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Here's a potted history of the project
In 1998 when Carr and his treasurer Michael Egan declared they were going to build a tunnel under Sydney's CBD, Scully was given the task of delivering it. Like Macquarie, the government refused to fund it.So Scully went to the private sector in a way that would set up a new model for PPPs one he still believes is the only sound way to protect taxpayers from financial risk. But there was a price.
In exchange, roads were closed and cars funnelled into the tunnel.
Isn't it amazing how often the name "Carl Scully" comes up associated with some disaster or other? The above history has omitted one important detail -- the road closures were kept secret from the NSW public until after the deal had been signed and the tunnel was built. So, in effect, the people who had already paid for the surface roads with their taxes were not consulted on the matter when Carl Scully came up with the idea of taking those roads away and forcing people to pay all over again.
Needless to say, the residents of NSW were unimpressed with this sort of treatment in what is supposed to be a democratic country.
The tunnel operators made it worse for themselves by charging one of the largest road tolls for any road in the state -- even when the distance covered is not as large as (for example) the M5.
When it comes to what went wrong, the secrecy aspect also gets omitted
Researcher Judy Johnston from the University of Technology Sydney found the deal with a private consortium was "dysfunctional" because of governance problems.In a report funded by the Australian Research Council, Ms Johnston said the tunnel's problems went beyond the financial difficulty caused by inaccurate original estimates projecting 90,000 daily users -- three times the actual amount of traffic.
According to Ms Johnston and co-author Siggi Gudergan, the tunnel contract was flawed because there was no sharing of risk. The Government was distracted by politics while the private company focused on the commercial concerns, leading to a breakdown of the partnership arrangement.
The government was not "distracted" by politics, the job of any democratic government is to listen to the will of the people -- i.e. politics. The government was doing its job -- the road closures were unpopular (and grossly unfair) so our government responded to this political pressure (as it should). The job of the private company is to be focused on the commercial concerns. How exactly does this constitute a "breakdown" ?
It is quite clear that the "breakdown" occured when the secret road closure deal became public as explained by the New South Wales Joint Select Committee
"The value for money to those paying for the project, that is, the tunnel users, was not adequately considered," the report stated. "it has resulted in significant cost to the community, through higher than anticipated tolls and added inconvenience for the users of local roads in the area between the East and West tunnel portals, leading to considerable frustration and anger and potentially leading to a political cost to government."The report also criticized the lack of public input into the project and for withholding a number of details from public discussion.
In other words, they thought they could pull a fast one and they got caught doing it.
A deal made in secret by those who are entrusted with the responsibility of government (where that deal betrays the public interest) must be seen as corrupt. This can only be cured by a strong commitment to transparency. Where there is secrecy, corruption will inevitably follow.
No one should feel sorry for the investors who are out of pocket here, they knew there was a risk. Every time people ask, "why do these private entrepreneurs get big rewards?" the answer comes back, "because they take big risks." So here we have an example of what big risk is all about.
So what about the people on the private side of the deal, the CEOs who are not gambling with their own money. Remember the "f-wit" Graham Mulligan who was tossed into the driver's seat after the dirty deal was done. Obviously, he was put there for the express purpose of waffling for 9 months and then taking the fall when the inevitable happened.
Here's some of his early waffle
Q. Wouldn't you agree though, that the original forecasts of 90,000 a day were unrealistic?A. 90,000 cars a day was never forecast from day one. Were five months into this 30-year contract and were tracking quite nicely.
Q. I mean you're a new chief executive. You've got the opportunity to come in and say well they werent my forecasts and they are unrealistic, but you've elected not to do that.
A. I've elected to join this project because I see its a great infrastructure project for one of the icon cities of the world and by going forward with this project the government of the day showed great vision. And if we get this project working exactly as designed, which we are getting there. It is in its ramp up period, were putting ourselves way ahead of London who is charging people a congestion tax.
Observation: Graham Mulligan never gives a clear answer to a question, he meanders around the point trying to give a general positive impression without actually making any specific commitment.
On the issue of risk to the taxpayers, he also fails to give a clear answer.
Q. And those critical action parts are if there are changes that actually affect the toll revenues of this contract, then you - as part of Cross City Motorways - could claim damages against the government?A. Well, again its a commercial contract. You can't award a contract to somebody after a competitive international bidding process, get them to take the risk and put all the money up and then unilaterally change it. It just can't happen.
Q. You were saying this very nicely, but I'm suppose what I'm asking you is, if there were changes that impacted the toll revenues, then Cross City Motorways would be coming back to the negotiating table saying this is only going to happen if you the government compensates us to the tune of potentially millions and millions of dollars?
A. Well, at this point in time with this contract, the taxpayer has no exposure and it has no risk in this project. Thats fully passed to the private sector.
Q. So if that changed then presumably Cross City Motorways would want some money back.
A. Well, you know in any commercial contract if you break it there's got to be some transfer of value.
So the taxpayer has no risk, except for "some transfer of value" which we won't call risk.
Does the taxpayer have any way to discover what the risk might be? Well not really because the revenue of the tunnel is "commercial in confidence", no one is allowed to know about the details of the deal so we have grey and fuzzy liabilities that don't get marked down on the government books.
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