No final deal yet on Metro cost blowout, says Pallas

Victorian Treasurer says overruns of up to $3bn won’t be paid for out of special coronavirus loan.

The Metro Tunnel takes shape under North Melbourne. Picture: Supplied

Victorian Treasurer Tim Pallas says the Andrews government is yet to reach a final settlement with the consortium building its signature Melbourne Metro rail tunnel, as negotiations continue over blowouts which could cost taxpayers up to $3bn.

The Australian reported today the government is close to striking a deal with the tunnel builders after refusing for more than five months to reveal the extent to which the public-private partnership has exceeded its $11bn ­budget.

Late last year it was reported that the Cross Yarra Partnerships consortium and its contractors were seeking up to $3bn extra, after an audit revealed the cost of initial construction-­focused works on the tunnel had increased by hundreds of millions of dollars.

The news comes amid a costly impasse on another of the ­Andrews government’s signature projects: the $6.7bn West Gate Tunnel.

More than 200 workers on the road project were stood down last week, with the jobs of a further 400 at risk while toll road operator Transurban struggles to reach agreement with the government and its builders CPB and John Holland over the disposal of toxic soil.

Asked on Tuesday whether the Andrews government had signed a deal on the on the Metro tunnel cost blowout yet, Mr Pallas said: “There are ongoing negotiations, and we’ve not reached any final settlement.:

Asked whether a deal was close, the Treasurer said: “Oh, well, I suppose we’re closer today than we were yesterday.”

“All the progress has been in the right direction, but we’re not there yet, and can I say, when there is something to tell, we will tell you,” Mr Pallas said.

Asked whether the government was likely to agree to a figure as high as $3bn, Mr Pallas said he would not be drawn on “exactly how much or for what”.

“We’ll declare all of that if and when an agreement is struck,” he said.

Asked why taxpayers were on the hook for billions of dollars extra despite an $11bn contract having been signed, Mr Pallas again said he would not be drawn further on the issue.

“We will take you through the justifications if and when an agreement is struck,” he said.

Opposition Leader Michael O’Brien said it was “very concerning” that Mr Pallas would not “come clean” with Victorians about the size of the blowout.

“Remember this was a project that Labor took to the 2014 election claiming it would cost $9bn,” Mr O’Brien said.

“Well now it’s up past $11bn and now we don’t know how many more billion dollars this is going to cost us.

“This is becoming a huge white elephant. The cost of this is blowing out day by day, not by thousands or tens of thousands but by billions of dollars, and the government owes it to Victorians to come clean and tell us how much taxpayers will have to pay because of Labor’s wasteful management.”

Cost blowout ‘won’t be paid for by COVID borrowings’

Mr Pallas said the tunnel cost blowout would not be paid for with up to $24.5bn the Andrews government has arranged to be able to borrow to cover the cost of the economic downturn caused by coronavirus.

“Certainly our view is that the allocations that we’ve made will be provided for and expressly identified at the time that Treasurer’s advances occur, so we don’t anticipate that we’ll need to use Treasurer’s advance for the purposes of paying for infrastructure that has already been identified and costed by the state,” he said.

“To the extent that we need to identify additional funds for any projects, they will be properly accounted for in a budgetary sense.”

The Andrews government yesterday announced it was now funding some of its 2018 education infrastructure election promises with money from the $24.5bn.

Asked whether the $24.5bn would be used to fund other budget shortfalls which preceded the COVID-19 pandemic, Mr Pallas said all of the government’s 2018 election commitments had been “fully funded”

“We produced all of the costings for that at the time of the last election,” he said.

“The second point is we brought forward the delivery of some of those projects … and that is the practical consequences of the announcement yesterday, as well as a very substantial raft of additional capital spending that was identified in that $2.7 billion package.

“The final point I'd make is that the government has not gone into debt for that $24.5 billion sum.

“What we've done is we've essentially given me the authority as Treasurer to draw a debt facility should we need it. My expectation is we won’t need it all, in fact we probably won’t need a substantial amount of it.

“We’ll probably be in a position come the budget to more directly explain to the Victorian people how much firstly we’ve drawn down out of that facility, but secondly how much we would need going forward.

“So we won’t need the $24.5bn between now and October, when the budget is brought down, but we will need some of it, and our intention will be to declare to the Victorian people exactly how much we've used, and how much going forward in a properly budgeted sense, we think we’ll need.”

The Cross Yarra Partnership comprises Lendlease, Bouygues Construction, John Holland and Capella Capital.

The Andrews government said on Monday night discussions were “still continuing” with Cross Yarra Partnerships and its subcontractors “on a range of ­issues ­regarding the Metro Tunnel ­Project”.

Asked whether a deal was imminent to lock in the size of the taxpayer-funded bailout to ensure the cross-city project was completed, a government spokeswoman said: “We have no announcements to make at this time.”

The project involves the construction of twin 9km rail tunnels between South Kensington station, northwest of Melbourne’s CBD, and South Yarra, southeast of the city, with five new underground stations.

The stations will include Arden in North Melbourne, Parkville near the University of Melbourne and hospital precinct, State ­Library and Town Hall in the CBD, and Anzac on St Kilda Road near Melbourne’s War Memorial.

The tunnel will also allow for the existing Pakenham and Cranbourne rail lines in Melbourne’s southeast to connect with the Sunbury line in the north by bypassing Flinders Street Station and the City Loop.

The Melbourne Metro Rail Authority was established in February 2015, with early works beginning in 2016. The project is due to be completed by 2025.