WestConnex final stage awaits planning approval as state pushes ahead with sale

Australian Financial Review  10 January 2018

Jenny Wiggins with Anthony Macdonald

NSW is moving ahead with building and selling WestConnex even though planning approvals for the third and final stage ...
NSW is moving ahead with building and selling WestConnex even though planning approvals for the third and final stage have not been received.

Criticism over the planning for Sydney’s $16.5 billion motorway WestConnex by the NSW Environmental Protection Agency is still under review by the government’s roads agency despite the state pushing ahead with a sale of the toll road.

The EPA raised concerns over the Environmental Impact Statement (EIS) for the crucial third stage of the motorway, the $7.2 billion M4-M5 Link, in October, warning that the impact of the project had not been “fully quantified” and it could not determine whether mitigation measures were appropriate because the statement was based on “conceptual construction” rather than detailed designs.

In a letter to the Department of Planning and Environment the EPA said it was concerned about the “significant and ongoing” nature of construction impacts on communities in the pathway of the tollroad, and said these needed to be addressed in the EIS rather than under a “post-approval management plan”.

It said that no justification had been provided for works to occur outside of standard construction hours, and recommended that work be limited to standard hours.

The EPA made a range of recommendations on water, contamination, noise and air quality issues, including identifying and estimating the quality and quantity of pollutants that could be introduced into the water cycle. It said an environmental auditing plan should be established to assess compliance of the projects with approval conditions. 

Assessing submissions

NSW’s Roads and Maritime Services (RMS), which is building the third stage, has been assessing the submissions, which include 13,000 community submissions that mostly oppose the road.

RMS previously told The Australian Financial Review it would submit a report to the NSW Department of Planning and Environment in December.

However, the Department of Planning said on Wednesday that it was still waiting for the report from RMS.

“When that report is received, the department will make it publicly available on the major projects website,” a spokesman said. “All submissions and issues raised will be considered by the department during its assessment of the project and when making its final recommendation to the Minister for Planning.”

RMS said it was still considering the submissions ​and would submit its report in January. “This is not expected to impact on the delivery timeframe for the M4-M5 Link,” a spokesman said.

The planning department cannot progress the WestConnex application until it receives the report from RMS.

Once the RMS report has been delivered, the EPA can make a further submission to the department on whether the roads agency has adequately addressed the issues it raised.

Seeking bidders

The government is pressing ahead with the sale of a 51 per cent stake in WestConnex, even though planning approvals for the third stage have not been received.

It has distributed information memorandums for the stake, which will include all three stages of the uncompleted motorway, as well as the Sydney Motorway Corporation, which is responsible for building the road, and its 250 staff. Indicative offers are due on February 26.

Information provided to potential bidders has forecast that WestConnex could generate margins on earnings before interest taxation depreciation and amortisation of 60 per cent in 2017-18, rising to 73 per cent by 2027. 

Profit margins on tollroads are typically high, with Australia’s biggest tollroad operator, Transurban, generating group margins of about 74 per cent. Transurban is expected to participate in one of the consortiums bidding for WestConnex.

The NSW government has tried to reduce risk for potential bidders, using a “contingent deferred consideration” structure in which potential operators can pay less for their WestConnex stake upfront and receive top up payments if revenues from the road exceed certain levels.

But the structure is not expected to compensate potential operators if future traffic flows are lower than expected. By 2027, traffic has been forecast to reach 548,000 trips a day. Accurate traffic forecasting will be key to ensuring investors receive adequate returns on WestConnex.

Although the government will retain a 49 per cent stake in the motorway until all three stages are open, sharing the risks of construction, the consortium that ends up owning and operating WestConnex will bear the biggest proportion of risk. The government is likely to eventually sell its remaining stake.