CKI escapes blame over Sydney road project
Investments by Li Ka-shing and his Cheung Kong group have generally been welcome in Australia but a political furore over a new toll road in Sydney has revealed just how far Australian authorities have gone to roll out the welcome mat.
Cheung Kong Infrastructure Holdings (CKI) holds a 50 per cent interest in Sydney's new A$680 million ($3.94 billion) Cross City Tunnel, a 2.1km toll road linking the city's business district with the neighbourhoods of Kings Cross and Darlinghurst.
But barely two months after its opening - also celebrated by CKI chairman Victor Li Tzar-kuoi at a party at Hong Kong's Conrad hotel last month - tunnel traffic is a fraction of the 90,000 vehicles a day that had been expected.
Not only that, the development has become so unpopular that many motorists are boycotting it, furious at having to fork out a fee of A$7 or more for a return trip.
The situation has become so dire, with barely 20,000 cars a day using the new tunnel, that its operators have announced concessions, such as a toll-free travel period and a freeze on toll increases, in a bid to woo the city's motorists.
The Cross City Tunnel has begun its life with the tag of 'white elephant', but documents made public in Sydney last week revealed that if anyone is going to pay the price for the miscalculation, it will be the New South Wales government, and not CKI and its partners Deutsche Asset Management and Bilfinger Berger which have a 30-year concession.
The full contracts, released after weeks of unrelenting public and political pressure, show that the operators are entitled to raise the toll at a 4 per cent annual minimum, adjusted quarterly, until 2012 and to increase it a further 3 per cent annually until 2018.
If current inflation forecasts are maintained, one Sydney report claims a round trip through the tunnel could cost as much as up to A$16 by 2034, with commercial vehicles paying more than A$32 for a trip of only 2km.
The New South Wales government also agreed to nearby road closures and detours as a way of funnelling traffic into the tunnel and would have to buy out the operators and pay expected profits of up to A$100 million a year if it reneged on that aspect of the deal.
According to the project deal, if New South Wales' Roads and Traffic Authority stops funnelling cars into the tunnel, it is liable for 'interest payments and repay the principals owing under the debt financing documents'.
The authority would also have to pay the operators 'either the equity return they would have received or the base case equity return'.
Fortunately for CKI, none of the considerable public anger is directed towards the company. It is all directed squarely at the state government but opponents' satisfaction is tempered by the fact that the premier who negotiated the deal, Bob Carr, has moved into retirement while the roads minister, Carl Scully, has changed jobs.
With a new premier and transport minister in office, it has been easy for the New South Wales government to dodge the blame.
New premier Morris Iemma admits that the government made 'too many compromises on the project' but says nothing can be changed, while Mr Scully insists the anger will pass and Sydneysiders will welcome the tunnel as a valuable piece of infrastructure.
But no matter what happens, CKI seems unlikely to lose out, even if the tunnel retains its inglorious standing as a white elephant.
