Thursday, January 21, 2010

Tunnel to Nowhere

Alaska is not the only place they build infrastructure projects to nowhere. Sydney has its share, too.

Several years ago, Sydney decided to enter into Public and Private Partnerships to build some tunnels, ostensibly to alleviate the maddening traffic mess, but, as speculated at the time, more likely to line some Public and Private Pockets.

See, Tunnel vision, The tunnel or the shaft? , and Highway robbery? for some of the posts from back in 2005, culminating in The light at the end of the tunnel comes from the fire sale in 2007.

And how does it all look now?

Toll of misery as tunnel goes under

The Lane Cove Tunnel has collapsed into receivership, becoming the third major infrastructure project in the city to fail in the past two decades

The failure of the tunnel a little more than three years after the financial collapse of the Cross City Tunnel means the State Government in now unable to turn to the private sector to fund new tollroads.

The brainchild for the model of financing used by many PPPs was Sydney homeboy, Macquairie Bank, the "Millionaire Factory", the slickest cat on the catwalk: the Macquarie Model.

The Sydney Morning Herald now characterises the whole infrastructure arrangement as,
just money down a hole

Every financial boom has its fads. The Dutch went mad over tulip bulbs in 1624. Nickel fever swept financial markets in the late 1960s. Thirty years later, it was anything with dot.com in the name.

But toll roads? Who would ever have thought it possible? And in Sydney, we finessed it just a little further to include tunnels.

After the debacle of the Cross City Tunnel, another so-called Public Private Partnership, it would be a fairly safe assumption that financiers would think twice about plunging into similar infrastructure projects in the future.

So who is to blame? And why was the project, like so many others of its time, so far removed from reality when it came to valuation?

The sad fact is that both the Cross City Tunnel and the Lane Cove Tunnel were built, not because they solved traffic management problems, but because they provided windfall gains to a cash-strapped State Government and some quick-talking investment bankers.

Taxpayers [and commuters and municipal planning] did not enter the equation.

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