An all party committee has slammed the Sydney Cross-City tunnel PPP project, and particularly the payment of an up-front fee. By coincidence, I’ll be on Four Corners tomorrow night, saying exactly the same thing.
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John Quiggin 
The up front fees sound particularly inexcusable.
Dear John
I think we will see a repeat of what has happened in Sydney when Brisbane Lord Mayor Campbell Newman’s pet PPP projects get under way, especially the North-South tunnel and the Hale Street-West End bridge. It amazes me that anyone still believes that these secretive, undemocratic and financially irresponsible deals should be going ahead.
When will we have an end to ‘commercial-in-confidence’ clauses that contain agreements to hold back improvements in public transport to enable the consortiums to make money from ‘motorists’ (that is a religious cult)?
The investment of these huge sums is inappropriate at a time when we know that huge road systems fragment communities and suburbs and oil prices are climbing.
So Bob Carr is now a consultant for Macquarie Bank. He is obviously not troubled by conflicts of interest, although he should be.
Regards
Willy Bach
As well as the ‘dodgy deal’ aspect, these projects are also problematic in that they are giving a bad name to road tolls. Tolling is a very pure economic solution to road congestion, particular as technology has reduced the transactions costs. One suspects, however, that in the public’s mind PPPs and the mess they have created is often equated with tolls. Given recent developments in Sydney, it woud be a brave Premier indeed who followed Red Ken’s lead on this matter .
Worse, the existing set of contracts probably preclude rational road pricing for decades to come.
For the non-sydneysiders amongst us, can we get the greatest hits bullet point summary of the cross-city tunnel fiasco? As a melburnian, I msut say that overall our citylink appears to have worked out OK (except for the tax scams, which are shared with all Australians).
Sounds like Four Corners might be the go, Wilful.
Well done John. Two great points, one followed by a rather too severe cutaway. Beard is looking very healthy.
Not a bad coverage of the issues, although finally too soft for mine in the sense that Tony Harris’ point about the term ‘partnership’ being complete crap was not at all driven home by Ticky; and there should have been a minute or two more at least given to the growth of non-tollway contracting. The smarmy Cooper’s spin-dude could have gone to the cutting room floor.
Best moment? Nick Greiner going over the top in saying that the toll that the deals also place on further city planning was a complete and utter nonesense, only to be immediately flatly contradicted by everybody at the coal face straight afterwards. Priceless.
Wilful, Melbournians smarter than Sydney-siders even if we don’t have great beaches, CityLink not great but Mitcham-Scoresby a reasonable deal.
I think boundary issues around a priced road are standard road economics and the 4 corners program didn’t attempt to exposit the economics. Just the leftist anti-business line ‘why should we pay’. Its crap – not the issue.
On the other hand I agree 100% with John Q. Better run this as a public operation after outsourcing the construction etc.
Well done John Q. Its good to see an academically-gifted economist such as yourself speaking knowledgeably on important public policy issues like this.
Here’s the Four Corners Transcript.
Four Corners did a pretty good job of informing us.
None of these road deals would work unless our government gave the tollway companies free use of the huge amounts of land that these facilities occupy. This includes the compensation of people whose homes and businesses are compulsorily resumed. A question of public assets for private profit.
Governments in bed with business are breeding grounds for corruption and conflicts of interest. Just ask all those retired NSW Premiers what they think they are doing with all that inside knowledge.
As John says, there is a costly lost opportunity to price congestion decades into the future.
I think toll roads are in principle a fine idea, I don’t see why I should have to pay for something I don’t want. However, the obscene monopoly profits that are granted to construciton companies need to be seriously reconsidered. VicRoads had an excellent reputation for managing large engineering projects – they could have tendered out all of the constuction of CityLink for less than $2bn, and whacked a toll on the road for 30 years or so a a much lower rate than Transurban did, and without the scandalous tax breaks that drove the private investment. Victoria would ahve gotten a first calss road at a much lower total cost, and withou the stupid distortions of a private tolling system and road closures etc. Sheer bloody-minded ideology, the sort of thing our Department of Treachery and Finess is noted for.
We know that for optimality, access to the tunnel should be priced at marginal cost. But I wonder if the price charged by the monopolist here is greater than its profit-maxising level. I don’t know if there is any degree of off-peak pricing operating in practice but surely price-discrimination efficiency suggests some at least is desirable from the viewpoint of the consortium’s self-interest. Maybe higher than would be socially optimal but some at least.
Note that this too would smoothe the ‘rat-running’ byproduct distortions that occur mainly during peak periods.
I will repeat what I said at the very distinguished Harry Clarke’s blog on this issue.
What really gets up my goat is that the owner even if incompetent cannot go broke. The government merely gives them more money.
give me Red Ken any day
I thought it was a bit light really. The upfront payment factoid was interesting, as was the stuff from the former NSW auditor (whose name I’ve shamefully forgotten). The one tollway in NSW that does work and is a good deal for government and public, the M7, wasn’t analysed in any depth. That would tend to throw up an issue of bias. Even if you still think it was a bad deal, it would also have been an instructive example, for it’s a state-of-the-art contract that will deliver vast benefits for western Sydney and which doesn’t, as the other tollroads do, exclude alternative transport corridors being developed.
It seems that none of this happens until a bit of standard labour party financial incompetence is applied (labour has never yet failed to bankrupt anything they touch). Some bright spark whose previous financial credentials were limited to standing over blue collar workers to extract union dues applies his financial skills to the state treasury, a few years & no money is left, however the demands for infrastructure/health care etc are ongoing.
One of the few options is to enter into a PPS.
[…] Robert John Carr, someone I once had glowing respect for, who negotiated the toll-road and tunnel PPP contracts, allowed public healthcare to slip to maddening if not threatening levels of paucity and failed to […]
Pr Q says:
I guess that means zero price for suburban freeways and congestion pricing for urban centres.
Comment by steve at the pub — 23/2/2006 @ 2:21 am
I think the LN/P would be even worse. Greiner was a with-it corporated-up LN/P politician the very opposite of a dopey union organiser and mediocre party hacks allegedly found in the ALP (Keating?). He pioneered BOOT schemes to finance public infrastructure, which offer an even worse deal to the public.
If these schemes were in place a half-century ago the Sydney Harbour Bridge and Snowy Mountains Hydro would never have been built.
Voters should be wary of snappily dressed spivs touting get-rich quick schemes. More often than not they will be fronting for the likes of Maquarie Bank.
[…] Labor obviously hasn’t learnt a thing from the sale of Telstra, the failure of the Cross City Tunnel, the rapidly failing Lane Cove Tunnel nor the most obvious example, the failed privatisations of […]