Terry McCrann: Why the state can’t be trusted to save your $8bn

THE State Government quite simply cannot be trusted to protect the public interest in any dealings with Transurban, writes Terry McCrann.

Daniel Andrews’ government cannot be trusted to protect the public interest in any dealings with Transurban.

THE State Government quite simply cannot be trusted to protect the public interest in any dealings with Transurban or even just in doing the most basic arithmetic.

This was shown by the two deals done in 2005 and 2006 by the previous Bracks-Brumby Labor government to sort out the original mess of the Calder-Tulla interchange and the first CityLink-Monash upgrade.

TRANSURBAN SET FOR EXTRA $8 BILLION FROM ANDREWS GOVERNMENT

TRANSURBAN TROOP IN THE FAST LANE

Even worse, in the most recent deal to upgrade CityLink-Tulla, the state might already have blown any chance of getting Transurban’s tolling franchise to end early in 2025, thereby saving motorists $8 billion or directing that money to the state instead of Transurban.

That mess around Essendon Airport, not exactly incidentally, was a spectacular product of combined Transurban-VicRoads utter incompetence.

It also rather bizarrely served as a sort of ‘trial run’ for the even more shambolic Transurban-VicRoads incompetence of building a single-lane access off the Bolte Bridge to the Westgate Freeway east. This latter mess, is of course, only now being fixed up at very great cost to both motorists and taxpayers — but not, to Transurban — and seemingly unending inconvenience to motorists.

Quite simply, those two earlier deals were the equivalent of the state opening up its vaults and saying to Transurban: help yourself.

First, the state paid for almost all the cost. It — you — tipped in $887 million, Transurban contributed all of $177 million. It gets worse.

Transurban chief executive Scott Charlton. Picture: Stuart McEvoy

First, how did the state raise its $887 million? It did so in a complex financial transaction, which in effect borrowed the money from Transurban itself at an interest rate of 9.7 per cent.

That was instead of the state borrowing the money in the normal way, probably at around 5.5 per cent at the time. Where did Transurban get the money from? By borrowing itself at an interest rate of 6.8 per cent.

Just let all that sink in. Transurban borrowed the money at 6.8 per cent to on-lend it to the government at 9.7 per cent which then paid for most of the work which most benefited Transurban!

That’s the sort of deal which, as I noted at the time, makes your average wood duck look like Peter Garrett in full Midnight Oil frenzied jerking mode.

But it gets worse. The ­upgrades were clearly going to lead to more cars and more toll revenue. So the two parties agreed that the first extra ­dollars would go to repay the upgrade costs. But, funny to say, only Transurban’s upgrade spend.

So Transurban would get all of its $177 million back first; and after that the two parties would split the extra toll money 50-50. Except, as it turned out, the way the calculation ended up getting done, there was no extra money.

So, the state — you — tipped in $887 million (borrowed from Transurban at 9.7 per cent) and got nothing back (over a nominal $11 million).

Transurban tipped in $177 million and got every penny of that back. Plus the money it made in lending to the state. Plus the extra tolls out to 2035. And indeed out to 2045 if it gets the Western Distributor deal done.

In sum, the state — again, you — spent a squillion to channel even more cars and trucks onto Transurban’s ­CityLink; and you have the privilege of actually paying Transurban to ‘receive’ them and their tolls.

Every dollar that Transurban invests in CityLink goes to reducing its ­profitability (while still boosting its profit) as defined for the ­franchise trigger.

The added, hidden, benefit that Transurban got was that all that might actually have helped it to avoid losing its franchise early, in 2025.

Because every dollar that Transurban invests in CityLink — even dollars it gets repaid! — goes to reducing its ­profitability (while still boosting its profit) as defined for the ­franchise trigger.

It is the much bigger deal to spend $850 million on the CityLink-Tulla upgrade that could have sealed the deal — eliminating any risk of losing its franchise early (and $700 million a year, heading for at least $1 billion a year, in tolls).

But if that hasn’t, because CityLink is just so profitable — it’s quite probably the most profitable tollway in the entire world, making a staggering 86c of gross profit from every single dollar of toll revenue — the huge (yet still extraordinarily profitable) spend on the Western Distributor will absolutely eliminate any such risk.

In the process of course, it also locks in ever-rising tolls to 2045 to boot!

You sort of get why I (and former investment banker Francis Browne who rang the bell on this) want to see a full and independent analysis of the Transurban numbers before everything is given away on the Western Distributor.

And by everything I mean only starting with the $8 billion of tolls up for grabs between 2025 and 2035. Of course, ­alternatively, we can just take Transurban’s word for it.

Originally published as Terry McCrann: Why the state can’t be trusted to save your $8bn