More details have emerged about the questionable dealings over Victoria’s East-West Link toll road, with The AFR revealing today that former Liberal Party Treasurer, Michael O’Brien, signed a side letter specifying that the Victorian Government would pay compensation to the consortium partners (East West Connect), even if a court declared the project contract illegal, invalid or unenforceable:
“EWC will be exposed to significant pecuniary loss and damage,” the letter states. “The resources devoted to this bid have meant that not only have the global consortium members expended considerable time and money in their retrospective endeavours, but that there is also a significant opportunity cost to each of them given the many infrastructure-related opportunities around the world.”
New Labor Treasurer, Tim Pallas, responded by labeling the side letter an “act of treachery” and a “fraud” against Victorian taxpayers, and denies the consortium should be entitled to be compensated for its opportunity costs:
“If you participate in a process of contracting, the one thing you want is to minimise your risk in your dealings with the state, and the consortium were well warned by the opposition: to minimise your risk hold off on signing these contracts,” he said. “They chose not to and that’s a risk they chose to assume.”
As argued on Wednesday, it is clear the former Victorian Liberal Government acted despicably on East-West Link.
First, it failed to disclose the facts from the full business case to the public before the construction contracts were signed. Had it done so, the public would have discovered that the project delivered a benefit to cost ratio of just 0.45, and would have taken an estimated 56 years to pay-off – significantly longer than previous road projects such as CityLink (eight years) and EastLink (20 years). They also would have discovered a note to cabinet observing that a full submission of the business case to the independent umpire Infrastructure Australia disclosing the low benefit-cost ratio “may be used as a justification for not supporting the project”.
Second, the Liberals should never have rushed to sign the contracts on the project to beat the artificial November election deadline, and then agreed to compensate the consortium partners for both their bid costs and “opportunity costs” even if the contracts are declared illegal, invalid or unenforceable.
Now Victorian taxpayers are facing two painful alternatives:
- Proceeding with the project at great cost and receiving negative returns; or
- Abandoning the project but paying an estimated $1.1 billion in compensation to the construction consortium.
As I noted last time, you would be hard pressed to find a worse example of infrastructure incompetence than the East-West Link project. The former Government should hang its head in shame.
