Victoria's $1 billion per kilometre road - who wouldn't rail against that?

Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
#1
Ultimate con job...

"Naturally, the real winners from the road deals are bankers, lawyers, accountants and assorted experts who so indispensably provide their advice. These people are the road pushers."

http://www.theage.com.au/business/victor...zzi8k.html

Victoria's $1 billion per kilometre road - who wouldn't rail against that?
Date
August 2, 2014

Michael West
Business columnist

Guess which road in Australia is shaping up to cost $1 billion per kilometre to build? Read on.

The most spectacular sharemarket float of the modern era is indubitably BrisConnections. This one really went through the roof, if you happened to be hanging upside-down with your ankles strapped to the ceiling.

BrisCon had three instalments, you see. Those who bought into the float still had another two $1 payments to make. One investor famously went bargain hunting when the stock was one-tenth of a cent. Forking out $47,923 for 48 million shares, he soon discovered that, as this was a partly paid stock, he was up for a cool $96 million.

The class action lawsuit from litigation funder IMF finally arrived this week. Proceedings were filed against Arup, the consultant that concocted the exuberant traffic estimates for the underlying project, Brisbane's Airport Link.

Rather than conducting a traffic model first, the tradition in privatised road projects on the eastern seaboard has been to build the traffic model around the financial model. This was the case with BrisCon, its traffic estimates way over the mark.

For the public and for government, too, such hopelessly high traffic forecasts have not been a bad thing. The state gets its road, banks and sharemarket investors pay for it, their project goes belly up and creditors take a huge haircut. Sydney's Cross City Tunnel, Lane Cove Tunnel, Brisbane's RiverCity Motorway and Airport Link spring to mind.

Naturally, the real winners from the road deals are bankers, lawyers, accountants and assorted experts who so indispensably provide their advice. These people are the road pushers. There is more money in roads than rail, and besides, rail is for the peasants.

It should be said that in Melbourne, these advisers do, on the odd occasion, catch public transport, tramming it up Collins Street for lunch when there are no cabs around. At least they pay the CityLink on the way in. In Sydney, even the toll roads are just for the peasants, as there are no tolls to be paid en route to an underground car park in the CBD from the eastern suburbs.

To be fair, they might cop a Harbour Bridge toll if they live in Mosman, but this brings us to the second tradition in transport planning, the bias for road over rail. The fees are bigger.

The third hallowed tradition in transport is secrecy. This reporter was once asked by the NSW roads authority to pay $74,000 to see the Sydney toll road contracts under Freedom of Information. The regime in Victoria has been more open over the years, but the NSW ritual of secrecy is catching on.

As the state election nears, the Napthine government is declaring all sorts of unfunded public works, some $27 billion in infrastructure projects crowned by the controversial East West Link. Conceptually, this road is not a bad thing, even though the city's trains are clogged, but the price is stupefying.

Actuary Ian Bell has kindly put some figures around this for us, deploying what scant information is in the public domain. Bell puts the capital cost of this road at up to $18 billion for 18 kilometres, a grand $1 billion per kilometre. One could be forgiven for thinking that the business case for the East West should be made public so the people who are paying for it could discuss it. Alas, not so.

One of the bidders for the East West deal, giant contractor Leighton Holdings, recently pulled out of the tender saying it was too risky. (Even though they didn't win the deal, they were still reimbursed $12 million for their spot of paper shuffling).

How would this be funded anyway? There has been some talk of access rather than usage charges, that is "rego" as well as tolls, which would be an unfair outcome for regional Victorians. Were it a usage charge, Bell estimates the East West Link toll at $24 a full car trip. That racks up against an estimated $13 toll for Sydney's big WestConnex project for a trip from Parramatta to the airport.

Bell is pulling his data from a leaked Macquarie Bank report. The NSW government is also keeping the WestConnex base case a secret (capital cost estimated at $15.6 billion). Both these are seriously big tunneling projects - West Connex goes underground beneath Parramatta Road.

Incidentally, some observers have suggested that it is going in the wrong direction. You see, the WC decision preceded the federal government's green light for a second airport at Badgerys Creek but the decision to spend so much taking people to Mascot Airport has not been revisited.

The answer is that transport planning in Australia is missing. Despite budget constraints, the feds are chucking money at road projects willy-nilly, contingent on states flogging public assets, such as electricity networks.

In all this, the question of whether rail might be a better long-term option than road is passed over with the speed of a merchant banker fanging up the toll road to Mount Buller for the weekend, or out of Sydney to the southern highlands for that matter. The hoi polloi as usual have no say. Road versus rail? In the least, we could do with a comparative national study looking 50 years ahead.
Reply
#2
"or the public and for government, too, such hopelessly high traffic forecasts have not been a bad thing. The state gets its road, banks and sharemarket investors pay for it, their project goes belly up and creditors take a huge haircut. Sydney's Cross City Tunnel, Lane Cove Tunnel, Brisbane's RiverCity Motorway and Airport Link spring to mind.

Naturally, the real winners from the road deals are bankers, lawyers, accountants and assorted experts who so indispensably provide their advice. These people are the road pushers. There is more money in roads than rail, and besides, rail is for the peasants."

Yikes! sounds familiar! Big Grin
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
Reply
#3
Singapore has our $1b/ km road as well right? Smile
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#4
Why infrastructure costs more in Australia than France
PUBLISHED: 02 AUG 2014 02:44:00 | UPDATED: 04 AUG 2014 16:13:42

Why infrastructure costs more in Australia than France
The causes of Australia’s high infrastructure costs are far more pervasive than pricey labour, creating an enormous challenge for governments hoping to deliver new roads, railways and hospitals on time and on budget. Photo: Glenn Hunt
JENNY WIGGINS

Marc Vogts, who runs the John Grill centre for project leadership at the University of Sydney, says governments need to listen to contractors early in the process rather than simply telling them what needs to be done and how to do it. Photo: Rob Homer
RELATED QUOTES
LEI
TSE
LEIGHTON FPO (LEI)
$22.060$0.17(0.78%)
Volume 325221 Value 7144114.0
5 Year
1 Day

as at 16:10 Australia/Sydney 04 AUG 2014
View Full Quote »
Company Profile
http://www.leighton.com.au/
Construction & Engineering (201030)
ASIC 004482982
ASX Announcements
9:48:36 AM John Holland named preferred contractor for Ravenhall Prison
30/07/14 Change of Director's Interest Notice
29/07/14 Leighton Contractors secures NZ Transmission Gully PPP
28/07/14 Leighton Holdings Limited 2014 Half Year Report
15/07/14 Initial Director's Interest Notice
View All Announcements »
See Also
People
Analysis
Financials
Tourists visit the Château de Versailles, which evolved from Louis XIII’s hunting lodge into one of France’s most magnificent palaces and the seat of the French government, to marvel at Louis XIV’s Grand Apartments and Hall of Mirrors. But just a few kilometres east,­hidden from view under a nearby forest, is a far more prosaic structure: an ­underground motorway.

The 10-kilometre road tunnel, known as “Duplex A86” was built by three French construction groups between 1997 and 2011 to connect the missing link in the A86 ring road that runs around Paris. At a total cost of €1.56 billion ($2.25 billion) it works out at about $226 million a kilometre.

On the other side of the world in Sydney, grand plans for the 33-kilometre long WestConnex motorway, which will include a 13-kilometre underground tunnel, are being pushed ahead by the NSW government.

This motorway, which will burrow beneath brick apartment blocks and fibro bungalows in western Sydney suburbs, will cost about $350 million a kilometre.

The cost comparison is not entirely fair – WestConnex’s tunnels will be taller and wider – but the stark difference in price between Australia and a high-cost country such as France with its 35-hour working week remains mind-boggling as the federal government embarks on a $50 billion infrastructure spending spree.

Foreign construction groups hoping to win work on some of the infrastructure projects up for grabs – including ­Melbourne’s $8 billion East West Link ­tunnel, Sydney’s $3 billion NorthConnex tunnel and Queensland’s $1.6 billion Toowoomba bypass – marvel at the expense of building in Australia.

“In general, it is more expensive than most other places,” says José Manuel Entrecanales, the chairman and chief executive of Acciona, the Spanish infrastructure group that has built highspeed railway lines, desalination plants and roads around the world.

“Australia is a very sensitive, demanding society, and you have to pay for that.”

MORE THAN JUST HIGH WAGES
Australia’s high wages are a well-known problem, with French construction group Bouygues claiming workers cost $80 an hour in Australia to employ compared with just €30 ($46) in France.

But the causes of Australia’s high infrastructure costs are far more pervasive than pricey labour, creating an enormous challenge for governments hoping to deliver new roads, railways and hospitals on time and on budget.

At issue is the time that commuters are trapped in traffic on the way to work or spend circling Sydney Airport, the amount of coal and grain that can be exported without being held up by bottlenecks on railways as trains are delayed on their way to ports; and the cost and quality of our healthcare.

Prescriptive tender processes which require financing to be lined up before ­construction bids are submitted; the use of multifarious sub-contractors creating unnecessary layers of management; poor project management; and governments that fail to buy materials at the cheapest price available all drive up costs.

Scott Charlton, the chief executive of toll road group Transurban, has identified ­governments’ propensity to specify every last detail used in new infrastructure as being a key factor pushing up costs, joking earlier this year that his company could save taxpayers money by letting contractors choose their own bolt colours.

“We’re not going to tell you that your bolts have to be pink, you can have the bolts whatever colour you want.”

Charlton claims Transurban, which will build the NorthConnex road tunnel in western Sydney to link the M2 and F3 freeways after approaching the NSW government with an unsolicited bid, ran a more efficient tender process than the public sector would have done.

The toll road group sent out an eight-page document to design and construction companies, asking them to come up with their best ideas for the tunnel, rather than issuing thousands of pages of specifications.

Nicholas Wall, director of business development for Acciona’s Australian infrastructure business, agrees governments can be unnecessarily demanding in the early stages of tenders, particularly on designs.

“Historically governments have asked for multiple drawings, both cross and long sections, which are well above and beyond what is required,” he says.

LIMITING INNOVATION
John O’Rourke, the principal of Plenary, an infrastructure investment group that specialises in public-private partnerships (PPPs) and was part of the consortium that built the Gold Coast’s new light rail system, says governments that “over specify” limit innovation. “The best projects are where the state does a good job in planning the outputs that it wants, not the inputs,” he says.

Infrastructure investors who take stakes in PPPs such as schools and hospitals after they are built also complain about the large numbers of “key performance indicators” required by governments. These include obligations to respond to telephone calls to help desks within 30 seconds, watering grass on school ovals frequently and ­fixing broken windows within a specified period of time.

The quality of service is laudable, but investors say budgeting for what they claim are over-staffed help desks and maintenance services pushes up costs.

Governments like PPPs, because the risks of cost blowouts are usually borne by the private sector, not taxpayers.

But the construction companies that build Australia’s largest projects are getting fed up with being asked by governments to absorb unexpected risks, and want the model to change. This means risks are being forced back onto taxpayers.

“If risk is pushed onto the contractor, the contractor has to then price that risk into their bid, which inflates the price,” points out Graeme Hunt, chief executive of Transfield Services. “We have on several occasions made a decision not to proceed [with a ­tender] because we felt the risk cannot be priced or managed commensurate with returns available.”

Leighton Holdings is still trying to shore up its balance sheet following heavy losses on its fixed-price Airport Link and Victorian desalination plant projects, and is facing up to $1 billion of losses on a $1.85 billion contract to design and build a jetty for energy group Chevron on its Gorgon project in Western Australia that has run into trouble.

Leighton’s new Spanish owners, Grupo ACS, are reluctant to wade into projects they perceive as risky, with the chief executive Marcelino Fernandez Verdes this week claiming Leighton “didn’t go on” with a ­tender for Melbourne’s East West Link ­tunnel because the geotechnical risks were “not acceptable”.

David Williams, director of the University of Queensland’s geotechnical engineering centre, says Australian contractors have too often rushed out to buy expensive tunnelling machines (which cost hundreds of millions of dollars) when digging new tunnels, rather than taking time to accurately assess geological conditions. “There is a tendency to focus more on the tunnel boring machine or the equipment to make sure it’s capable of getting through whatever you might hit and paying less attention to what you hit.”

RISK AVERSE
Other construction groups have also shown signs of becoming more risk averse, with the UK’s Balfour Beatty last month pulling out of a three-way race to build a $1.6 billion light rail line down Sydney’s George Street. Balfour Beatty, which is battling sliding profits in its home market, is believed to have baulked at the financial risk it would have to take if it was the successful bidder for the light rail line due to the uncertain cost involved in relocating utilities.

Two big contractors falling out of two major projects in short succession is a ­worrying sign for Tony Abbott’s ambitions to be known as an “infrastructure prime minister”.

To keep projects on track, governments need to engage contractors earlier on in the development process, rather than telling them what to do, says Marc Vogts, the former BHP Billiton and Rio Tinto executive now running the John Grill centre for project leadership at the University of Sydney. “Contractors themselves have a lot to offer in terms of solutions,” Vogts says.

“They take on such large projects that if they fail, their business will fail . . . they can deliver a lot of technical and ­commercial innovation.”

Contractors feel the same. The Spaniard in charge of Leighton’s new PPP division, Angel Muriel, has already expressed views that Australia could benefit from new design and construction techniques, and that more competition would drive ­contractors to become more innovative, according to people in the industry. (Muriel declined to comment.)

Better technology could also be part of the answer. Darren Weir, the director of Laing O’Rourke’s Queensland and Northern Territory business, says the British group is now using digital engineering modelling and “augmented reality” systems on local projects to get a sense of what they will look like when they are finished.

“We build a job twice – we build a job virtually, and sort out all the problems in the digital model, and then apply that on site,” Weir says. “In Western Australia we have guys walking around construction sites with iPads fully uploaded with the digital model of the construction sequence so they’ve got current information. ”

Laing O’Rourke has used digital engi­neering in the building of London’s second-tallest skyscraper, the Leadenhall Building, colloquially known as “the Cheesegrater”.

Still, while more technology and less bureaucratic red tape may be part of the solution to lower costs, industry ­participants remain concerned by the lack of long-term planning for Australia’s ­infrastructure needs.

POOR PIPELINE
A poor pipeline of new infrastructure projects in Australia,which has forced bidders to compete for one-off “mega projects” rather than being able to spread bets across a range of projects, has been a driving force behind high costs, says ­Plenary’s O’Rourke.

Similarly, Garry Bowditch, chief executive of the SMART infrastructure group at Wollongong University, argues Australia’s “staccato project flows” have made it ­difficult for companies to make long term investments in people and technology.

Bowditch also believes governments need to plan better for unexpected changes during construction, citing the national broadband network as an example of a project that failed to deal with soaring costs. “There is an urgent need to better provision for new information, especially when costs blow out so the scale and scope of projects can be reconsidered,” Bowditch says.

Vogts argues stronger project leadership and governance would help define the scope of projects before they are financed, pointing out it is hard to backtrack once projects are under way.

“There are a lot of people who are striving to get good systems and processes and get the project right, but you’ve got to stand back and say, ‘Did you do the right project?’ ”

Vogts credits state governments with having appetite to learn from the private sector, with NSW’s WestConnex Delivery Authority sending two project directors to participate in the John Grill centre’s inaugural executive leadership program which starts this month (three other people from the NSW government will also attend along with 12 people from different industries in the private sector).

John Fitzgerald, the acting co-ordinator of government body Infrastructure ­Australia, says greater willingness by both governments and the private ­sector to collect and release data after projects are finished would also help improve performance.

“Learning from experience across state boundaries and on a national level could be an important contributor to improving practices but that’s a lot easier said than done,” he says.

Governments have started thinking about how they approach new infrastructure projects, with governments in NSW and Victoria now accepting so-called “unsolicited” proposals from industry, such as Transurban’s NorthConnex proposal, allowing for more creative thinking.

Some have also started reimbursing a portion of bidding costs to unsuccessful tenderers, with losing bidders on Queensland’s Toowoomba bypass receiving about $4 million of their tender costs back.

Charged with delivering long-term project pipelines, better leadership and communication with the private sector, simplifying tender processes, creating more flexible labour practices and making savvier purchasing decisions, governments should not underestimate the task ahead, Vogts says.

“We’ve got a big challenge ahead of us . . . fundamentally we have to do more with less.”

The Australian Financial Review
Reply
#5
Macquarie gave favoured customers float escape route

Joyce Moullakis and Sarah Thompson
1078 words
20 Aug 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Macquarie Group has urged any aggrieved clients who lost money in the initial public offering of the BrisConnections toll road in 2008 to raise their concerns following claims it allowed a select group of wealthy customers to pull out of the disastrous float.

The investment bank allowed some wealthy customers to pull out of the BrisConnections initial public offering in 2008 when it looked like the float was going to tank, according to seven current and former Macquarie staff.

More than $20 million of BrisConnections shares were handed back by clients to their Macquarie stockbrokers before the shares began to trade, the sources said. The company forced the brokers, also known as ­private client advisers, to wear some of the losses, they added. The allegations relate to the total allocation to Macquarie Private Wealth clients, which was in the order of $100 million, as part of the float.

By returning the shares Macquarie clients had agreed to buy, the favoured investors avoided one-day losses of more than $10 million.

BrisConnections shares fell 59 per cent on their debut on the Australian Securities Exchange because of ­concerns fewer cars than forecast would use its toll road in Brisbane.

At the time markets were volatile as the global financial crisis was taking hold and there were concerns about ­BrisConnections' debt. The float ­followed a profit downgrade by rival Transurban Group.

Many early investors were clients of Macquarie, which was a lead manager and underwriter of the float, which meant it agreed to purchase a certain amount of shares and sell them to its clients. Other underwriters included Deutsche Bank, Credit Suisse and JPMorgan.

Responding to the claims, a ­Macquarie spokeswoman said float processes remained fluid until clients were allocated and had paid for stock.

"In an IPO, the position of clients with respect to allocation of stock remains fluid until allocation of stock to the broker is firm, and clients make a legally binding commitment and pay for the stock," a Macquarie ­spokeswoman said.

"Therefore the position of each ­client may be different. Macquarie would welcome the opportunity for ­clients to raise any circumstance where they believe treatment may have been inappropriate."

Senior executives at Macquarie ­Private Wealth came up with the plan to allow some clients to opt out and picked which advisers could ­participate, the sources said. The ­ultimate approval came from ­Macquarie Private Wealth's executive committee, the sources said.

Some clients had already provided written, emailed or verbal confirmation they would buy BrisConnections stock when they were told they could return it. "That is a terrible way to treat clients. All clients should be treated the same," managing director of Sirius Fund Management Kieran Kelly said.

"There's always been an underlying compromise with having a wealth management area and stockbroking arm tied to an investment bank and I don't know how you remove that ­conflict of interest."

Macquarie's private wealth unit, which has been criticised by the corporate regulator and a Senate committee in the past two months, is subject to an enforceable undertaking (EU) overseen by the Australian Securities and­ ­Investments Commission. The firm is seeking to fix a string of compliance deficiencies and lax record keeping.

"They knew it [the IPO] was going to tank," another Macquarie insider said of the BrisConnections float.

"The changes since the EU are lipservice and the culture has stayed the same.

"If you were a small client or small business writer, you were left with stock. Most of the people are there for the good of the client but it is a big machine that sometimes thumbs its nose at doing the right thing."

Another Macquarie insider said, "The bottom line is BrisConnections is one of the dirtiest secrets that Macquarie hopes never sees the light of day.

"Some clients had not agreed to ­anything but were force fed it as their adviser was not one of the chosen few allowed to hand stock back."

Sources said advisers – who are ­typically paid on commission - who returned BrisConnections stock to Macquarie had to pay the bank a fee equal to 10 per cent of the value of those shares.

"Some did that in 12 months. Some took 3 years," a Macquarie source said. The decision to allow selected private client advisers to hand back stock ­created animosity between the wealth unit and Macquarie's capital markets division that was working to ensure the float was a success.

"Some thought the brokers should wear it. Some thoughts clients should wear it. The [wealth] division ended up wearing it," a former Macquarie employee said.

"Other people were ­saying we can't wear it. It will cost us our bonuses ."

A Senate committee in June demanded ASIC undertake intensive surveillance of Macquarie's private wealth unit, cautioning the company had similar systemic failings in ­processes as Commonwealth Bank of Australia's financial planning division. Macquarie's actions around the IPO and its decision to allow selected clients to opt out has upset some in the ­industry.

A senior equity capital ­markets banker, who declined to be named, said the more equitable option for Macquarie on the BrisConnections float would have been to lower the share price or postpone the IPO.

"There is a fair bit of grey in broker firm allocations," he said.

"But if you are having to take stock back, you should reprice the transaction or pull it."

BrisConnections' time as a listed company was mired in controversy. The saga may be coming to an end for its debt and equity investors.

The ­toll road's lending group agreed last week to commence a formal sale process next month. The group voted for receiver PPB Advisory to sell it.

The road went into receivership with $3.1 billion of debt in February last year. ASIC last week said Macquarie would write to 160,000 customers of its private wealth division to seek feedback on the advice they received and whether they wanted compensation for "flawed financial advice".

The undertaking identified compliance failures and lapses in record keeping, risk management and employee training dating as far back as 2008. ASIC's statement noted that Macquarie would contact clients dating back to 2004. While ASIC declined to comment on the BrisConnections accusations this week, Macquarie's conduct around the float is not thought to have been assessed as part of the company's enforceable undertaking.


Fairfax Media Management Pty Limited

Document AFNR000020140819ea8k00002
Reply
#6
I wonder when will singapore reach this stage of development

"ASIC last week said Macquarie would write to 160,000 customers of its private wealth division to seek feedback on the advice they received and whether they wanted compensation for "flawed financial advice"."
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply


Forum Jump:


Users browsing this thread: 4 Guest(s)