Where is the revenue from WestConnex and the proposed F6 Extension going?

A recent article in the Sydney Morning Herald says they state's road agency will receive no benefit from leaked Government the traffic flow adjustments proposed in the F6 extension (the article is summarised below).

The business case for the F6 extension shows that the proposal will likely increase traffic and revenue for WestConnex- which the government is selling a majority stake of to private investments. Although the new owners of WestConnex will benefit the leaked document reveals that RMS has the ability to capture any additional value from the F6 Extension, however -this is limited by upside sharing regimes in the project deeds for WestConnex. Upside arrangements are generally intended to protect the government from private investors pocketing all of the windfall from profits from road toll roads when traffic volumes turn out to be much higher than forecast.
"The analysis indicates the revenue increase is not sufficient to trigger the upside-sharing regimes and therefore RMS would not receive any benefit from the uplift in patronage," the document states.
The business case was prepared by Roads and Maritime and obtained by the SHM. It advises that the government to consider options to "balance value creation" between WestConnex and tolls for the F6 Extension.
"Alternatively, the state should ensure that potential upside is otherwise captured through any sale of the WestConnex entities," it says.
The plans for the F6 extension mirror those of WestConnex. Tolls for the three sections of the F6 Extension range from about $3.50 to $3.80 – capped at just over $8. Annually they will rise at the inflation rate or 4 per cent (whichever is greater).
Martin Locke, an adjunct professor at Sydney University and a former investment banker and infrastructure adviser, said upside-sharing arrangements were designed to ensure the state gained a portion of windfall profits made by investors in toll roads.
"If the government moves forward with the F6, the increased traffic will create extra revenue for the investors in WestConnex," he said.
"The government will want to have some share in that upside, rather than 100 per cent going to the WestConnex investors."


The (leaked) document shows that the government will gain a 30 per cent share in extra revenue from WestConnex when the amount generated by tolls surpasses 130 per cent of forecasts in the project business case.

In contrast, the state will gain an "upside share" in the revenue from the NorthConnex tunnel, under construction between the M1 and M2 in Sydney's north, when it is more than 110 per cent of "base revenue".

A spokesman for Treasurer Dominic Perrottet said the business case for the F6 had not been finalised, and the government did not comment on "speculation about traffic or revenue forecasts on projects that are subject to ongoing development".

Read the original article here.

Martin Locke is delivering the Metis Project & Infrastructure Finance Masterclass on May 3-4 and November 13-14, 2018. Learn more about the masterclass via this link. Please note- May 3-4 is nearly sold out.

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