Date: October 1, 2012
SYDNEY’S last big toll road project, the Lane Cove Tunnel, has become a legal morass for some big super funds, investment banks and transport consultancies as a large investor in the infrastructure chases compensation.
The troubles are a cautionary tale on the eve of the release on Wednesday of the latest plan from the NSW government’s adviser, Infrastructure NSW, for more toll roads to criss-cross Sydney.
The Lane Cove Tunnel, finished in 2007, went into receivership at the start of 2010, the victim of wildly optimistic traffic forecasts and an inability to pay its debts.
The road is still there and operated by a new owner, Transurban, and charging motorists $2.94 a trip.
But one of the original investors continues to pursue compensation for the collapse, in proceedings that might as well constitute a textbook for how not to organise a toll road.
As trustee of two superannuation funds – REST Infrastructure Trust and the Infrastructure Equity Fund – AMP Capital Investors contributed $80 million of the $500 million in equity raised for the Lane Cove Tunnel project in 2003.
In 2009 AMP started to sue the two transport consultancies that provided the traffic forecasts underpinning the project, Parsons Brinckerhoff and Booz Allen Hamilton.
Booz has been renamed Booz and Company, and has become the O’Farrell government’s transport consultancy of choice.
AMP – which wants to recoup its $80 million plus interest, about $160 million – alleges the two firms ”failed to exercise reasonable care and diligence” in making ”misleading or deceptive” predictions of how many motorists would use the road.
According to AMP’s claim, in 2002 Parsons Brinckerhoff made the ”base case” prediction that 187,700 cars would use the road every day by 2011.
Booz’s ”downside case”, meanwhile, had 149,900 cars using the road every day by 2011.
In 2012 just over 70,000 cars pass through the Lane Cove Tunnel each day. The consultants, however, accused of negligence, are hitting back.
Last month, Parsons Brinckerhoff filed its defence in the Supreme Court, which highlighted AMP’s role as an investor and an adviser to funds on whether or not to invest.
At the start of 2003, Parsons Brinckerhoff claims, an AMP investment committee recommended the project to its own funds, using forecasts that did not accurately reflect Parsons Brinckerhoff’s forecasts.
Parsons Brinckerhoff also alleges it was told by an investment bank working on the project, ABN Amro, it should ”specifically” not try to predict off-peak traffic volume periods by looking at traffic numbers.
Instead it should ”estimate traffic volumes in off-peak periods by applying expansion factors to traffic volumes modelled for peak periods”.
This had the effect of significantly inflating traffic predictions.
ABN Amro has since been bought out by another investment bank, RBS.
Lawyers expect the litigation to continue for years. With similar litigation running in Brisbane, a judge might be called on to set new standards for traffic forecasting. The transport industry says a new financial model is needed for toll roads.