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Brisbane’s Clem7 Road Tunnel in Receivership

The Clem 7 road tunnel (North South Bypass Tunnel) in Brisbane, conceived and planned in an era of $20 oil, has been placed in receivership. After the Cross City tunnel and the Lane Cove tunnel in Sydney this is now the 3rd road tunnel to fail financially. In the context of unrest in North Africa and the Middle East now impacting on oil supplies this means the end of all road tunnel planning for Australian cities, in particular Sydney.

Proposed tunnel projects for the M2-F3 link, the M4 East and the M5 expansion should now be abandoned.  It also means the end of toll-way expansion in general as road tunnels would be needed to accommodate assumed traffic growth from other toll-ways and free-ways. It will also have an impact on the viability of the M2 widening as there would be no increased traffic flows from an M2-F3 tunnel – although the M2 widening EA did not count on this project (see chapter 4.3.4.1 of the M2 upgrade documentation).

Clem7

Clem7 operator placed in receivership

RiverCity Motorway collapsed owing $1.3 billion to a syndicate of 24 banks.

The Clem 7 runs under central Brisbane and was touted as a congestion buster in the traffic-choked Queensland capital.

It is not even a year since the seven-kilometre tunnel was opened. Many blame the company behind the traffic forecasts, Aecom, because patronage on the road is less than a quarter of its original predictions.

Some of the predictions were as high as 94,000 vehicles a day, but despite the toll being slashed only 22,000 motorists are using the tunnel daily.

People who bought shares for $1 before the road was built saw their investments fall almost 100 per cent in value before trading was suspended on the stock exchange.

http://www.abc.net.au/news/stories/2011/02/25/3149327.htm

This graph shows how investor’s money was melting away in the last 12 months:

RCY_Chart_Feb2010_Feb2011

Reasons for the collapse

As is always the case with such failures, there are many reasons:

(1) Traffic projections were embellished to attract investors. Construction costs of road tunnels are too high and tolls  are too low to pay interest and re-pay loans

September 27, 2006

AUSTRALIA’S toll road projects, including Sydney’s Cross City Tunnel, Lane Cove Tunnel and the M2, will not survive without continuing government subsidies and are likely to fail anyway, leaving taxpayers to foot the bill for billions of dollars in debt, a transport conference will hear today.

http://www.theaustralian.com.au/business/toll-road-financing-flawed-academic/story-e6frg8zx-1111112273530

John L. Goldberg: The fatal flaw in the financing of private road infrastructure in Australia

http://www.infrastructure.gov.au/roads/F3toM7Review/pdf/SUBMISSION_23-Appendix_A.pdf

(2) An alliance of government departments, consultants, contractors and financing agents did not allow a genuinely independent audit of the project proposal and its assumptions. One of the assumptions was – and still is – that (slowly) rising  oil prices will bring to market alternative fuels and energies and/or will lead – via inflation – to higher salaries and purchasing power of motorists and thus be somehow neutralised.

(3) As a result, no proper risk analysis was done, especially in relation to oil supplies – although an oil vulnerability task force of the Queensland government was working on this problem in the same critical months of approvals and financial close

More details of the timeline of this project and the warnings ignored can be found here:

10/6/2010   Brisbane Motorists bypass the Bypass Tunnel
http://www.crudeoilpeak.com/?p=1482

(4) A general societal assumption of perpetual growth and a deep-rooted belief that technology and money will always solve all environmental and energy supply problems to allow such growth is clouding all rational approaches to planning issues.

If you think that the above lessons have been learned, you are mistaken:

Brisbane Lord Mayor Campbell Newman is a big advocate of the tunnel.

“My reaction is of course that I’m very sad for small investors who’ve lost money, but having said that, the fact remains that this project, this tunnel will be open for 100 years,” he said.

“It’ll deliver congestion-busting benefits for many generations of Brisbane motorists.

http://www.abc.net.au/news/stories/2011/02/25/3149327.htm

100 years? Where will the primary, carbon free energy come from to drive cars even in 10 years and what will be the sea level rise in the catchment area of the tunnel at the end of this century  if Queensland continues with its coal addiction?

Conclusion: Before even one more km of toll-road, free-way or road tunnel is planned, financed or built a proper risk analysis should be done and the financial viability be proved beyond doubt. I have received a letter from the NSW government saying that the financial viability of the M2 widening (Transurban) is a commercial matter and outside the EA planning process, although there are guidelines for privately financed  infrastructure projects which do not seem to have been adhered to. Any further complacency in these matters will guarantee more financial failures.

More links and further reading

“Working with Government Guidelines for Privately Financed Projects”
http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0009/3141/wwggui_1.pdf

Evaluating the cost of public private partnerships in transport

by Jean Shaoul, Prof. of Public Accountability, Manchester Business School

http://sydney.edu.au/business/__data/assets/pdf_file/0014/91121/jeans-presentation.pdf

Related posts:

28/10/2010   Quick risk analysis for M2 widening (Part2)
http://www.crudeoilpeak.com/?p=2012

27/1/2010    Peak oil brought forward moment of truth for Lane Cove Tunnel
http://wwwcrudeoilpeak.com/?p=998

13/4/2007   Submission M2-F3 tunnel: End of Freeways – the tipping points of Peak Oil and Global Warming
http://www.crudeoilpeak.com/?p=48

8/1/2006    How Cross City Tunnel Planners ignored peak oil
http://www.crudeoilpeak.com/?p=219

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