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:
- Proceeding with the project at great cost and receiving negative returns; or
- 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.