Saturday, October 15, 2005

"There seems to be an overemphasis on money and not on service."

A dud route

Government greed is behind the tunnel toll disaster.

October 15, 2005

Matthew Moore, Darren Goodsir and Anne Davies
The Sydney Morning-Herald (Australia)
Copyright 2005

For the NSW Roads and Traffic Authority, 2003 was a year like no other. In the space of 12 months, the State Government's road-building agency received $369 million from three private sector consortiums it chose to build three toll roads in the biggest burst of privately funded road building Sydney has seen.

The first lick of $97 million came from the Cross City Tunnel outfit that is now desperately struggling to find a way to get drivers to use the first of the three projects to open for business.

Then came $193 million from the M7 consortium rather murkily described as "an agreed amount in regard to costs incurred and to be in incurred by the RTA in connection with the project". Finally, the Lane Cove Tunnel group paid $79 million to the traffic authority as a "development fee".

According to a summary of the contracts that outlines the hugely complex Cross City Tunnel project, the $97 million was an "upfront payment" made "in return for the RTA's granting it the right to undertake the project".

Reading that description, the former NSW auditor-general Tony Harris says the only way to describe it was "just a tax".

"They [the traffic authority] are making money out of the road," he says of the upfront payment.

These cash payments are just part of the authority's direct financial interest in the tunnel. The contract also guarantees that if more cars use the toll road than forecast, the traffic authority gets a share of the extra revenue. A sliding scale shows the more cars, the more money for the traffic authority.

In the tunnel, once traffic is 10 per cent above original forecasts, the traffic authority gets 10 per cent of each extra dollar. If traffic gets as high as 50 per cent above predictions any time over the 30 years in private hands, then the traffic authority gets half the extra revenue.

It's in the authority's financial interest to get as many motorists as it can to pay to use the tunnel. It's the same with the M7, the western Sydney toll road that opens later this year, and with the Lane Cove tunnel that opens next year. And as the traffic authority has the power to determine who drives where, it can shepherd motorists onto any road it wants.

In years to come, the authority could enjoy a major revenue stream from these toll roads in which it has negotiated a financial interest. But this structure leaves the authority with an apparent conflict of interest. How can the government body charged with delivering the public the best and cheapest roads do this when it benefits financially if motorists pay to use privately run toll roads?

According to Bruce Loder, a former head of the traffic authority's predecessor, the Department of Main Roads, the authority's financial involvement in the tunnel has twisted its relationship with motorists. Although reluctant to criticise his old employer, he says of the traffic authority's new way of operating: "There seems to be an overemphasis on money and not on service."

In his view, the Cross City Tunnel is doomed because the traffic authority has abandoned its traditional job of serving the public's needs, instead doing a deal under which it has closed streets surrounding the tunnel to force motorists underground and through the electronic toll gates.

"It's crazy," he says. "The concept is quite wrong. They should have built it as a free road."

The traffic authority has dismissed the outrage about the $97 million payment from the tunnel consortium, calling it "standard practice". The money, it says, is to meet costs incurred in planning the project and carrying out works associated with the project such as moving underground pipes and cables.

The NSW Auditor-General, Bob Sendt, is not so sure. Before the tunnel opened, he had nominated it for investigation to see whether the public was well served by such public-private partnerships.

Part of his investigation seems certain to target the issue that has most infuriated people: the traffic authority's closure of roads to force motorists to use a privately owned toll road.

"We might look at how changes to local roads were determined, ie, by the need to improve services for the local community or to force vehicles into the tunnel and make it more viable," he says.

And he plans to find out whether all $97 million paid to the RTA was for actual costs incurred in the project or whether the fee "was simply part of the negotiating process".

Three years ago, the independent MP Clover Moore challenged the Government to explain the financing of the tunnel when she heard rumours the traffic authority would make a $100 million profit from the revised plan, but says she was never able to get the truth.

When the tunnel was first proposed by the traffic authority, it was a much smaller project, starting close to the Australian Museum in William Street instead of its current opening just west of the existing Kings Cross tunnel.

Under that plan, motorists coming from the east were unaffected by the project and were still able to turn right off William Street and take either the Harbour Tunnel or the Harbour Bridge to get to Sydney's north.

But without that group of motorists the traffic authority would not do so well financially. According to the summary of contracts, financial modelling concluded that if the public sector delivered the original shorter tunnel, there was a financial cost to the traffic authority of $42 million.

The authority then came up with a new, more lucrative plan and carried out a new environmental impact statement that brought it to fruition. This time the modelling found that a privately built and operated longer tunnel, combined with traffic changes to funnel people underground, would "result in a significant net financial benefit to the RTA".

What the authority and the tunnel operators seem to have miscalculated is the reluctance of motorists to pay a toll of $3.50. And they were clearly surprised by the anger from drivers caught in traffic because of changes to road conditions designed to help the operators of the tunnel. It's not just the road changes that have enraged motorists, but the secrecy which swirls around the project.

The Premier, Morris Iemma, and the tunnel consortium refuse to release the contact, claiming it is "commercial in confidence".

Through the week, the radio broadcaster Alan Jones has made increasingly strident demands for the contract to be made public and the NSW Opposition has now put that demand at the top of its so-called "rescue plan".

Iemma turned to his usual strategy and apologised profusely.

"Who takes responsibility? The Government takes responsibility and as the Premier I accept that responsibility," he said many times this week.

But behind the veneer of government solidarity, the tunnel has reopened old wounds caused by the vicious battle for the premier's job two months ago.

Carl Scully, the unsuccessful leadership contender and former roads minister, was accused by the new Roads Minister, Joe Tripodi, of making too many concessions to the tunnel operators. Tripodi was once Scully's best friend in politics and Scully had trusted him to deliver the NSW right in the leadership ballot, but he ended up dudding him.

There are tensions with the leader's office as well. Iemma may be taking responsibility, but he has agreed with Tripodi that concessions made to the tunnel operators were too great.

While the main tunnel contract remains a secret, there is far more information on the public record now than was ever the case under the last NSW Coalition government.

The summary of tunnel contracts has been vetted by the Auditor-General. It details much of the financial plan, the history of the consortiums that tendered, names all the traffic authority and other staff involved in negotiations and sets out the agreements for resolving disputes.

But as Sendt says, it's simply a summary and "it does not go to indicate every road closure" - just the sort of details residents and motorists want.

Moore has been campaigning for years for legislation to force the Government to publish all major contracts once they are signed, as happens in New Zealand, the United States, and many other places. She introduced legislation into Parliament several years ago but it was flicked off to a committee whose members took a round-the-world trip (avoiding New Zealand) to investigate the issue, and then said that there were problems introducing it.

The legislation lapsed. Moore now plans a new bill, although there are no signs yet the Government, or the Opposition, will support it, despite the clamour for the tunnel contract to be made public.

Moore reckons the mandatory publication of contracts after signing could help avoid agreements like the Cross City Tunnel where the public finds out the real effect of some clauses only when they are implemented.

"This contract would have been different if [then roads minister] Carl Scully knew it would have been public," she says.

Even Iemma is admitting that the lesson to be learned from this project is that community consultation needs to be thorough. The tunnel operators and the traffic authority might have published advertisements on road closures, but did the road users really appreciate the full impact? The answer is clearly no.

Meanwhile, the proponents of such projects - Macquarie Bank, big construction companies and associated lobbyists - have the ear of a government desperate to move as much public spending as possible from the budget.

With disastrously low numbers in its first weeks of operation and a government on the defensive about the traffic authority's deal, the tunnel consortium has been forced to declare the tunnel toll-free for three weeks. That should resolve one debate: are there 90,000 people in the east and west who even want to cross the city each day?

It may still be early days for the tunnel project, but Loder is convinced it is doomed as a commercial venture.

He says it is the first time the traffic authority has "squeezed" motorists in this way by pushing them onto a route to ensure the operator has a commercial success, a practice that has left him "appalled".

"In diverting traffic, they are making the public pay extra to lessen the risk."

Loder reckons there's only one way the issue will be solved and that is for the Government either to buy out the tunnel contract and run it as a public, untolled road, or to come up with another scheme where it pays the operators the toll for private vehicles.

If he is right, it will cost the state hundreds of millions of dollars it can't afford. The alternative, however, may be even less palatable - allowing the operators to use their rights under the contract to force the traffic authority to erect more obstacles in a dozen suburbs to force motorists into their tunnel.

Copyright © 2005. The Sydney Morning Herald.: