North East Link valuation sparks fears of another budget blowout

Another cost blowout is set to rock the North East Link project, with Victoria’s most expensive road valued at billions more than planned.

Victorian taxpayers are bracing for a major project blowout after government documents revealed the North East Link project is now valued at $18 billion – more than $2bn above its current budget.

The toll road, which will connect the Eastern Freeway to the M80 in Greensborough and is scheduled to open in 2028, is already the most expensive road in Victoria’s history.

A briefing to Treasurer Tim Pallas late last year, obtained by the State Opposition via Freedom of Information, shows the government’s insurer and risk adviser using an “overall project value of $18bn”.

The briefing also shows Mr Pallas was forced to underwrite the project via a special Treasurer’s Indemnity, due to its scale and global insurance market challenges.

The toll road is one of the most complex projects of its type, with a 6.5km tunnel to be built under the Yarra River and wetlands in Melbourne’s inner northeast.

In 2016, Premier Daniel Andrews promised to build the “missing link” in the Metropolitan Ring Rd for an estimated $10bn.

Two years later when detailed planning was done the budget was revised up to $15.8bn, while further adjustments to designs were made last year to lengthen the tunnel by 2km and reduce the impact on the community.

An artists’ impression of the North East Link, which is expected to carry up to 135,000 vehicles a day. Picture: State Government

Shadow Treasurer David Davis said this opened up Victorians to “enormous” risks, even as the road’s budget looked set to soar to $18bn.

But a spokeswoman for the government said the project value estimate was an “assumption” used by the VMIA to calculate insurance and “should not be taken to reflect a revised project cost or TEI (Total Estimated Investment)”.

The Treasurer’s Indemnity was signed late last year to allow the close of the main tunnelling contract for the project, signed by the Spark Consortium for $11.1bn.

Mr Davis said “Labor cannot manage money or project costs” after billions of dollars of blowouts on Melbourne Metro and the West Gate Tunnel.

“These documents shows the Andrews Government was desperate and prepared to sign over almost anything to this Spark Consortium, who get all the benefits but are insulated by Labor from the risks,” he said.

The toll road, which will connect the Eastern Freeway to the M80 in Greensborough, is already the most expensive road in Victoria’s history. Picture: Supplied

The government has publicly said it would absorb more of the risk for building this project in a bid to avoid a scenario like the disastrous West Gate Tunnel, which was bogged down in legal disputes that blew out that project’s budget by $4.1bn.

A government spokeswoman said the toll road was “the biggest ever investment in the north east and the project has worked closely with the insurance market, during the pandemic”.

“As we deliver an unprecedented amount of infrastructure, we’re working in a challenging global insurance market to get the best fit and value for each project,” she said.

“With North East Link, we have struck the balance of getting the insurance coverage we need for this mega project while also getting value for the state.”

Meanwhile, the government has appointed the first long-term board for the project’s State Tolling Corporation, which will collect and manage tolls for the road.

On Monday Brad Vann, Aneetha De Silva and Leilani Frew will start three-year terms, overseeing the establishment of public toll collection systems ahead of the road opening in 2028.

Deputy Premier and Transport Infrastructure Minister Jacinta Allan said an extensive national search had identified “the right team, with the right capabilities, experience and expertise to help deliver this landmark project”.

On Sunday, Premier Daniel Andrews would not directly address the budget blowout.

He said: “There’s insurance that’s taken out and that’s just a regular part of very big and complex projects”.

“We’re getting on and delivering it and there are insurance arrangements that are taken out. That’s a perfectly normal thing to do.”