The Treasury department's handling of Transurban Group's biggest motorway project, Melbourne's $6.7 billion West Gate Tunnel, has been publicly criticised by auditor-general Andrew Greaves who has called the market-led proposal “poor value for money”.
The audit found there was competition in the market to deliver the city shaping project, but the Department of Treasury and Finance told the government the Transurban proposal was “unique” based on funding source and security.
The new tollway project, which links the West Gate Freeway in Spotswood with CityLink in Docklands via a six-lane tunnel under Yarraville, arose from an “unsolicited proposal” by Transurban, which is paying for the bulk of the $6.7 billion project.
The Andrews government has committed $2.7 billion to build the new tollway while Transurban has supplied $4 billion.
According to the auditor-general, the tollroad group's bid remained in stage two of the government’s market-led proposal process for more than a year.
But the auditor-general’s report also reveals it rapidly progressed from stage one to stage three in the space of one month, forgoing alternative options, handing Transurban a competitive advantage.
Greaves found that Treasury found that Transurban's bid was unique, due to the company's ability to raise a large amount of funds by escalating tolls every year.
“Transurban could not have secured or delivered the funding sources ... without direct government policy decisions and parliamentary support,” the report said.
Transurban will now undertake an extra 10 years of toll revenue on CityLink through its new venture.
The auditor-general argued that the funds supplied for the project could have been raised through other means, such as taxes, borrowing money or the state government taking on the task of CityLink tolling or opening it up to a competitive process.
“To be commercially viable, the Transurban proposal needed revenue to flow from four sources—an upfront payment from the government, tolling revenue on the new tunnel, additional increases to tolls from its existing CityLink concession and an extension of that concession,” the report said.
“The West Gate Tunnel business case showed a marginal value proposition for the project on its own and lacked transparency regarding the sensitivity of the benefit-cost ratio.”
“The business case was not sufficiently comprehensive and so undermined one of its key purposes – to provide confidence to decision-makers that they are selecting the right investment option.”
The project is currently facing potential cost blowouts after the discovery of contaminated soil at the site in Melbourne's industrial west.
The state government, joint-venture builders CPB Contractors and John Holland, and Transurban have suspended work on the tunnel which is set to open by 2022.
As of August, Transurban's annual net profits fell 63 per cent to $170 million, mostly due to $295 million of stamp duty and integration costs associated with the WestConnex acquisition in Sydney, higher finance costs and a lower income tax benefit.