West Gate Tunnel: Transurban chief Scott Charlton defends deal

Transurban CEO Scott Charlton says making taxpayers foot part of the bill for West Gate Tunnel project would be a bad outcome.

Transurban chief executive Scott Charlton. Picture: Stuart McEvoy.

Transurban chief executive Scott Charlton has declared that making Victorian taxpayers foot part of the bill for the $6.7 billion West Gate Tunnel project would be a bad outcome for the state, as the toll road operator moved yesterday to insulate itself from the politics surrounding its biggest ever construction development.

Transurban confirmed speculation it would raise $1.9 billion — the biggest capital raising on the local market this year — to part-fund the cost of the project, which will start in January after the company signed contracts with builders CPB and John Holland.

In return, the Victorian government has pledged to press ahead with legislation required to facilitate a 10-year extension of tolls on Melbourne’s CityLink network, Transurban’s flagship toll road that will be integrated with the tunnel project.

While the state opposition and the Greens have vowed to block any extension to Transurban’s CityLink concession, contractually the state government has agreed to make good any adverse impacts Transurban might suffer if the legislation fails to pass.

Mr Charlton denied Transurban was holding a gun to the heads of taxpayers by striking a deal with the government to push ahead with the project despite the political roadblocks.

Premier Daniel Andrews said yesterday either motorists using the tollways would pay for the West Gate Tunnel project from 2022 when it is scheduled to be completed, or Victorian taxpayers generally would have to pay for it.

Under the agreement, Transurban will have the right from 2022 to charge tolls that will rise 4.25 per cent a year until 2029, after which they will rise with inflation.

“This is not a case of holding anyone to account. We are saying to the government, that is your policy but we need to protect our security holders,’’ Mr Charlton told The Australian.

He said if taxpayers were forced to foot the government’s share of the construction cost through higher taxes, it would not be a great outcome for Victoria.

“We think that money would be better spent on public transport and other services,” he said.

“We think the state would get much more value for money by passing the legislation.”

Mr Charlton has long been a proponent of dynamic pricing of toll roads — where tolls are adjusted according to the time of day people travel — as a means to generate more private sector revenue to fund infrastructure and reduce the pressures on governments.

The company said the West Gate Tunnel would introduce peak hour charges for cars travelling into a city for the first time in Australia. Cars will pay $4.84 to enter the city in the morning peak and trucks will pay $7.74.

Transurban also revealed it was raising funds for the project through a three-for-37 entitlement offer, with new securities to be offered at $11.40, a 5 per cent discount to Monday’s closing price of $12.28. It will also use a $1.65bn corporate syndicated bank facility and additional market funding to meet the balance of its requirements.

Mr Charlton said the company was effectively upgrading its earnings by yesterday confirming its annual distribution guidance of 56c a unit, including 28c for the first half, despite the capital raising, and said the offer had already been well received.

Importantly, he stressed that the deal allowed the company’s investors — 70 per cent of which are Australian, including super funds — to invest in local infrastructure rather than tipping money into projects offshore.

“It is a fantastic opportunity for Australian investors to invest in their own back yard. And the distributions get invested back into the community,’’ he said.

Goldman Sachs told clients yesterday that while the nature of the project had been well known by the market, “the resolution of the process and clear indication of the concession and amendments to CityLink remove the related uncertainty”.

“We view the closure of this transaction with the Victorian government and importantly the CityLink concession extension and escalation of tolls as a key positive for the stock, extending the breadth and duration of the portfolio,” the broker said.

Mr Charlton acknowledged such a major construction project carried risks for the company but was prepared to bank on its track record in delivering major infrastructure developments.

The company recently completed its widening of the CityLink ahead of schedule.