3/19/2008Australia: Second Toll Tunnel Faces Financial Collapse
Another Australian toll tunnel faces financial collapse as non-compete agreements fail to drive traffic onto pay route.
A second toll tunnel in Sydney, Australia faces imminent financial collapse. The A$1.1 billion Lane Cove Tunnel opened almost exactly one year ago to provide a connection between the M2 Motorway and the Gore Hill Freeway. So far, motorists are rejecting the idea of paying $2.59 to drive a mere 2.2 miles.
"Traffic levels have been significantly lower than expected," Cheung Kong Infrastructure Chairman Victor Li wrote in a letter to investors Monday. "As a result, full provision has been made against the remaining carrying value of this investment."
Cheung Kong initially held a forty percent stake in the tunnel but dropped its holding to nineteen percent before its March 2007 opening. The company will now write off this remaining $113 million stake as a loss.
Although the tunnel was privately financed, a substantial amount of public funds were still tied up in the route. The New South Wales government agreed to a non-compete clause designed to force motorists into the tunnel by narrowing nearby roads. Last December, however, NSW officials made a $25 million payment to Connector Motorways to buy a delay in the narrowing of nearby Epping Road from three lanes to just one lane until after elections.
A previous toll tunnel effort, Sydney's Cross City Tunnel, went bankrupt in 2006. The route spawned controversy since its 2005 opening as the public became outraged at road closings on nearby free routes. A parliamentary inquiry held on the issue concluded that the "no cost" deal to build the tunnel had actually "resulted in significant cost to the community."