WestConnex “biggest misuse of public for corporate gain in history”

Cross-posted from The Conversation:

The NSW government has confirmed it will sell 51% of WestConnex — the nation’s biggest road infrastructure project — to a consortium led by Transurban, the nation’s biggest toll road corporation.

NSW treasurer Dominic Perrottet described the A$9.3 billion sale to one of his party’s more generous donors as a “very strong result”.

I would describe it differently: the biggest misuse of public funds for corporate gain in Australia’s history.

Let’s examine how much public funding has been or will be sunk into WestConnex, a 33km toll road linking western Sydney with southwestern Sydney via the inner west.

Privatising Westconnex will return the NSW government 30 cents for every dollar of public money spent. WestConnex Business Case Executive Summary

To date, the NSW and federal governments have provided grants of about $6 billion. Much of this was raised through selling revenue-generating public assets, including NSW’s electricity network.

Hiding privatisation by stealth

As well, the NSW government is bundling three publicly owned motorways into the sale: the M4 (between Parramatta and Homebush), the M5 East and the M5 Southwest (from 2026). Together, Credit Suisse values these public assets at A$9.2 billion. The government is privatising them by stealth. Leaked NSW cabinet documents suggest the Sydney Harbour Bridge will be next.

Then there is the A$1.5 billion bill for property acquisitions and the millions spent on planning, advertising, consultants, lawyers and bankers.

The government is funding extra road works to help prop up WestConnex toll revenue. It will increase the capacity of road corridors feeding into the interchanges. But it will reduce the number of traffic lanes on roads competing with WestConnex, such as Parramatta Road.

It will also pick up the bill for building a A$2.6 billion airport connection and the complex underground interchange at Rozelle. It will even pay compensation if the latter is not completed on schedule.

To further bolster toll revenue, NSW premier Gladys Berejiklian introduced a vehicle registration cashback scheme for toll-road users.

Her government has also committed to continuing the M5 Southwest toll cashback scheme. The cost of these incentives to the public purse is likely to exceed A$2 billion every ten years.

In total, I estimate the NSW government is pumping more than A$23 billion worth of cash, public assets, enabling works and incentives into WestConnex — though efforts to shield the scheme from public scrutiny mean the figure could be much higher.

Finally, as part of the deal with Transurban, the government has agreed to plough A$5.3 billion of the sale proceeds back into WestConnex. It’s recouping just A$4 billion by selling majority ownership.

This translates to a financial return of 34 cents for every dollar spent.

Government expenses and receipts.

Of course, governments don’t always spend our money with the intention of making a profit. Usually there are broader social benefits that justify the expenditure. However, past experience shows inner-city motorways do more harm than good — which is why many cities around the world are demolishing them.

Given its proximity to residential areas, WestConnex will have serious impacts on Sydney’s population. Construction is already destroying communities, harming people’s health and disrupting sleep and travel — with years more to come.

Motorists who cannot afford the new tolls on the M4 ($2,300 a year) and M5 East ($3,100 a year) will have to switch to congested suburban roads. This will mean longer journey times — especially with the removal of traffic lanes on Parramatta Road.

New tolls on existing motorways.

Those who do opt to pay the new tolls may enjoy faster journeys for a few years — until the motorways fill up again.

Costs outweigh the benefits

But this benefit will be largely cancelled out by the tolls they have to pay — with low-income households in western Sydney bearing much of the pain. As such, the ultimate beneficiary will be a corporation that pays no company tax and employs very few people.

Traffic and congestion on roads around the interchanges will increase significantly. Moreover, with tolls for trucks three times those for cars, we can expect to see them switching to suburban and residential streets — especially between peak hours and at night.

The extra traffic created by WestConnex will lead to more road trauma, traffic noise and air pollution across the Sydney metropolitan area. With unfiltered smokestacks being built next to homes and schools, more people may be at risk of heart disease, lung disease and cancer in years to come.

On any measure, the WestConnex sale is not in the public interest. The billions of dollars ploughed into the scheme would have been better spent on worthwhile infrastructure or services that improve people’s lives.

Is the WestConnex acquisition a good deal for Transurban? A$9.3 billion may sound like a high price, given the past financial collapses of other Australian toll roads.

However, with the Berejiklian government agreeing to fund most of the remaining construction, giving away the M4 and M5, guaranteeing annual toll increases of at least 4%, and bending over backwards to force motorists under the toll gantries, it can only be described as a “very strong result” for the consortium, though not for taxpayers.

Article by Christopher Standen, Transport Analyst, University of Sydney

Comments

    • scootytootyMEMBER

      I recently mailed a hard drive to an interstate colleague because it was faster than sending the data online. Faster road travel means faster data transfer in this country.

  1. Article is complete rubbish. It says the price paid for 51% was $4bn when it was actually $9.3bn ($8.2bn equity and $1.1bn debt). They say they have assumed the State puts $5.3bn back in the project but this is already accounted for in their cost lines and grossly (and financially illiterately) misrepresents numbers for this transaction.

    A more correct number to determine if the valuation matches the build is the Enterprise Valuation, which takes into account the equity AND debt needed to create the asset. The EV for 100% of the project is the number that should be compared to the build cost, NOT just the 51% cut down purchase price value. This was stated as $25.2bn (see page 8, https://www.asx.com.au/asxpdf/20180831/pdf/43xwysd3wsxnts.pdf ). So the State spent (arguably) $23.1bn (this calculation has its own issues, but let’s assume it is correct) and sold it for a 100% valuation of $25.2bn, so they made $2.1bn profit (or more accurately, they taxed western suburbs workers $2bn in future tolls above the valuation of what it costs to build the assets).

    “The biggest misuse of public funds for corporate gain in Australia’s history” is a massive oversimplification which ignores the facts above and assumes that this transaction didn’t take place under market competition between competing consortia at competitive rates of return for the given risk. Most pundits think that Transurban paid billions above their competitors and so arguably taxpayers got a very good deal out of this transaction (or at least it was not given to corporates for a bargain). If Transurban got preferential treatment, or paid less for the asset then its fair, risk adjusted, valuation, then their share price would have increased when it was announced that they won. Instead it has declined ~5%. The whole “privatisations just give money to corporate fatcats” is incorrect and they instead bring forward future State revenues to today at fair market discount rates. Whether the State should be bringing forward revenues is the question that should be asked instead.

    If they sold it for $2.1bn EV less then they would have sold it for what they built it for and the tolls would be considered a fair representation of what it costs to build and operate these assets. Users of the asset would be paying the a fair toll for the asset. Being only $2.1bn over and I consider that the State did a pretty good job in aligning the tolls with the cost to build the asset. User pays means that only the people who use the asset pay for it.

    If you wanted to make skeptical claims about the project i would instead point out that user pays toll roads can be considered regressive taxes which tax poorer demographics who live in the ‘burbs. Don’t fall for reposting articles like this one that completely misrepresent the facts of the transaction.

    • Wino ShinyfaceMEMBER

      it does say NET proceeds of 4billion…..oh yeah ok I see what you mean now….actually I don’t the 5.3 still has to be spent on top of whats listed

    • “User pays means that only the people who use the asset pay for it.”

      If only it were so. All of us are paying for the various cashback schemes some of which offer incentives to drivers to use it more than they otherwise might. Consumers will have little choice but to pay an additional price added to their freight bill on anything imported or exported through Port Botany and sent to a warehouse or logistics center out west (even more so because of the anti-competitive restrictions the government put on other ports expanding). Traffic on alternative routes is going to be limited to a trickle with lane closures and decisions on public transport alternatives are going to be kept to a minimum (e.g. the low cost Parramatta Road trackless tram proposal).

      Its all about creating an effective monopoly, maximizing future revenue, and for the state government the sale price. You are right that this did not give a huge advantage to the winning bidder, but the more they are willing to pay, the more NSW residents can expect to be slugged in future.

  2. When someone steals council’s rubbish bin gets a prison time, when someone steals billions of public money get pension for life and a peerage tittle.

    • It’s just logical progression. When the Perrottet family gets away with raping college girls, it’s not a surprise that they start raping everyone else too.

    • It’s all about scale. Kill 1 person go to jail for murder. Kill tens of thousands with the military and it’s all good.
      Steal someones wallet, go to jail. Steal billions with illegal lending, sell buildings not built to standards, Run a desal plant worth billions that produces no water, and it’s all good

  3. And that’s assuming this clusterf*** comes in on time on forecast.
    Why do I suspect the return is likely to be less than 20%

  4. WOW!! The true cost of mass population growth with piss-poor governance is beginning to surface !! #Straya #DickSmithFairGo

    • Indeed if there was a workable policy to slow down Sydney’s growth by channeling people to other towns, these kinds of projects wouldnt even be needed.