inadequate infrastructure by govt

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    Ports, rail undercut by tollways
    Ean Higgins and Glenda Korporaal
    October 15, 2005

    AUSTRALIA'S ports, railways and water systems have been starved of funds because state governments have been lured into dubious private sector toll-road deals that often swallow hundreds of millions of dollars in taxpayer subsidies.

    Leading economists and transport consultants said yesterday that state governments were under increasing pressure from private companies to embark on toll-road projects, and often received lucrative upfront fees from investors keen to secure highly profitable deals.

    But those fees were usually recouped by the private investor through years of secret taxpayer-funded subsidies to ensure the toll road operated at a profit for the private party.

    The terms of the toll-road contracts, signed by state governments reluctant to run budget deficits, were almost always more favourable to the private investor and had skewed national investment in infrastructure away from other vital projects.

    Debate over private funding of public infrastructure projects was triggered when details emerged of sweeteners in the NSW Government's contracts with two consortiums building road tunnels in Sydney, in turn forcing a critical examination of similar projects around the country.

    Business Council of Australia member Rod Pearse, who chaired a BCA taskforce on infrastructure, said it was fair to ask whether the money devoted to toll roads and tunnels could have been better spent elsewhere.

    "It is essential for governments to decide exactly what they can reasonably afford, and weigh up the public and private benefits and costs," Mr Pearse said.

    His taskforce had identified a $300 billion list of roads, rail, energy generation and water infrastructure in need of "de-bottlenecking" to allow the economy to continue to grow.

    All states and territories, and the commonwealth, should adopt a co-ordinated stocktake of the nation's real infrastructure needs, said Mr Pearse, chief executive of building materials group Boral. "We have had growing pains, and responsibility for these matters is fragmented."

    In February, Reserve Bank governor Ian Macfarlane urged the Howard Government to encourage a new wave of investment around the country to remove a suite of bottlenecks in the economy, from ports to electricity production. His comments came after a campaign by The Australian.

    John Howard followed up in March, appointing Sydney Airports chief Max Moore-Wilton, economist Henry Ergas and resources bureaucrat Brian Fisher to conduct a review of bottlenecks. The panel reported in June, finding that without significant reform to the nation's infrastructure, Australia's export potential over the next five to 10 years risked being compromised.

    The NSW Government is facing the public blowtorch over the $1.1 billion Lane Cove tunnel on Sydney's north shore, which will have a $2.50 toll when it opens in 2007, and the recently completed $680 million Cross City Tunnel, which has perilously few customers paying its $3.56 toll.

    The contracts contain a series of clauses in which the state Government ensures the profitability of the project, including closing or restricting competing roads to drive traffic on to the toll roads.

    Rod Sims, director of Port Jackson Partners and a commissioner on the National Competition Council, said there were, in principle, "clear advantages in public-private sector partnerships". "But the question is whether governments are getting too greedy. You should not be closing off a lot of streets to sweeten the deal and get more money out of it."

    The winning consortium for the Cross City Tunnel, headed by Asia's richest man, Li Ka-shing, is understood to have offered the NSW Roads and Transport Authority as much as $40 million more than its rivals as an upfront fee. With the full details of the contract still to be released, how much this bumped up the price for travelling through the tunnel is unclear.

    The upfront fee the consortium paid - $105 million - is to be investigated by NSW Auditor-General Bob Sendt as part of his review of the Cross City Tunnel project contract.

    Former NSW auditor-general and economist Tony Harris said NSW could have afforded to fund all the private tollways in Sydney by imposing its own, modest 50c fee for usage, had it been willing to halve its $13 billion debt over the past 10 years rather than eliminating it altogether.

    "Road networks are a public asset and we shouldn't be parcelling them off to the private sector," he said. "Because the state is not paying for these roads - the motorist is - and the Government is in a position to make them profitable by closing roads, there may be less scrutiny of their value compared to traditional infrastructure projects such as rail and ports."

    He said toll roads were often inordinately profitable for the operator, with one enjoying a 20-fold profit. Although the arrangements had since changed, investors in some tax-favoured infrastructure investment bonds promoted by Macquarie Bank had doubled their money each year, he said.

    Brendan Gleeson, director of the Urban Research Program at Griffith University, criticised public-private sector projects for allowing private operators high profits while committing governments to step in if they failed.

    "There are enormous financial gains for the private sector from these projects, particularly given that the government always seems to have to wear the risk," he said.

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