NSW’s NorthConnex reaches financial close

CPPIB has secured a 25% stake in the Sydney tolled motorway A$2.5bn PPP, alongside investment manager QIC and toll roll operator Transurban.

Toronto-based Canada Pension Plan Investment Board (CPPIB) today announced it has invested A$525million (€361 million ; $407 million) and secured a 25 percent stake in the NorthConnex tolled motorway public-private partnership (PPP) project north of Sydney, New South Wales (NSW), alongside Brisbane-based investment manager Queensland Investment Corporation (QIC) (25 percent shareholder) and consortium leader Transurban Group (50 percent shareholder).

The financial close on New South Wales’ A$2.9 billion nine-kilometre toll road, marks the end of a two and a half-year  unsolicited bid process started in 2012. It also seals the beginning of Australia’s longest tunnel road project to date.

“[This] is the first major infrastructure in NSW to be approved under the unsolicited proposal process put in place by this government,” said NSW Roads Minister, Duncan Gay, at the signing of contracts this weekend.

The tunnelled motorway baptised NorthConnex is the latest development by the Transurban-led consortium North West Roads Group, which owns and operates Westlink M7 , the cashless, free-flow 40-kilometre-long electronic-tolled ring road with no toll booths connecting three other motorways.

In an interview with Infrastructure Investor, QIC partner Leisel Moorhead commented on the economic benefits for all parties involved in the deal, as well as the road's end users, saying that the “Westlink Shareholders could provide a unique solution for the delivery of the NorthConnex Project by utilising enhancements to the existing Westlink M7 concession as a source of funding for the NorthConnex Tunnel.”

“This demonstrates that the private sector can deliver innovative solutions to fund new infrastructure which has enabled the NSW government to bring forward construction of the NorthConnex tunnel, reduced the funding requirements for government and achieved value for money on D&C procurement,” Moorhead explained further.

As for investors interest, she added that The expected rate of return on the investment appropriately reflected the mixed brownfield/greenfield nature of the project.” 

Works will start later this month on twin nine-kilometre tolled tunnels under the Pennant Hills road interchange of the M2 motorway at Carlingford, north-west of Sydney’s central districts. The work is expected to be completed by the end of 2015.

The tolled tunnels aim to decongest the existing road servicing Sydney’s northern suburbs to the city’s ring-road. They will improve traffic flow by bypassing 21 traffic lights, with a 15-minute forecasted average travel time saving for motorists.

The entire project will provide a continuous motorway-grade transportation corridor from Newcastle and the Central Coast to Western Sydney and Canberra, while facilitating journeys from the regions north of Sydney to the city’s central business district.

The project is being run under a PPP framework entailing a 29-year concession for operations and maintenance to June 2048, in which federal and state contributions have amounted to A$800 million.

The M7 and NorthConnex will be wholly owned by an umbrella entity with the commercial name of North West Roads Group, in which Transurban has a 50 percent stake.

Toll prices and toll escalation are aligned to the 21kilometre-long ‘Hills M2’ motorway’s main toll point, with fees currently at A$6.36 for cars and A$19.06 for trucks and quarterly escalation of CPI or one percent (whichever is greater).

Other revenues will be derived from M7 concession adjustments comprising a concession extension to June 2048 (11.4 years) and an increase in the truck toll (currently the same as the car rate) to threefold the rate for cars commencing early February, according to NSW officials. Jamie Briggs, Assistant Minister of Infrastructure and Regional Development, announced in a joint statement with Gay that the truck toll multiplier increase would be phased in over a two-year period.