Victoria avoids legislating over East West Link PPP

Australia’s Victoria state government has eased fears by agreeing the payment of costs to the winning consortium on the A$5.3bn project which it is in the process of cancelling.

The Victoria state government has paid costs of A$339 million (€243 million; $258 million) to the East West Connect consortium which was awarded the A$5.3 billion East West Link project that the new government subsequently decided to cancel. The consortium includes the likes of Lend Lease, Capella Capital and QIC.

The costs had already been incurred by the consortium and is therefore a form of reimbursement. The government claims that it is not paying compensation for the contract’s cancellation, which media reports suggest could have amounted to as much as A$1.2 billion.

The construction of the East West Link, an 18-kilometre toll road connecting Melbourne’s western suburbs to the Eastern Freeway, had been planned by the Liberal/National party and the contract with the winning group was signed in September last year.

However, in November, the incumbents were swept from power in state elections. The new Labour administration quickly made clear its intention to scrap the project, with Premier Daniel Andrews seemingly reluctant to deny claims that he might introduce legislation to avoid contractually agreed terms of compensation.

Industry body Infrastructure Partnerships Australia (IPA) reacted with relief to the news that the apparent threat had not been realised. “Legislating around the East West Link contract would have badly damaged Victoria’s reputation,” said IPA chief executive Brendan Lyon in a statement.

He added: “The Andrews government is right to avoid legislation, because it needs investors to be confident that government contracts are worth the paper they’re written on. Finalising arrangements to cancel the East West Link road will allow the Andrews government to refocus on the projects that it will build.”

However, fresh fears about sovereign risk in Australian PPPs have surfaced with the opposition Liberal party in Australian Capital Territory (ACT) threatening to retroactively terminate the planned A$800 million Capital Metro project if it wins the ACT election next year. This time, the Labor party is the incumbent administration trying to drive the deal through.

“The Canberra Liberals will be doing all we can to stop the ACT government from entering a contract to construct light rail,” said Shadow Minister for Transport, Alistair Coe, in a statement. “The issue of light rail should be determined at the 2016 election and as such, the Labor government should hold off on any contracts until the voters of Canberra have had their say on this…proposal.”

Two groups have made it through as preferred consortia for the Capital Metro project following an Expressions of Interest stage and are now heading to the Request for Proposals stage. The Canberra Metro consortium includes the likes of Aberdeen Infrastructure Investments, John Holland and Leighton Contractors, while the ACTivate consortium features Downer EDI, Plenary, Keolis and Partners Group among others.

Capital Metro is a planned light rail system serving the capital city of Canberra which will link the northern suburb of Gungahlin to the city centre, possibly also linking to the suburb of Russell.