Government cancels A$5bn Sydney Metro contract

New South Wales has scrapped a A$5.3 billion contract to build a metro link in Sydney, part of which was being procured as a PPP. The project is the second Australian PPP to collapse this year - following Lane Cove Tunnel - and the country’s fourth PPP to fall over the last decade.

The New South Wales (NSW) government has cancelled procurement for the construction and operation of a A$5.3 billion (€3.5 billion; $4.7 billion) metro rail line in Sydney.

NSW: cancelled
contract may
scare investors

The CDB Metro, as the project was known, called for the construction of a seven-kilometre rail link connecting Sydney’s Central station to Rozelle, in the city’s inner-west.  The project was being procured via two separate tenders – a design-build tender for the construction of the line, which had already received offers; and a tender for a 35-year contract to operate and maintain the line, which had received expressions of interest from seven consortia.

The government’s decision angered local industry participants, with many pointing out that it has damaged NSW’s credibility and raised its political risk. Infrastructure Partnerships Australia, the country’s premier industry body, said the decision “shreds the credibility of the government in delivering projects and will likely make it much harder to attract investment and skills to deliver new infrastructure”.

It also warned that “NSW is a small part of a global infrastructure market”, adding that “investment and skill will flow to other projects in other parts of the world if people don’t believe that governments will deliver on their commitments”. The project had been started by former Labour premier Nathan Rees and has now been scrapped by Labour’s new premiere, Kristina Keneally.

Discussions are now focusing on the amount of compensation due to the participants, with payments estimated at some A$60 million. The government said in a statement that participants “will be reimbursed for reasonable costs incurred”. But industry groups are calling on the authorities to clearly state that they will reimburse consortia for 100 percent of the costs incurred.

CDB Metro, in which the government had already spent close to A$300 million, is the second public-private partnership contract to collapse this year, following the Lane Cove Tunnel project, which was placed in receivership at the end of January. It is also the fourth PPP contract to fall through in the last 10 years in Australia.

The collapse of the Lane Cove Tunnel project follows the debacle of the Cross City Tunnel PPP in late 2006. That project was sold in September 2007 for A$680 million – well below its original cost of almost A$1 billion. Before that, the A$700 million Airport Link PPP collapsed just six months after it started operating in 2000.