11/29/2007Australia: Toll Tunnel Failing Without Non-Compete Clause
The Lane Cove Tunnel toll route in Sydney, Australia is failing because of a delay in the narrowing of free roads nearby.
Another toll tunnel in New South Wales, Australia is failing because of a contract dependent upon making driving inconvenient for motorists on nearby free roads. The Lane Cove Tunnel stretches 2.2 miles to connect the M2 Motorway with the Gore Hill Freeway in Sydney. It cost A$1.1 billion to construct. After opening in March, fewer than half the expected number of motorists use the toll route, causing investors to worry about the project's financial viability.
"If the traffic volumes don't climb in February then the cash flow won't be there for the tunnel to service all its debt," Moody's analyst David Howell told the Sydney Morning Herald newspaper. "We've been going through the cash flows, and if it does not pick up like expected in February, then... it gets downgraded."
Officials believe the NSW government's A$25 million payment in December -- just months before an election -- to Connector Motorways in compensation for a delay in the narrowing of nearby Epping Road from three lanes to just one lane is the main reason toll traffic is low. Without eliminating competition from the nearby free route, the toll road suffers. The same problems happened with the Cross City Tunnel, a toll route that went bankrupt last year and caused so much political turmoil that parliamentary hearings investigated the deal and the effects of the non-compete causes in the tunnel contract.