Costs associated with the cancelled East West Link project in Victoria may have blown out by as much as $217 million courtesy of a complex financial arrangement entered into by the state.
Due to the financial arrangement, the state will shoulder financial risks associated with the project, meaning that the overall project may yet cost Victorian taxpayers as much as $857 million despite not having been built.
Releasing its annual report, the Treasury Corporation of Victoria has revealed it had entered into what is considered to be an unusual deal with the Department of Treasury to guarantee against any losses associated with a $3 billion credit facility linked with the project.
Although the guarantee did not expire until October 2021 and thus the final impact upon the budget bottom line remains unclear, details in the report reveal that $217 million had been paid under the arrangement thus far.
Given the latest revelation, state shadow treasurer Michael O’Brien said the overall cost associated with the cancelled project now stood at $857 million, including not only the cost of the guarantee but also compensation of $420 million under a deal reached with the successful East West Connect consortium in June along with money spent on geotechnical work and land acquisition.
O’Brien accused the state government of misleading Victorians about the costs of cancelling the project, but state treasurer Tim Pallas insisted the government had been transparent despite failing to initially disclose the extra liability. He said the government had previously indicated the existence of additional liabilities within previous press releases.
Estimated to have a total overall project cost of around $15 billion to $17 billion, the East West Link was set to link the end of the Eastern Freeway in Melbourne’s inner north east to the Western Ring Road in the West via an 18-kilometre tollway to be built over two stages.
A $6 billion contract to build the first stage of the project was awarded to the East West Consortium in September 2014 but later cancelled after the Andrews Labor government was elected last November amid election promises to dump the road in favour of other priorities including the Melbourne Metro Rail Project.