by the people using it ?

    I would suggest not : melbourne is being hollowed out in traditional Aussie family jobs, housing & employment by literally an invasion of foriegn guestworkers.
    1 in 7 is not even a resident but a guestworker.
    So that overload creates congestion & demand for public infrastructure – but it’s not matched by them as users paying for it or being sustainable.

    Housing, roads, public services – you make it are all being developed & consumed in this invasion.
    But they aren’t paying for any of it.
    And all the time the underlying base of Australian residents & citizens are having their earnings, job security and lifestyle eroded by the ponzi visa labour importation rackets.
    So it’s pretty simple – put a congestion charge or tax on foreign guestworkers or so do something about controlling & reducing them so we not burdened with the cost of roads or bridges just so they can get from their slum hovels to their workplaces quicker and steal even more jobs, housing & send out funds to bring in even more like them.

  8. kiwikarynMEMBER

    All I know (as I actually lived that side of town and regularly had to travel to the other side of town) is that in order to get from the North West to the South East you are stuck in traffic for ages as traffic is reduced to a single lane off the Bolte Bridge. Yup, one lane of traffic to route everyone travelling to/from the airport (or anywhere else). Its a joke. You are stuck for 20 minutes on the Bolte Bridge during the day (God only knows how long it takes in peak hour) trying to get onto the turn off for the Monash. Alternatively, you can spend an hour trying to get on to the Eastern Freeway through Alexandra Parade. Getting anywhere in Melbourne sucks.

  9. Former Planning Minister Guy as Liberal opposition leader and O’Brien as shadow treasurer. What a dream team.

    Michael O’Brien must quit as shadow treasurer. His position is untenable after Wednesday’s report from Victoria’s financial watchdog found the East West Link debacle has cost taxpayers $780 million.

    The report is a case study of how not to deliver big projects – a ham-fisted process we would mock if it occurred in other countries.

    It was political opportunism and blackmail at its worst, and, as treasurer in the Napthine government, O’Brien led the charge for this project – even signing a side-letter to reassure the East West Connect consortium (EWC) that it would be paid.

  10. These companies only require such substantial compo for gov projects.
    Don’t see adani/gvk etc paying out for projects that have been tendered yet don’t go ahead.

  11. Such a shame building costs are so crazy…… to think most of our public transport in Melbourne was build in the late 1800’s, yet now it costs zillions to lay a few km of track………. personally I blame the unions, they need to allow more competition locally in construction with overseas labour…. JUST like in our office environments…. why should these sods be protected when the rest of us compete with the world for our “office” roles? smash the labour construction costs and you’ll start building more infrastructure cheaply. These boys have had a good thing for too long…… cashed up bogans 😛