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Payout for scrapped project averts Australia PFI crisis

A deal struck over a cancelled privately financed infrastructure scheme in Australia has averted a major crisis for the sector, industry sources said last week.

The deal between the East-West Connect Consortium and the State of Victoria followed the cancellation of the A$10.7bn (£5.5bn) project after the contract had been awarded.

Under the terms of the deal the Victoria government will pay the consortium £174M to cover money it has already spent on the project. It has also bought the project company’s assets for A$1.

The consortium - which includes John Laing, Lend Lease and Bouygues - had been appointed to build the 18km road between the Eastern

Freeway and the Western Ring Road in Melbourne.

The project is backed by the Liberal Party’s self-styled self-styled ‘infrastructure prime minister’ Tony Abbott, but was scrapped by Victoria’s recently elected Labor premier Daniel Andrews when he came into office.

There were fears that the decision would damage Australia’s ability to attract private finance for infrastructure projects.

One industry source told NCE: “Contractors and investors in Australia have been in shock over this situation.

“I certainly would have advised companies to be very wary of working in Victoria if the project had been scrapped and a deal not reached. The agreement is a major step to averting disaster.”

Before the agreement was reached Abbott said: “The Victorian government’s decision to abrogate contractual responsibilities sets a dangerous precedent for future projects and threatens further investment in much-needed infrastructure in our country. It has damaged investor confidence in major infrastructure projects.

“Australia can’t afford to discourage private investment in infrastructure because government alone cannot afford to build the infrastructure that our country needs.”

Relief was sounded as soon as an agreement was reached.

Tim Piper, Victoria director of business body the Australian Industry Group, said: “The completion of an agreement on the East West Link ensures a crisis of confidence in government contracts has been averted.

“The sanctity of these contracts is vital to business, and the uncertainty around this deal had sent a terrible message to industry, both locally and around the world.”

He urged the Victorian government to get other projects underway quickly to use the skills available and boost the economy.

“The way is now clear to enable the government to pursue its projects and regenerate confidence,” said Piper. “This should be the end of such contracts being breached.”

Andrews said on his website: “The Labor government and the East West Link consortium have reached a good faith agreement that puts the interests of Victorians first.

“Under the heads of agreement, signed today, the £5.5bn East West Link will not proceed and no compensation will be paid to the consortium.

“Under the agreement, the state will purchase the companies in the consortium for Au$1. All assets owned by Project Co will transfer to the State.

“A$339M of net costs had already been drawn down and paid to the consortium for the bid process, and design and pre-construction. These costs have already been incurred and cannot be retrieved. They will be retained by the consortium subject to a certification process between it and the state.”

East West Connect said: “The East West Connect consortium has reached an agreement with the Victorian Government in the form of a non-binding Heads of Agreement providing a satisfactory resolution to the East West Link project.

“The agreement enables the Victorian Government to acquire the project companies for a nominal consideration.

“The agreement also enables the sponsors of the project companies to cease work on the East West Link project and to be kept whole for fees and costs that have been incurred.

“The East West Connect consortium will now work with the financiers to conclude the formal agreement.

“Consortium members look forward to pursuing future projects in the State of Victoria.”

 

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