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Victoria’s infrastructure shadows are getting longer

Let no one be under any illusions, however, that such tolling rights will remain in government hands for very long.

I prefer a private operator to assume the risk and responsibility of collecting tolls, subject to robust conditions that a government secures on behalf of taxpayers and the Victorian community generally, but the question of who owns tolling rights for the time being is not nearly as important as whether the process that leads to the setting of tolls is based on credible and realistic traffic forecasts.

Only a well-managed tender process will answer that satisfactorily.

Under the government’s approach of retaining ownership of tolling rights, any overestimation of traffic volumes will expose it to criticism if in future it has to increase tolls to meet resulting shortfalls. On the other hand, should it underestimate traffic volumes, it can certainly anticipate the excoriation that may come from accusations of having gouged motorists.

The problems don’t, however, end here.

You can bet London to a brick that a future government will sell these tolling rights to the private sector anyway. If that is to happen, we can only hope that taxpayers will receive more for those rights then than if they form part of the contract with a private bidder now.

Governments should not generally be in the business of owning tolling rights. They should focus on ensuring that they secure the best deal for taxpayers and protecting the public interest, which includes getting traffic forecasts right.

There was a second and perhaps more troubling development this week. It concerned government claims that it may go alone and construct the North East Link if it cannot secure the deal it wants from the remaining tenderers. With the CPB Contractors-led consortium withdrawing, and the possibility of the John Holland-led consortium withdrawing as well, or at least risking disqualification if it submits a non-compliant bid, it ought to concern every Victorian that major bidders are so concerned about the project’s risk profile.

Would that we had some visibility into these negotiations to understand more vividly these concerns about risk.

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While in fairness, I can understand the government saying that taxpayers should not have to wear unacceptable risks when it comes to these types of infrastructure projects, the fact is that unless projects are well managed, taxpayers ultimately assume significant risks regardless of whether projects are built by the private sector, under say a public private partnership, or by a state instrumentality.

What matters more at present is that there are issues of risk allocation between the bidders and the government that appear to have become so intractable that bidders would rather withdraw than secure the tender.

When, for example, media reports refer to disputes over the allocation of “industrial risks” between the government and bidders, what does that mean? Unfortunately, we’re not likely to find out.

Once again, I can understand why the government has affected a defiant negotiating posture and toyed overtly with the prospect of the state building the North East Link. I guess if it is to have any leverage in negotiations with a potential bidder, and possibly the sole remaining bidder if the John Holland-led consortium withdraws, it needs a virtual alternative it can flirt with to secure the concessions it seeks.

But the truth is, no one in the industry believes for one minute that the government would ever actually take on the responsibility of constructing such a road.

And this is my point.

Have things become so bad that the current government is flirting, even if insincerely, with an idea that governments of both persuasions have eschewed for the better part of 30 years? That is the idea of actually building major infrastructure when the private sector is perfectly capable of doing so while being subject to robust conditions secured on behalf of the Victorian community.

It’s worrying because it suggests there are deep troubles besetting this infrastructure project that could contaminate processes around other major projects.

What are we to make of the airport rail project, the future Metro 2 and, of course, the behemoth of the suburban rail loop? Imagine the risk profile around that project.

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This week, more so than all of the controversy dominating recent weeks, may well have cast the darkest shadow to date over current and future infrastructure projects.

John Pesutto is a Senior Fellow at the School of Government at Melbourne University and was Victoria’s Shadow Attorney General from 2014 to 2018.

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