Coalition locks in Badgerys ‘Plan B’

The Turnbull government has ­finalised funding contingency plans to build Sydney’s $6 billion second airport.

Urban Infrastructure Minister Paul Fletcher. Picture: Bob Barker

The Turnbull government has ­finalised funding contingency plans to build Sydney’s $6 billion second airport, amid expectations that Sydney Airport Corporation is unlikely to take up the May 8 deadline offer to build and operate Badgerys Creek.

The Weekend Australian understands the government has modelled several funding options, including one based on the Snowy Mountains Hydro-electric Scheme, in which the government would become the principal shareholder in a company set up to operate the ­airport.

An off-budget NBN Co-style model is also on the table. Under a government business enterprise model any debt raised to build and operate the airport would be offset by the government retaining equity in the airport, meaning it would not be included under normal budget spending.

It would also give the government the option to sell the airport, which would represent a significant piece of national economic infrastructure, once it is operational and passenger volumes guarantee commercial returns.

Sources have confirmed that the government is preparing for an almost immediate start to construction, with a timetable of next year for major earthmoving works to begin.

It is likely that an announcement on the government’s plans, which would end Sydney Airport’s stranglehold monopoly on commercial air travel in Sydney, would be announced shortly after the May 9 budget.

The industry is widely anticipating that the Sydney Airport Corporation, under its parent company Southern Cross Airport Corporation Holdings, will not take on the project. The deadline for a decision is due on the day ­before the budget.

Sydney Airport Corporation has argued that Badgerys Creek is not commercially viable without significant government assistance.

The government has refused to provide any funding for a ­private-sector operation, arguing that it is offering a “once-in-a-generation” deal for a 99-year lease on a 1700ha greenfield site in western Sydney, with a full airport masterplan that had passed every environmental and regulatory hurdle.

It is also spending $3.6bn on a western Sydney infrastructure plan for “ground transport connectivity” to the airport, including a scoping study for a metro rail line from the CBD to Badgerys Creek.

Urban Infrastructure Minister Paul Fletcher issued a notice of intention to SAC in January giving it until May 8 to notify the government of its intention.

Mr Fletcher has previously said that the government began planning late last year for the possibility that responsibility for construction would fall to the government.

He said the government ­“certainly had the capacity” to fund the airport.

When Sydney’s main airport, Kingsford Smith, was privatised in 2002 its market capitalisation was about $5bn. It is now three times that amount.

“It’s in the hands of Sydney Airport Corporation,” Mr Fletcher said. “If it chooses to take up the right, it will build and operate; if it doesn’t, then we stand ready to do so.”

Under the 2002 privatisation contract of Kingsford Smith Airport at Mascot, the company was granted first rights for the construction of a second airport in the Sydney basin.

The plan the government drew up sets a strict mandated timetable for the construction of the airport to ensure start of operations by 2026. “Failure to meet” milestone deadlines include significant ­financial penalties.

Airlines are believed to favour the government option over concerns that Southern Cross Airport Corporation Holdings would be handed an expanded monopoly should it decide to build Badgerys Creek, leaving no competition to bring down what are commonly regarded as excessive landing fees.

Sydney Airport said it was still in the process of evaluating the ­notice of intention and would try to meet the May 8 deadline.

It is expected that Sydney Airport Corporation will push the government for expanded runway operations at Kingsford Smith and changes to the curfew, arguing that Badgerys Creek would be a 24/7 airport.

An industry source said that Sydney Airport had expected the government would partly subsidise construction of the new airport but was “blindsided” when this was ruled out. The notice of ­intention issued by the government required that the airport needed to have at least one 3.7km runway, capable of landings for an A380, with a terminal capable of meeting passenger movements of 10 million a year.

Earthmoving works to level a field that currently has a 30m undulation, estimated to cost at least $1.3bn, are required to be underway by next year.

Industry sources said that several institutional investors had been looking at the project. It was not expected that any would take on the contract, despite industry super funds owning or having large stakes in other major airports around the country.