Fire sale as tunnel price plummets
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in Privatisation of Public Assets
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Danny John, Vanda Carson and Jordan Baker
February 8, 2007
* Tunnel owes taxpayers, too
* Roadway’s collapse leaves $84.5m hole in big banks’ pockets
* The tunnel’s mounting toll
THE Cross City Tunnel, which cost more than $900 million to build, is now worth little more than a third of that, based on documents obtained by the Herald.
Files lodged with the Australian Securities and Investments Commission show that three big Australian banks are owed $110 million by the tunnel’s owners. About $460 million is also owed to foreign banks.
The documents also show that despite assurances from the State Government, taxpayers have been left out of pocket.
They show that dozens of organisations, from a cycling club to the Tax Office, became victims of the financial collapse.
A list of unsecured creditors - traditionally the last to recoup money - shows they were owed a total of almost $300,000, including about $100,000 to state and federal agencies.
The commission list was dated December 27, when CrossCity Motorway went into receivership. On the same day the Roads Minister, Eric Roozendaal, said there was no financial risk to taxpayers.
The documents, compiled by receivers KordaMentha, show that local superannuation funds are owed nearly $115 million in unsecured loans to the State Government, and the Tax Office is facing unpaid bills of tens of thousands of dollars.
Among the unsecured creditors were staff, whose unpaid wages amounted to $22,668 and holiday pay added up to $105,498.
KordaMentha, appointed by the banks to sell the tunnel for the highest sum possible to cut their likely losses, believes it will have found a buyer by June.
But KordaMentha has deliberately withheld figures on what it thinks it is worth, because it does not want potential buyers to know what they could pay for it in a fire sale.
The receivers are also unsure of how much they will raise when they finish unwinding the operations and finances of the five companies that separately own the tunnel, the equipment and plant, and the way it was financed.
One company, CrossCity Motorway Nominees number 2, is owed $223 million by one of its sister firms, while the CrossCity Motorway property trust owes $332 million to Nominee company number 1.
The banks and creditors are likely to pursue cross-claims against the various entities as they try to claw back what they are owed.
Among the claimants hoping to recover money are Hong Kong-based Cheong Kong Infrastructure, one of the original investors in the tunnel, which has lodged a claim for $58.5 million. CKI has been joined by fellow shareholder Bilfinger Berger, which is seeking $23.4 million, and four superannuation funds, which seek a total of $31 million.
But as unsecured creditors they stand to lose every cent unless the receiver recoups more than $570 million, having paid off the banks first.
Industry sources estimate that a toll road operator, the most likely buyer, will pay only around $350 million for the tunnel.
That price would leave the banks, led by Westpac, which is owed $46 million, facing losses of $220 million. The rest of the creditors would get nothing.
That would almost certainly prompt KordaMentha, under pressure from the banks, to launch a court action for damages against the NSW Government over the reversal of the road closures which finally tipped the tunnel into receivership.
The former tunnel chief executive, Graham Mulligan, who is employed by the receivers, recently estimated that any such claim could amount to as much as $100 million.
MONEY PIT
$900m The cost of building the tunnel.
$350m Estimated sale value.
$570m What the banks are owed.
$220m Likely loss for the banks.
$100m The looming court claims.
97,000 Original daily traffic estimate.
30,000 The current daily traffic flow.
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Tunnel a $50m drain
Alexandra Smith
December 12, 2007
NSW taxpayers are paying more than $50 million a year to keep the Sydney Harbour Tunnel operating as fewer motorists use it.
In the latest blow to public/private partnerships touted by the Iemma Government as a fix-all for funding the state’s infrastructure, the NSW Auditor-General has found that the tunnel company is struggling to repay its loan to the Roads and Traffic Authority.
Fewer motorists are using the tunnel at the same time as operating expenses are rising, prompting a warning from the Auditor-General that the RTA needed to reassess its interest-free loan to the tunnel company.
The tunnel company’s expenses are running at $95.7 million a year while toll receipts have fallen to $43.7 million. Taxpayers have been forced to pay the difference under the original contractual agreements.
“We recommend the authority investigate the reasons for the continued drop in toll receipts and consider any options to minimise the Government’s expense in this area,” the Auditor-General said in a report released today.
The findings follow the corporate failure of the Cross City Tunnel last year and speculation over the Lane Cove Tunnel’s viability.
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Lane Cove Tunnel set to be second toll road failure
By Simon Benson and Rhys Haynes
May 09, 2008
THE Lane Cove Tunnel could be broke by next year in a second spectacular billion-dollar toll road failure for the State Government in 18 months.
Despite the Government trying to force motorists into the tunnel by closing a lane of Epping Rd for buses, volume has dropped to half that forecast.
The continued drop in motorists using the tunnel yesterday prompted ratings agencies to issue it with an unprecedented “two notch” financial downgrade, warning that the $1.1 billion investment was at risk.
Investor ratings agency Moody’s warned that the tunnel would run out of cash by the end of 2009 unless traffic volumes increased, echoing a statement by Standard & Poor’s last week.
Late yesterday, tunnel operators Connector Motorways admitted it was trying to refinance the bungled project.
Moody’s made the highly unusual decision to downgrade the Lane Cove Tunnel Finance Company two notches from Ba3 to Ba1 “after continued disappointing levels of traffic over the last few months”.
The ratings agencies are normally conservative with their advice and rarely move more than one notch at a time.
“The downgrade follows continued lower traffic volumes for March and April,” it said.
“Traffic was expected to ramp up after the bus lanes on Epping Rd (the surface alternative to the tunnel) became operational on March 10, but this
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Sydney’s great toll rort
By Linda Silmalis
October 17, 2009
TOLLS on Sydney’s main motorways have far outstripped inflation in the past decade, with some having doubled since 1999. Despite claims by road operators that tolls are raised in line with the consumer price index, an analysis of charges between June, 1999 and June, 2009 reveals a different story.
Officially, the CPI has risen 36.5 per cent in the past 10 years, but tolls on motorways have gone up by between 52 and 100 per cent during the same period.
So-called “escalation formulas” built into the contract deeds of the toll roads, allowing for increases to be rounded up - to 20c or 50c increments - are behind excessive charges.
Other factors include the State Government’s congestion tax on harbour crossings and the GST.
Peak-hour tolls for the Sydney Harbour Bridge and the Sydney Harbour Tunnel are up 100 per cent, from $2 to $4, because of the congestion tax. Non-peak day tolls have increased by 50 per cent.
Tolls for the M2, linking the city with the northwest, have increased by 98 per cent - from $2.50 to $4.95.
The M5 to the southwest has risen by 52 per cent, the M4 to the west by 72 per cent.
Ten years ago, motorists using the Eastern Distributor paid $3. Driving on the road today costs $5 - an increase of 66 per cent.
According to the NRMA, the State’s peak motoring body, rounding adjustment formulas have disadvantaged motorists.
It calculates that if the Eastern Distributor charges had risen strictly in line with inflation, the toll should be $4.
The NRMA says M4 users, who pay $2.75 today, should really be paying $2.16.
The good news for motorists is that the State Government has pledged to remove the M4 toll after the road reverts to public ownership on February 15 next year.
The NRMA says the M5 toll should be $3.38 instead of $3.80, and M2 users are being charged almost 50c a trip above inflation.
Newer motorways such as the M7, which adjust tolls by the cent in line with inflation, more closely mirror the CPI over time.
But so sensitive are the State’s toll-road operators about rises that careful media strategies are devised ahead of each increase to avoid negative publicity.
A media strategy prepared by Westlink ahead of the M7 increase in July states that commentary relating to the rise should focus on the rise as “business as usual”.
The document states that any communication about the adjustment should aim to counter negative comment suggesting the increase was linked to a downturn in the economy.
“It is important that the communication of this toll increase be carefully managed,” it says.
“It is important to establish quarterly toll increases on the Westlink M7 as business as usual.”
State Opposition roads spokesman Andrew Stoner said motorists were paying more for less.
“People complain they’re spending more money than ever to travel, but are not seeing the improvements in the roads and public transport network to go with it,” Mr Stoner said.
An NRMA spokesman said it was essential that motorists were given value for money.
“Members have told us that they are spending up to $500 a month on tolls - they will be shocked to see how much tolls have increased over the last 10 years,” he said.
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