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Tuesday, July 24, 2007

Toll road financing flawed: academic - modelling on which the projects are engineered is to maximise profits to investment banks not benefits to users

Michael West - The Australian - September 27, 2006
AUSTRALIA'S toll road projects, including Sydney's Cross City Tunnel, Lane Cove Tunnel and the M2, will not survive without continuing government subsidies and are likely to fail anyway, leaving taxpayers to foot the bill for billions of dollars in debt, a transport conference will hear today.

Reopening criticisms of toll road financing he first made a year ago, a paper by Sydney academic John Goldberg claims the modelling on which the projects are engineered is to maximise profits to investment banks rather than provide the best possible service for motorists. A copy of the paper - "The fatal flaw in the financing of private road infrastructure in Australia" - obtained by The Australian, says the Cross City Tunnel (CCT), Lane Cove Tunnel (LCT) and M2 (Hills Motorway) projects are "not likely to be able to amortise (pay down) debt by the end of the concession periods".

"The analysis shows that the probability of insolvency is generally very high even if the time value of money is ignored.

"Unless the government has guaranteed the project against failure, equity investors will lose heavily," says the report.

Dr Goldberg cites the experience of the Sydney Airport Railway public-private partnership (PPP) project which collapsed in 2000 leaving taxpayers to foot the $800 million bill.

The NSW Government has refused to make public the toll road project documents, except for the CCT, claiming it does not want to breach confidentiality agreements with the operators.

If there is no government guarantee, Dr Goldberg claims superannuation funds and investors might be liable for the debts in the event of collapse as they owned units in the stapled trust structure.

Dr Goldberg's analysis is based on Macquarie Bank's base case model for the M2 project.

Spokespeople for the LCT, Transurban (M2, M7, and City Link in Melbourne) and the CCT rejected Dr Goldberg's thesis yesterday. "We didn't agree with Dr Goldberg last time he made claims like this and we don't agree now," said Transurban's general manager corporate affairs, Mike Roberts.

Some 40 per cent of City Link's revenue and 35 per cent of M2 revenue consists of government subsidies under the infrastructure bond scheme.

Dr Goldberg claimed the traffic forecasts for the CCT had been made to fit in with the investment case for the project.

"Even if the traffic projections were to be met, there would be insufficient cash flow to amortise (pay down) debt and pay equity dividends," says the report.

Last year's paper from Dr Goldberg was rejected by the toll road operators and Macquarie Bank executive Warwick Smith complained to University of Sydney vice-chancellor Gavin Brown demanding that the university dissociate itself from the academic. Professor Brown subsequently issued a press release dissociating the university from Dr Goldberg.
Read more in The Australian

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