Augmentation - Sydney Metro City and Southwest
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| The draft PPP contract issued with the RFT included a short clause that provided a framework under which future extensions of the network (referred to in the contract as 'augmentations') could be discussed and potentially agreed by the parties.20 When the Baird Government announced that the future extension south of Chatswood, under Sydney Harbour, through the CBD and on to Bankstown21 would proceed earlier than originally planned if the Government secured a mandate at the March 2015 election to privatise its electricity distribution assets, TfNSW and NRT negotiated a more detailed regime by which the parties could work together on the project definition, planning, development and delivery of this augmentation.22 |
The regime does detail a number of principles that the parties intended would be incorporated into any final agreement, such as an obligation on NRT to competitively tender all components of its scope of work other than agreed 'non-contestable components' (i.e. supply of trains, supply of signalling and train control systems (CBTC) and operation and maintenance services), but the parties are free to depart from these.
The regime includes fixed prices (subject to escalation and adjustment for specified events) for the supply of additional trains, and for the supply of CBTC systems for trains and stations, provided TfNSW orders them before a specified date. It also includes an 'O&M target price' for the operation and maintenance for the augmentation which was prepared based on a list of assumptions regarding the augmentation. The intention is that this O&M target price will form a benchmark (or starting point) from which an O&M price can be negotiated and agreed.
Whilst 58 pages are dedicated to this more detailed regime, it fundamentally remains an agreement to negotiate. If the parties can't reach agreement on the terms on which NRT will be involved in the design, construction, operation and/or maintenance of the augmentation, TfNSW cannot force NRT to participate.
If TfNSW forms the view that it is unlikely that the parties will reach agreement on the terms of the augmentation, TfNSW can exercise its right to terminate the PPP contract for its convenience,23 in which event TfNSW must pay an early termination payment that enables the NRT to prepay its debt (including hedge break costs and the like); fully compensate its Operator for early termination of the O&M contract (including profits foregone); and give its equity investors the return expected to receive on their equity investment when the PPP contract was signed.24
TfNSW also has the right to take control of NRT by purchasing all of the equity in NRT in certain circumstances if the terms of the augmentation are not agreed.
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20 See clause 33.
21 The extension is now known as the Sydney Metro City and Southwest project.
22 This more detailed augmentation regime is contained in Schedule 46 of the PPP contract.
23 NWRL OTS Project Deed, Schedule 46, clause 20.
24 NWRL OTS Project Deed, Schedule 31, clause 4.