Whither the WestConnex cash? Berejiklian buries tracks on Transurban’s $11bn toll road windfall

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WestConnex, Transurban
Did Transurban, the only bidder, get a steal? Image: WestConnex

Just how good is the WestConnex mega-deal which toll road monopolist Transurban has struck with NSW? Where is the that $11b going and what is this mysterious new “WestInvest”? Wendy Bacon investigates the deception around Australia’s biggest and most secretive infrastructure project.

Westconnex… WestInvest. They sound like two connected brands, right? 

If you watched the NSW government’s Covid Update media conference on September 20 or read the reports about it, you would certainly think so. The message was simple. $5 billion from the $11.1 billion sale of the WestConnex tollway system would be invested in a new fund called WestInvest, a key plank in the NSW COVID recovery strategy. 

Nine’s Sydney Morning Herald report was clear, “WestConnex cash set to flow to heavily locked down Sydney regions.” AAP’s lead read, “The NSW government has collected $11.1 billion from the sale of its remaining stake in the WestConnex motorway and will allocate $5 billion to an infrastructure fund for western Sydney”. The Australian’s Yoni Basham’s story “Motorway $11bn sale a boon for city’s west” had the same message. The NSW government has ­secured an $11bn deal to sell its ­remaining stake in the WestConnex motorway, a move that will set aside almost half the funds for spending within western Sydney electorates and use the remainder to pay off government debts”.

Premier Gladys Berejiklian, the Treasurer Dominic Perrottet and the Minister for Western Sydney looked determinedly confident last Monday as they strode across the Western Sydney Parklands to the Covid media conference. 

Western Sydney has been doing it tough during three months of Covid hard lockdown. Residents have flocked to get vaccinated against COVID but many feel frustrated, fearful and discriminated against compared to the rest of Sydney. Political commentators are already predicting that there could be an electoral price to pay in Western Sydney. 

Treasurer Perrotet’s purpose in attending the conference was to deliver exciting news. “There are now five billion reasons why life is going to get better,” he crowed. The $5 reasons were 5 billion dollars in a new WestInvest fund. 

For those not familiar with NSW politics, Westconnex, a 33 kilometre toll road system, is the biggest infrastructure project in the history of Australia. In late 2011, the newly elected NSW LNP government invited big construction companies to help plan it. A decade later, Westconnex is now wholly owned by Sydney Transport Partners, a partnership between tollway giant Transurban and several superannuation and investment funds.

The transaction happened faster than anticipated. In 2018, NSW Treasury negotiated to sell 51 % of WestConnex to Transurban and partners for $9.3 billion. This left 49% in public ownership. Before the 2019 election, the NSW government promised not to privatise more assets but that changed in November last year when the Berejiklian government announced it would sell the remaining 49% of the tollway network that it still owned.

The transaction was planned in two stages but when the only other bidder dropped off, Transurban and its partners ended up with the lot. This means Transurban, which is a big political donor to both major parties, now owns 11 of 12 tollways in Sydney.

Neither tolls nor privatisation are popular in NSW so the final sale of WestConnex was not necessarily a ‘good news’ story. Sydney Transport Partners consortium of Transurban, Australian Super, the Abu Dhabi Investment Authority and two Canadian funds wouldn’t be buying Westconnex if they weren’t confident that charging Sydney motorists tolls will deliver healthy long term profits during the life of the concession. Under the terms of the deal they can raise the tolls annually by whichever is greater – the CPI rate of inflation or 4% – until 2040, and then at the CPI rate until 2060. But for this to happen, the NSW public will pay heavily. 

The burden of the tolls is borne in Western Sydney by workers who are truck drivers or need to drive to work. Scores of submissions to a current NSW tolls inquiry tell stories of resentment from truck drivers who are being driven out of business by rising costs, communities experiencing more congestion due to toll avoidance, and serious hardship among low income earners who get behind in toll payments.

So the NSW Treasurer had a bright idea. By linking the sale of WestConnex to a new fund for Western Sydney, he could deflect the debate away from the tolls. If he made the announcement at a COVID media conference, the focus of questions would not be on the financial details of the sale. He relied (correctly as it happened) on reporters taking on board the key message and duly reporting it.

The trouble is that it is simply not true that WestInvest would be funded out of the $11.1 billion that Transurban has paid for 49% of WestConnex. Indeed, it’s not clear where the $5 billion WestInvest fund will come from, whether it will be for new or existing projects, how it will be allocated, or which Minister will ultimately be responsible for ‘signing off’ on distributions.

Anyone who had been following the sale of WestConnex would have known that the Treasurer Dominic Perrottet could not simply declare that proceeds of the WestConnex sale would be transferred to a new WestInvest fund. In fact, by law it must be paid into the New Generations Fund (NGF), earmarked to pay down government debt.

In 2018, the NSW government set up the NGF, the express purpose of which is to pay off state debt. At the time, NSW’s debt was only $35 billion but in this financial year that has blown out to $117 billion and in the current crisis is likely to grow further.

One of those who has been following the NGF is the AFR’s Chris Joye. He, along with other AFR journalists and this publication, had exposed how Perrotet rather than repaying debt had adopted the risky strategy of gambling the fund on Australian and global shares, private equity, hedge funds and junk bonds. This turned into a small scandal. As Joye put it: “There’s a fine line between fearless innovator and fiscal cowboy and I think Dominic Perrottet just crossed it. The NSW Treasurer is using the state’s credit rating to borrow more than $10 billion to play in risky financial markets through the NSW Generations Fund.” 

Being caned by financial journalists and credit agencies must have been very uncomfortable for Perrottet, who is on the conservative side of NSW politics and hoping to be the next Premier of NSW. Having managed to slide out of the ICARE fiasco, the last thing he wants is more scandal. 

But on the day the Westconnex sale was announced, Joye was full of praise for Perrottet and his “remarkable decision to repay $11 billion of taxpayer debt at a time when the state had been racking up record budget deficits and more than $100 billion in debt due to the impact of the one-in-100-year pandemic”. Joye reported that while technically the $11bn will be placed in the Debt Retirement Fund, Perrottet had declared “it would be “used to retire an equivalent amount of debt”. He explained that although Perrotet had “concurrently announced a $5 billion commitment to building infrastructure in Sydney’s west” that would be “netted off” against the $11 billion, NSW TCorp [Treasury Corporation] had confirmed that the $5 billion fund “was entirely independent of” the sale of WestConnex.  

Unfortunately no one conveyed this information to AFR reporter Jennifer Hewett who like the rest of the media reported that “$5 billion of the proceeds [of the $11.1 billion] will go into new amenities such as parks and playgrounds and pools for Western Sydney”.

Treasury Secretary Michael Pratt also knew that Westconnex would not fund WestInvest.  Under questioning about NGF transactions on August 20, he told a Budget Estimates inquiry that if the government was successful in selling the second tranche of Westconnex, the proceeds “will go into” the NGF fund. 

The Treasurer’s media staff were also aware that there was no direct relationship between WestConnex and WestInvest. Two different media releases were issued, one for the sale and one for the new fund. They were handled by two different people and neither mentioned the other. Money had also been spent on 30 second promotional videos in four different languages advertising the brand WestInvest with images of happy families in parks. WestConnex was not mentioned.

What do we know about WestInvest?

NSW Treasurer’s media release revealed only the broadest details of WestInvest. The fund is for “parks, urban spaces and green space;  Enhancing community infrastructure such as local sporting grounds;  Modernising local schools;  Creating and enhancing arts and cultural facilities;  Revitalising high-streets;  Clearing local traffic.” The $5 billion would be divided into two funds, a $3 billion fund for Western Sydney and $2 billion to be focussed on LGAs that as “areas of concern” have been subject to the harshest lockdown measures.

Three days after the announcement, a NSW Upper House Inquiry into the government’s management of COVID provided NSW Labor and the NSW Greens with an opportunity to find out more about what Perrottet and Berejiklian had touted as a major step in the NSW recovery plan. Two of NSW Treasury’s most senior officials, the NSW Economist Stephen Walters and the Deputy Secretary for Strategy and Productivity Joann Wilkie, appeared as witnesses. 

Labor Shadow Treasurer Daniel Mookhey was the first to ask questions about the fund which he described as bigger than the entire amount the government had put into JobSaver. Had modelling been done to show how many jobs WestInvest would create? When would the first projects be funded and when would they end? In other words, what will be the time span of the fund? The answer was that until projects were decided this information would not be known. It soon became clear that the only information that Watkins and Wilkie had brought with them was the media release.

One would expect that the Deputy Secretary of Strategy would be engaged in the strategy for COVID recovery but Wilkie explained that WestInvest was not her responsibility but would be handled by the Expenditure Review Committee. She acknowledged that she is consulted on economic recovery matters but declined to tell the Committee if Treasury had recommended WestInvest because the information is “cabinet in confidence”. 

Mookhey then directly asked why the Treasurer had made reference to distribution from the NGF, which he found surprising because legislation does not allow it “to be used for this purpose; it only allows it to be used for debt clearance”. His question: “Is this just money that is already in the budget that has just been given a new brand name or is it actually new money? Wilkie took that question “on notice” which means that the government should provide some sort of answer in three weeks.

Greens MP Abigail Boyd persisted with the same issue. She already knew that the proceeds of Westconnex would go into the NGF because in response to a question from her at an earlier Budget Estimates hearing, the Treasury Secretary Michael Pratt had confirmed it. 

After more questions it became clear that the Treasury officials did not know whether the fund would even have its own legal entity or which NSW Minister would be responsible for signing off on either the $2 billion fund for LGAs in Western Sydney or the more general $3 billion fund. 

As Boyd put it: “We do not even know really where this money is coming from. Is this more of just a communications release and a thought bubble than an actual fund?”

“You cannot just rebadge existing payments or existing investments and pretend it is a stimulus package. For a stimulus package to be real, it has to be new money, does it not?” Committee Chair Greens David Shoebridge asked the Chief Economist Stephen Walters. Walters did not agree with Shoebridge, explaining that if funds were “coming off spending that had been allocated to a low multiplier project, for example, or a purpose and it is put to a higher multiplier purpose, then the same money allocated to a higher multiplier would have a stimulatory effect”. So it seems indeed that it’s possible that part of the $5 billion could be reallocated old money.

Three days after Monday’s COVID press conference, we had come a long way from $5 billion of the proceeds of WestConnex being used to make life in Western Sydney much better and brighter than the last few months.

There are also questions about the $2 billion fund that Perrottet promoted as going to LGAs that have been locked down more harshly as ‘areas of concern’. Surprisingly, two LGAs – Georges River and Bayside in South and Southwest Sydney – that have been ‘areas of concern’ are not on the list. Opposition leader Chris Minns seat is in Georges River. The Hills and Hawkesbury in North West Sydney are on the list although they are not areas of concern. These anomalies raised the spectre of whether the fund could provide more opportunities for pork barrelling in the lead up to the state election in 2023. 

Perrottet has previously said that he has been in talks with the private sector about the economic recovery package for NSW. No doubt this includes the Property Council of Australia. The Council has already prepared a list of infrastructure projects it wants funded as part of the recovery.  It released its list on September 21, the day after the media conference. This includes a number of controversial projects in Sydney’s North West including the Castlereagh Motorway, the completion of a flood plain study so that the development of the plain on Sydney’s North West fringe can proceed, a transport route from Liverpool to Badgery’s Creek and the possibility of raising the Warragamba Dam wall. 

Was $11.1 billion a good deal for the NSW taxpayer?

The NSW government public relations strategy succeeded in deflecting attention from the privatisation. We have previously argued that the Westconnex privatisation is not a good deal for NSW. So how is it looking now?

The NSW government has received a total of $20.4 billion for WestConnex – from now on there will be no returns to the government and the public will pay the tolls until 2060.

The initial 51% was sold for $9.6 billion but about half of that went towards the Stage 3 M4/M5 which is still under construction. The rest seeded the Next Generations Fund.  

Perrottet said last week that the $11.1 billion sale price for the second tranche was well above the reserve price. But the financial press had predicted that the sale price would be $12 billion or more. The reserve price is not public because the baseline business case for WestConnex is a secret. When you only have one bidder, you are in a weak position.

It is far more likely that rather than being a good deal for NSW, the government has nowhere near covered its cost. 

A 2015 figure of a total cost $16.8 billion keeps getting repeated as if time has stood still. This was already $6 billion more than originally predicted. When the $16.8 billion was reached, further cost rises were politically unpalatable. The government stopped counting the actual costs years ago. 

The $16.8 billion originally included the Sydney Gateway, a motorway out of Sydney airport that was part of the original justification of Westconnex. When it became clear that it would cause a further blowout to Stage 2, it was dropped out of the project. In 2018, it was announced that the government would pay $2.6 billion to build the Gateway. This year’s budget included $2.1 billion over four years for the Sydney Gateway. The government is also responsible for paying for the delivery of the highly complex WestConnex underground Rozelle Interchange. No one knows what the final cost will be but the NSW government will pay penalties to Sydney Transport Partners if it is not finished by late 2023.

As well, the NSW government bundled three publicly owned motorways into the sale: the M4 (between Parramatta and Homebush), the M5 East and the M5 Southwest (from 2026). Together, Credit Suisse valued these public assets at A$9.2 billion.  Compensation for tolls paid on the M5 West and discounted registration fees for those paying tolls have been introduced to allay political opposition to tolls and must also be paid for by the taxpayer. The public is also paying for necessary development of roads around every part of WestConnex.

In 2018, a story in Michael West Media estimated that $23 billion worth of cash, public assets, enabling works and incentives had been transferred to Sydney Transport Partners when they bought WestConnex. Given the lack of transparency, we do not know the exact sum. 

None of this takes into account the property, social and environmental costs that have been borne by communities from Kingsgrove to Rozelle and Granville for more than seven years. At St Peters interchange for example, CPB contractors have left behind a massively contaminated wasteland rather than the lush parkland of the early promotional videos. 

As the NSW Parliamentary Committee into the Impacts of Westconnex found the current funding model for infrastructure projects was inadequate and that business cases include actual costs to the community. What we have with Westconnex is artificial tallies based on construction costs and benefits pushed by consultants with an interest in the project.

This week, more stories highlighting the pain of tolls have emerged from another Parliamentary Inquiry into tolling regimes. Big trucking company Toll recommended that its trucks avoid tollroads where the benefits are not clear. But late this week, there is more diversionary spin. Channel Nine reports that the NSW government has announced 19 new bridges at the St Peters Interchange and five kilometres of motorway which will cost $2 billion. 

Is this the same Sydney Gateway project that was first announced 7 years ago and announced again in 2018? Is this old money spun into another upbeat announcement or has the $2 billion project morphed into an even bigger project to feed traffic into Westconnex? Unbelievably, the same old PR line of drivers saving 40 minutes from Parramatta to the airport, as has been constantly used since 2012, has been recycled again. 

The question is not how the profits from the sale of WestConnex will be used but rather how much WestConnex will cost the public now and in the future. Meanwhile we hope that while the Inner West continues to get carved up by Westconnex, Western Sydney will get some new useful publicly funded projects out of WestInvest (from whatever source they come) but look out for more construction job churn that suits the agenda of big donors such as Transurban and the big property development lobby rather than the longer term vision that one might hope for from a Next Generations Fund. 





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