Monday, February 05, 2007
PPP - Protected Private Profit
Shares in River City Motorway (RCM) – the private consortium that will build, own and operate Brisbane’s North South Bypass Tunnel – have continued to slide in value - now down more than 20% on their initial offering.

The North South Bypass Tunnel (NSBT) is the first vector of TransApex, Brisbane Lord Mayor Campbell Newman’s $12bn plan to build a series of tolled tunnels and bridges under and over the city. It will be built using mostly private funds in a public private partnership.

The latest fall in share price is a result of brokerage firm UBS declaring it had doubts over RCM’s traffic modelling, which forms the revenue basis of the $3bn business plan for NSBT. UBS recommends investors reduce their holding in RCM. UBS said it lacked confidence in the figures and competition from other roads and the value proposition offered by the 10-minute time saving did not stack up.

RCM engaged consultants Maunsell to provide the traffic modelling for NSBT. Maunsell’s methodology was based on a number of projects being delivered, some of which have been virtually canned, and others that remain politically disputed.

Not surprisingly, RCM has stuck to its guns, as did Bell Potter, the brokerage firm that helped RCM with its IPO, both saying the usage predictions in the IPO were sound. However, Bell Potter also recommended a “buy” on shares in Sydney’s Cross City Tunnel, which went into receivership last week, with traffic levels well down on what was originally predicted.

Despite the doubts on usage predictions, RCM’s investor relations paint a much more positive picture of the future, projecting continual growth in NSBT usage, from the 100,000 trips per day on its 2010 opening to 135,000 trips in 2025.

Their presentations boast of Brisbane’s “high car dependency” and “poor public transport” as selling points, and the harbinger of investor profits.

In contrast, Wikipedia describes Brisbane’s public transport system as “extensive”. The Lonely Planet guide calls it “world class”.

As a promoter of the NSBT scheme, Brisbane City Council places itself in a ludicrous contradictory position. Its political vision is one of promoting public transport, yet on a partner’s website (RCM) Council peddles its own transport policy failures as badges of honour, so it does not scare investors.

And just to make sure the tunnel attracts the necessary customers and doesn’t go horribly wrong, like in Sydney, RCM is promising a glossy advertising campaign, to ensure Brisbane residents get the message that cars are good.

Public Private Partnerships are not inherently flawed, particularly in the era which followed the fiscal “discipline” of the 1990s, which precipitated massive delays in public infrastructure projects, just to deliver tax cuts to the middle class. However, in the case of NSBT, the private sector incentives are wholly contrary to public interest, as the project’s success is dependent on the continued failure of transport policy by the project’s promoters.

Worse, Council is also likely to aid and abet River City Motorway returning a profit. First by ensuring surface road conditions are amenable to encouraging drivers to use the tunnel and secondly by being liable to compensate RCM should Council make improvements to public transport which impact NSBT patronage.

Council has not made the details of its contract with RCM public (despite assurances that it would), so as yet there is no disclosure of any compensation clause. However, it remains highly likely that Council (and Councils 45 years into the future) will remain tied to restrictive clauses, which will curtail its ability to improve transport, lest it jeopardise the profitability of NSBT.

Labels: Brisbane City Council, transport, tunnels

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