Thank you for your letter dated 5 May 2006 attaching a draft of the Auditor-General's proposed Report concerning the Cross City Tunnel project. This letter constitutes RTA's submission for inclusion in the Report pursuant to Section 38C of the Public Finance and Audit Act 1983.
The RTA will ensure that the findings in the draft Report are carefully reviewed in its planning for and delivery of future Motorway projects. In particular, the RTA will carefully review the recommendations set out in the draft Report in light of existing Government policy and in particular the recommendations of the Motorways Review undertaken on behalf of the NSW Government by David Richmond, AO.
The RTA notes that the Performance Audit did not extend to a full review of the RTA's involvement in the Cross City Tunnel project. In delivering this project the RTA paid careful regard to previous reports and recommendations of Auditors-General relating to other Motorway projects, as well as to ensuring regular communication with your office during the negotiation and finalisation of the project. The RTA was pleased to see recognition of this fact in the draft Report.
The RTA will continue to strengthen its processes associated with the development and delivery of privately financed projects.
The RTA would also emphasise that in delivering the Cross City Tunnel project as a whole it ensured that it acted within the parameters of then Government policy, including the Treasury's "Working with Government: Guidelines for Privately Financed Projects", that its tender process was thorough and transparent and that it obtained key Cabinet, planning and other statutory approvals for all aspects of the transaction.
The draft Report focuses on three key aspects of the Cross City Tunnel Project, namely: the requirement for an upfront payment, the December 2004 Amending Deed and the surface road changes introduced as part of the project.
The RTA has reviewed the Audit opinion and findings and notes in particular that the Audit Office has reached positive conclusions in relation to the RTA's role in project development and contract administration including the management of project variations.
The RTA also takes this opportunity to register three significant facts that:
• There is no financial exposure to the tax payer associated with levels of patronage. That is, the taxpayer has not accepted the 'patronage risk' associated with this project;
• The CCT will be in public ownership in less than 30 years time - again achieved at no net cost to Government; and
• As a result of the project there are now more than 30,000 fewer cars on Sydney City roads causing city congestion. In years ahead this number will continue to rise.
The RTA notes that the Audit Office has raised concerns in relation to the extent to which the implications of an upfront payment were appropriately considered by Government, the toll escalation regime, the veracity of patronage projections for the project, the transparency associated with the execution of the Amending Deed and the extent to which the surface road changes were understood by road users. While the RTA does not propose to respond formally to each of these matters individually, it would make the following points:
1. RTA obtained appropriate approval to the inclusion of a toll escalation regime;
2. RTA gave appropriate consideration to the expenditure of its own capital budget in connection with cost increases associated with the Cross City Tunnel Project. Evidence from the former Premier and Treasurer to the Joint Select Committee Inquiry into the Cross City Tunnel made it clear that it was not a course open to the RTA. Further, the Treasurer approved both the initial transaction and also the Amending Deed without any requirement that the RTA expend funds from its own Budget;
3. The RTA does not accept criticisms in the Report that the differences in patronage projections between the RTA, CCM and the other bidders were such that more rigorous testing of them should have taken place. The RTA's evaluation of tenders thoroughly examined the patronage analysis put forward by CCM and other bidders and the RTA notes that CCM's bid was supported by expert traffic modelling advice as well as detailed traffic studies. The figures shown in the draft Report themselves indicate that the RTA's patronage forecast, and that of another bidder, were both within 10% of CCM's patronage forecast for the main tunnel in 2006. This figure is well within any shortfall in traffic volume that may have been necessary to put the validity of CCM's proposal at risk;
4. RTA notes comments in the report in respect of patronage predictions. The comparisons of estimated actual patronage compared to CCM's projections do not adequately recognise the impacts of motorway ramp up for Cross City Tunnel. It is likely that the Cross City Tunnel ramp up period will be in the order of 2 or 3 years and the appropriate time to make a comparison of actual versus projected traffic is after ramp up when equilibrium traffic has been achieved. We also note that your report recognises the issues relating to ramp up and includes an opinion that Cross City Tunnel is not experiencing a standard ramp up;
5. The RTA queries the validity of the 'intergenerational equity' argument put by the report. To be a valid point it must assume that tunnel users will cease to be tunnel users after that period of time which defines a generation. Given that a substantial majority of motorists are active drivers for more than 30 years this 'intergenerational equity distortion' referred to in the report is overstated. It needs also to be appreciated that private sector delivery of the project enables its benefits to be provided decades earlier than may have otherwise been the case.
The RTA also reiterates that in each case it ensured that it carefully consulted with the key government agencies to ensure that all applicable guidelines and policies were met.
(signed)
Brett Skinner
Acting Chief Executive
Dated: 23 May 2006