Melbourne Airport Rail Link funding fight heats up over blowout

Fresh tensions are brewing between the Andrews and Albanese governments over who will foot the bill for an expected $3bn blowout on the Airport Rail Link.

The cost of the stalled Airport Rail Link is set to soar up to $3bn above business case estimates, stoking tensions between the Andrews and Albanese governments over funding.

The Herald Sun can reveal that industry and government insiders expect that the link ­between the CBD and Tullamarine – recently put on hold due to a review of federal-funded infrastructure projects – will now cost almost $13bn.

A project business case, drafted in 2021 but released late last year, forecast the taxpayer contribution would be between $9.2bn and $9.8bn.

Wrangling over who will pick up the bill for blowouts has emerged as a key reason why the project was sent to the federal infrastructure review, which is set to report in August.

The insiders say it could recommend that major airport link works be deferred.

The Herald Sun understands that a letter from Victorian Treasurer Tim Pallas to federal counterpart Jim Chalmers may have triggered the inclusion of the project in the review, after federal Infrastructure Minister Catherine King previously indicated that projects under way would not be included.

Multiple industry and government insiders say the ­expected budget blowout is largely due to labour and­ ­materials price increases that have smashed the construction industry in recent years.

“Supply-chain issues are making it hard for houses to come in at promised costs, so imagine the scale (of the blowout) on a $10bn project,” one said.

When funding for the airport rail link was first ­announced, the Andrews government and the Commonwealth pledged $5bn each, saying the link would cost $8-13bn.

A formal business case later said it should cost between $9.2bn-$9.8bn, based on using the Metro Tunnel as well as an above-ground route between Sunshine and Tullamarine.

The rail link was recently put on hold due to a review of federal-funded infrastructure projects. Picture: BigBuild.vic.gov.au

The Department of Transport and Rail Projects Victoria finalised the business case in November 2021, but its release was put in the hands of the Premier, the Treasurer, and Transport Infrastructure Minister Jacinta Allan.

Further adjustments were made and the document was then sent to the former Morrison government and eventually released at the end of 2022.

When the business case was released, Ms Allan said the final cost of the project was not settled until all contracts were awarded, and that the business case outlined a price consistent with the range of $8-13bn “that we’ve always said”.

“This is a project that will be delivered across seven different packages,” she said at the time.

“The final investment ­required for the project will be determined once those tender processes have concluded.”

Three of the seven project contracts have been signed and are being delivered, but insiders said the overall budget would likely hit $13bn and was being discussed in relation to working documents for the ­remaining major contracts.

Most industry insiders now expect the signing of those contracts to be further delayed, with speculation about a pause of at least two years, which could also add to costs.

Terms of reference for the federal review of infrastructure projects includes looking at work from advisory body Infrastructure Australia, which last year said a business case for the airport link needed more work: “Further investigation is warranted on the timing of the proposal and to provide greater certainty of costs and maximise societal benefits.”

At that time, the Andrews government rejected the IA recommendations, but it is now desperately trying to improve its budget position as the state debt approaches $170bn.

When the project was paused earlier this year, stakeholders were told that a fresh agreement over costs and funding would need to be struck between the state and the commonwealth before the project was restarted.

Some industry sources said this could lead to protracted negotiations, creating further delays.

It is understood neither government wants to contribute more than the $5bn each has already committed.

A spokesman for the Andrews government said the airport rail link was “part of the national infrastructure investment program review – we’ll have more to say when that process has run its course.”