‘The criticism is unravelling’

Tim Pallas, Treasurer of the Australian state of Victoria, has built a reputation as a politician who pulls no punches. In his home country this does not necessarily mark him out as a rare species, but when in 2010 he called Formula 1 motor racing star Lewis Hamilton a “dickhead” for irresponsible driving in Melbourne just as a road safety campaign was launched in the city (the campaign was called “Don't be a dickhead”), he certainly caught the attention of the media.

Since then, the former trade union official – who took up his position as Treasurer in December last year following the victory of the Daniel Andrews-led Labor Party in the Victorian state election – has reserved his verbal attacks for those in the opposition ranks who have levelled criticisms at his party for its proposed Port of Melbourne lease sale and the cancellation of the East-West Link road project.

Speaking exclusively to Infrastructure Investor on a visit to London, Pallas defies his media image with his low-key, friendly manner. But he is robust in defending the administration against charges that it has made missteps when it comes to its handling of the state's infrastructure.

The proposed 50-year lease (with a 20-year extension option at the state's discretion) of the Port of Melbourne – Australia's busiest port for containerised and general cargo – would be expected to raise around A$7 billion (€4.8 billion; $5.2 billion).

But the Liberal-National coalition, which was in government prior to last year's election, has opposed the would-be deal on the grounds that the lease is too long and thus rules out the possibility of a second container port being built in the area – which they feel may be necessary.

'MONOPOLY'

“They want to give the new owners of the Port of Melbourne a 50-year monopoly over a very important public asset,” said opposition spokesman Michael O'Brien. “This is really about Labor potentially sacrificing the interests of Victorians for the next 50 years in order to make a quick buck.” 

Furthermore, Greg Hunt – a Liberal member of the Australian House of Representatives – has accused the Victorian government of a potential act of “environmental vandalism” for allegedly not ruling out the use of explosives at Port Phillip Bay to allow bigger ships to access the port. 

Pallas is not impressed by the charges being levelled. “For one thing, the Port of Melbourne lease was a shared policy at the last election,” he says. “For another, the criticism made by the opposition is rapidly unravelling. Consultants and experts have been very critical of the misinformation, for example that explosives will be used at Port Phillip Bay. We're actually using the same advisory team that the previous government used.” 

Pallas said at the time of the interview that the government was hoping to get enabling legislation for the lease through the Upper House of Parliament by the end of this year. Just before going to press, it was reported that Parliament had voted to establish a committee to investigate the duration of the lease, its potential impact on a second container port and its effects on supply chains. The committee is due to present its report by the end of November.     

The project is an important one for the administration as a large portion of the proceeds will be used to help meet their pledge of removing 50 of the worst-functioning and most dangerous level crossings in Melbourne in an effort to improve safety, reduce congestion and enable more frequent train services. 

One high-profile project that was not deemed so important by the current government was the East-West Link, a proposed 18-kilometre toll road which had been championed by the coalition. A A$5.3 billion contract for the project was signed with the East West Connect consortium – including Acciona, Bouygues, Capella Capital and Lend Lease – in September 2014. 

CONTROVERSIAL 

The project was controversial due to concerns over its effectiveness in reducing congestion, its prioritisation over other projects, the transparency of the business case and its possible environmental impact. The Labor party, which had never supported the project, announced a day after its election victory that it would be abandoned. 

However, the rumpus did not end there. The fact that a contract had already been signed led to talk of sovereign risk in Victoria and the toxicity associated with retroactively tearing up an agreement. Rumours also swirled that the government would legislate in Parliament to avoid having to pay due compensation to the consortium. In the end, the furore was dampened when the consortium members were paid A$339 million to cover costs they had incurred up to that point.

So does Pallas feel the consortium was treated fairly? “The best answer would probably come from the consortium itself,” he responds. “But they have expressed certain views which suggest that, although they were not happy, they were prepared to see it [the payment of costs] as fair.”

He adds: “We did an inquiry and had a public debate – based on how do we deal with the entire state's needs and what should our priorities be – and we came up with the Victorian transport plan, which involved A$38 billion of spending over 12 years. And the verdict was that the East-West Link was not warranted. We focused on what was most needed and what could be delivered in an efficient way. The [coalition] government chose to go its own way which was based on politics and built on foundations set in sand.”

As evidence that private investors have not been put off by the East-West Link outcome, Pallas points to the domestic and international investors supporting a A$3.1 billion bond agreement for the Melbourne Metro public-private partnership (PPP). The Melbourne Metro was a key plank of the 2015-16 Victorian budget, with the government setting aside A$1.5 billion for planning, design and early works. 

MARKET-LED 

If this is one piece of evidence that the government wants the private sector onside, another is its willingness to engage with market-led project proposals such as the A$5.5 billion Western Distributor proposal submitted by toll road operator Transurban in April to develop a network of roads in Melbourne – partly paid for by tolls and by an extension to an existing concession.

Pallas insists such bids will get the serious consideration they deserve. “In the past, you might have put a proposal in and never heard back. We will let you know our priorities, give you the opportunity to meet with government and understand whether you're in the right ball park. You will get timelines and feedback.” Market bids will be put through a “competitive assessment”, he says, to test whether they will produce the best result.

This hints at the transparency that Pallas is keen to ensure when it comes to Victoria's infrastructure priorities. “We want to take on projects that are publicly justified and deliver them in a sequential order, giving people a level of confidence and getting buy-in. We want to give a clear line of sight to business by enabling them to see what opportunities are coming and when.” 

This will no doubt come as a welcome message to those investors which may have been concerned that the cancellation of East-West Link was a sign of hostile government. They may also be reassured by 'tough guy' Pallas's humility: “Politicians are not the font of all wisdom,” he muses.

“There's a world of expertise out there.”