Airport rail now hinges on who pays the extra $3 billion to build it

A rail link to Melbourne’s Airport now hinges on whether the state and federal governments can agree on funding $3 billion in additional costs for the project and a timeline for work to begin.

Despite Melbourne Airport backing down on Sunday from its stance that a new railway station at Tullamarine should be underground, Premier Jacinta Allan insisted the project would still be delayed by four years and was unlikely to be completed until 2033.

Premier Jacinta Allan in Box Hill on Monday. Credit: Penny Stephens

The end of the station stalemate paves the way for planning to resume, and airport chief executive Lorie Argus has pledged to work co-operatively with the state on remaining issues such as final designs and the possibility of compensation for the state acquiring land.

But four state and federal government sources, speaking anonymously to detail internal conversations, said the question of who would provide additional funding to get the rail link under way remained the project’s biggest hurdle.

Since 2018, the project has been estimated to cost up to $13 billion. The state and federal governments have committed $5 billion each.

One government source said the latest estimate on the project’s price tag was now at least $13 billion, but no agreement had been made on who would cover the shortfall once contracts were signed. In this year’s Victorian budget, the government estimated construction costs in the state had risen by 22 per cent since 2021.

“It is currently a 50/50 split, but Victoria’s budget position means they are not inclined to contribute additional funding,” a source said. “The attention will be on the Commonwealth, and they are the ones with an election within 12 months.”

Federal Labor MP Bill Shorten, whose Maribyrnong electorate includes the airport, told ABC Radio the rail line was already too late.

“Do I think it’s four years late? I probably think it’s 45 years, 50 years late. We’ll just have to see how we go with the Victorian government,” he said.

Allan said the latest cost estimate for above-ground rail, and who would bear costs above $10 billion, was yet to be worked through. She denied she had sought further federal funding.

“With delay does come cost and so this will be something that the Commonwealth government will need to work through with its project partners,” Allan said.

“There are still other … issues that need to be resolved, including the airport’s demand for compensation from governments for land that is leased to them for their private operation.”

Adrian Dwyer, chief executive of industry body Infrastructure Partnerships Australia, said spending on major transport infrastructure had peaked, with a slowdown in the number of new projects and a decline in their sizes creating space in the market.

“The real question is in the capacity of the Commonwealth and Victorian governments to fund the delivery of the project as sobering fiscal realities continue to bite,” Dwyer said.

This year’s state budget predicted that by 2028, Victorians would be on the hook for interest repayments of more than $25 million a day.

Melbourne Airport revealed on Sunday that it would drop its opposition to an above-ground station outside its terminals, in the hope the line could open by 2030.

But the premier made it clear the backdown would not speed up the construction timeline as her government continued prioritising the Suburban Rail Loop East project, which had its preferred bidder for the next stage of the line announced on Monday.

Melbourne Airport chief executive Lorie Argus on Monday.Credit: Chris Hopkins

“I certainly welcome the acknowledgement overnight and this morning by the airport that their unreasonable demands … to pursue an underground station do not stack up,” Allan said.

“But the consequence of the unreasonable position that has been taken for a number of years now is that this project has been delayed by four years. That’s the simple fact and consequence of what we have been trying for years to negotiate with the airport.”

One source questioned this argument for a four-year delay. They said there had been a pause in planning and procuring contracts because of the saga, but early works on an airport rail were still under way as originally planned.

Allan’s comments are also a change from those made two months ago by Treasurer Tim Pallas, who said the full impact on the project’s timing was not clear while the airport refused to budge on its underground preference.

“Of course, were the airport operator to see reason and maybe become a good corporate citizen at some point, instead of a really good car park operator, then perhaps we might be able to move those things forward,” he said at the May budget launch.

Airport chief executive Lorie Argus said the airport expected to receive redress for the use of part of its land, leased from the federal government, which would be acquired by the state.

“We are genuinely empathetic to the challenges that the state is facing. So we want to do that as cost effectively as possible. We’re definitely not going to be difficult in this process,” Argus said.

A spokesperson for the Albanese government welcomed the airport’s new stance on above-ground rail.

Moonee Valley Mayor Pierce Tyson.Credit: Simon Schluter

“The report from the Commonwealth-appointed independent mediator, Neil Scales, made it clear the project was viable and necessary, and that there was unanimous support for it,” the spokesperson said.

State opposition transport infrastructure spokesman David Southwick said the airport link should no longer be delayed.

“Victorians have had enough. They just want an airport rail, and they want it done,” he said.

Those comments were echoed by Labor-aligned Moonee Valley Mayor Pierce Tyson, who said his community had one of Victoria’s highest proportions of aviation workers and would benefit from a station built at Keilor East as part of the rail line.

“We’ve been waiting over half a century for this project, and it’s about bloody time to stop talking and get it built,” he said.

Transport Workers Union state secretary Mem Suleyman said the airport’s thousands of workers needed affordable and efficient ways to get to work.

“With the airport’s commitment to co-operate and the billions being invested by governments, we must now get straight on the tools and in the trucks to build the rail link,” he said.

As the state government focuses on building the eastern section of the Suburban Rail Loop, Allan announced on Monday that Terra Verde – a global consortium of tunnelling businesses comprising WeBuild S.p.A, GS Engineering and Construction Australia – and Bouygues Construction Australia would be responsible for constructing the 10-kilometre northern twin tunnels between Glen Waverley and Box Hill.

Suburban Connect was awarded the $3.6 billion contract in late 2023 to complete the 16-kilometre southern twin tunnel between Cheltenham and Glen Waverley. Site investigations and preparatory work are currently making way for tunnel boring machines to begin work in 2026.

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