Canberra winging it on Western Sydney Airport

The government has been told to find new ways of involving the private sector to build the Western Sydney Airport.

Sydney Airport has elected not to take up the option of building the Western Sydney Airport. Picture: Chris McKeen

The federal government has been told to find new ways of involving the private sector in delivering the multi-billion-dollar Western Sydney Airport after the operator of Sydney’s main domestic and international terminals said it could not make the project stack up.

The federal government yesterday decided it would develop the $6 billion project itself, in a move key players said overturned more than a decade of political consensus on using private sector funding and expertise to deliver major ­projects.

Infrastructure Partnerships Australia said the government was likely to have to deliver the project itself because it would not be able to offer the project to the private sector on better terms than those rejected by Sydney Airport yesterday.

GRAPHIC: New horizon

Its chief executive, Brendon Lyon, said the government needed to put robust safeguards in place to ensure taxpayers and users of the airport were not burdened with the legacy of cost overruns, which are regarded as more likely on government-run projects.

“On the one hand it is very exciting to see a major project getting under way,’’ Mr Lyon said.

“But at the same time the government will have to go into this with its eyes wide open because they are taking on considerable risk in designing and delivering a project without the discipline of private capital.’’

Former Business Council of Australia president Tony Shepherd said that while the project would be a positive for jobs and services to the people in Sydney’s west, the direct involvement of the government raised risks.

He said the master planning for the precinct at Badgerys Creek needed to involve the private sector because it would provide “massive” opportunities for developers and other businesses that would benefit from the new “aerotropolis”.

“The sooner they can bring in the private sector the better,’’ Mr Shepherd said. “The history of the government delivering major projects — really since the Second World War — is not good.”

Mr Shepherd, who has been involved in a string of public-private partnerships including the Sydney Harbour Tunnel, EastLink and Lane Cove Tunnel toll roads, said the government also needed to seek world-class expertise from airport operators in the design to avoid mistakes like those in Brisbane and Sydney, where the international and domestic airports are separate.

Former NSW premier and head of the state’s peak infrastructure body, Nick Greiner, said taking on the project could be an opportunity for the government to use innovative governance and fin­ancing models like those used to build the WestConnex motorway and London’s cross city rail. Under the model pioneered by the NSW government, it takes the development risk on projects such as the WestConnex road linking Port Botany to western Sydney, selling it off in stages as it is “derisked” by increasing usage, and recycling the funds into the next stage of development.

“This is the way that governments are going,” Mr Greiner said.

“They have decided that they can borrow well, take the construction risk and when it is derisked, when there has been a ramp-up in users, it can be sold.”

Mr Greiner said that while he had reservations about governments delivering major infrastructure, they were the only party able to take a long-term view on such projects and this move was inevitable.

“Common sense tells you that if Sydney Airport can’t make it stack up when they would have a monopoly in the Sydney basin, another investor is not going to be able to do that when they wouldn’t have a monopoly,’’ Mr Greiner said.

Infrastructure Partnerships’ Mr Lyon likened the decision for Canberra to go it alone to the former Labor government building the $49bn National Broadband Network, which has been the subject of heated political battles over cost overruns and service levels, or the Howard government’s foundation support for the $1.2bn Darwin-to-Alice Spring rail line.

The federal government is expected to reveal details of its plans for the airport in the budget next week and is likely to use an off-balance sheet funding vehicle similar to the NBN.

“Just like the NBN, that removes a degree of transparency for the taxpayer about how it is operating and the risk is that the community pays for it either in the form of user charges that are higher than they should be or it becomes a loss on the budget,” Mr Lyon said.

In February, the federal government’s peak adviser Infrastructure Australia listed the airport as one of seven high-­priority projects that it should fund and for which a full business case had been made.

Infrastructure Australia said the government needed to protect corridors for associated infrastructure that would be needed to run the airport, including a rail link and a jet fuel pipeline.

Estimates are that the cost of road, rail and pipelines could be more than double the $5bn-$6bn cost of building the first stage of the new airport. Already, the first four years of a 10-year, $3.6bn road project have been put in place.

Observers said government participation was almost inevitable after it declined to provide grants or loans for Sydney Airport to develop the project.