5/11/2008Australia: Toll Tunnel Achieves Junk Bond Status
Sydney, Australia motorists faced with $4100 a year in toll charges refuse to use expensive toll tunnel. Tunnel bond rating downgraded to junk status.
The Lane Cove tunnel in New South Wales, Australia took another step toward bankruptcy last Thursday. Moody's Global Credit Research downgraded the underlying rating of the project to Ba3 -- junk bond status -- citing the toll route's failure to generate sufficient traffic. Analysts suggested the tunnel would be bankrupt by the end of next year.
"It's wrong of [state Roads Minister] Eric Roozendaal to claim taxpayers will be unaffected," NSW Opposition Leader Barry O'Farrell said in a statement. "Each of these bungled deals reduces the attractiveness of NSW for private sector investment -- without such investment taxpayers either have to foot the bill or suffer poorer services."
As part of a non-compete agreement, the state roads minister ordered a nearby free route, Epping Road, narrowed from three general purpose lanes to just one in order to force drivers to pay to use the tunnel. The roads department also paid tunnel operators $25 million in compensation so that it could delay the ultimately ineffective measure until after state elections. This payment was equal to eight full months of collections from drivers.
"The Lane Cove Tunnel can't attract patronage because the wallets of commuters are already being emptied by toll roads," Shadow Minister for Roads Duncan Gay explained. "Taking the M2, Lane Cove Tunnel and Harbour Bridge brings the cost of driving to work to $85.20 a week, or $4089.60 per year. That's a heavy burden for working families struggling with rising interest rates and petrol prices."
The Lane Cove Tunnel stretches 2.2 miles to connect the M2 Motorway with the Gore Hill Freeway in Sydney. It opened in March 2007 at a cost of A$1.1 billion. As traffic failed to meet predictions, revenue slumped. Cheung Kong Infrastructure this March wrote off its $113 million investment in the route as a loss.