In our opinion the Government's 'no net cost to government' requirement was a legitimate (but not the only possible) basis for the tunnel bid process. The Government was entitled to decide that tunnel users meet the tunnel costs.
Structuring the bid process on the basis of an upfront reimbursement of costs incurred (or to be incurred) by the Roads and Traffic Authority (RTA) was therefore appropriate.
Whether these costs should have included 'public domain' costs not relating directly to the tunnel (and hence passing those costs on to tunnel users) was a decision the Government was entitled to make. A core and common role of government is to redistribute income between different groups in the community.
In our opinion, however, the Government, Treasury and the RTA did not sufficiently consider the implications of an upfront payment involving more than simple project cost reimbursement (i.e. the 'Business Consideration Fee' component).
While the RTA may have genuinely believed it was in the public interest to 'capture' some of the proponent's 'surplus' through the Business Consideration Fee, no real thought was given to:
■ foregoing the fee to reduce the toll charges on tunnel users, or
■ how this amount was to be used (e.g. retained by the RTA for use on other roadworks or used by Treasury for allocation to other areas of government).
In one sense this issue ultimately became academic. The RTA's project-related costs will eventually absorb all of the upfront payment, once all claims are settled. No Business Consideration Fee will remain.
However, the principle of requiring a Business Consideration Fee remains an issue to be resolved.
In our opinion such a fee would need strong justification where:
■ the cost of it is met, in effect, by people not party to the contract (in this case the tunnel users), or
■ it achieves a current benefit to be paid for by future tunnel users (i.e. it distorts inter-generational equity).
In our opinion the RTA was wrong to change the toll escalation factor late in 2002 to compensate the tunnel operator, CCM, for additional costs.
This action distorts inter-generational equity between tunnel users. If it was appropriate for tunnel users to fund these costs, this should have been done by changing the base tolls. Escalation factors should do no more than reflect underlying cost movements or inflation.
In our opinion the variations in the amending deed were reasonable.
The net present value of the 15 cents toll increase accurately reflected the $35 million incurred by CCM in doing the extra work required after the signing of the original contract. But it made an already expensive toll even more expensive. By 2018, the toll will be about 35 per cent higher than it would have been due to this increase and the change to the escalation formula.
The handling of the amending deed also lacked transparency:
■ it was not made public until late 2005
■ no clear breakdown of the costs has been made available publicly, even to date
■ it was done without full probity assurance.
A widely held view is that the road changes were not necessary, but were introduced to force motorists into the tunnel to profit the tunnel operator.
When the project was put to tender, only limited road changes were specified. All bids were made on this basis.
In our opinion the RTA and the Department of Planning (DoP) communications and community consultation over road changes were sound at the detailed level but not effective in conveying the overall impact of the package of changes. We cannot say that the road changes were robustly assessed, either collectively or on a road-by-road basis.
Consultation with stakeholders about the road changes failed to clarify the cumulative impact of the changes, especially in eastern Sydney. It was not inclusive enough to capture the significant resentment the changes caused. Any loss of patronage from this resentment will further hinder the tunnel's main objective of reducing traffic in the City.
In our opinion the concept behind the road changes was to implement long-standing Government planning objectives to reduce congestion in and around Central Sydney, and to improve public transport routes and urban amenity.
The initial strategy was to make car travel on surface roads 'unattractive' and could therefore be described as 'funnelling' traffic into the tunnel. But the motivation was primarily to clear up the congestion on surface roads rather than to make the tunnel profitable. The financial viability of the tunnel, and the RTA's interpretation of 'no net cost to government', did however influence some important planning decisions.
Maintaining direct toll-free alternative routes was a key principle in the DoP Director-General's requirements, but was lost as the project developed.