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Article: Taxpayers' train bailout

Started by ozbob, January 29, 2012, 07:18:10 AM

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ozbob

From the Sydney Morning Herald click here!

Taxpayers' train bailout

QuoteTaxpayers' train bailout
Heath Aston
January 29, 2012

THE privately financed Waratah train project will be forced into full state ownership, with taxpayers kicking in $175 million to guarantee the delivery of 70 remaining trains for Sydney's overstretched rail system.

The $3.6 billion public-private partnership was ''within hours of going under'', Treasury sources told The Sun-Herald yesterday. Just six of the 78 Chinese-made trains have been delivered and the project is 18 months behind schedule.

But unlike the spectacular financial collapses of the Cross City Tunnel and the Lane Cove Tunnel - which did not burn taxpayers - the state government decided it could not stand by and let the Waratah project sink.

''It would have cost hundreds of millions of dollars and commuters would have been waiting another five years for the trains they need,'' a senior government source said.

The O'Farrell government will announce the bailout by Wednesday this week, insisting Labor left behind ''the riskiest financial deal ever negotiated by a state government''.

''This stands alone under the Christmas tree. There's nothing like this deal. It's as aggressively financed and as risky as you would ever see.''

Winning the contract from Labor in 2006, Reliance Rail, headed by the infrastructure services firm Downer EDI, took on debts of $2.4 billion at cheap interest rates before the global financial crisis. Just a fraction of the debt mountain - $137 million - was put up as equity by investors.

Under the deal to be announced, the government will become the only shareholder when it tips in $175 million in 2018. The equity investors, Downer, AMP and the Royal Bank of Scotland, will lose their shareholding but debt holders should be spared.

The government's commitment is designed to keep Reliance operating until 2018 and force four banks, including Westpac and National Australia Bank, to extend further loans of $357 million next month. The banks have not ruled out a last-minute legal challenge before the lending deadline next month but the government is confident the finance will be secured.

Sources said the Treasurer, Mike Baird, was expected to sell the negotiated deal as ''an investment'' for taxpayers because there would be an immediate return on the money from 2018 through a 30-year train maintenance contract Reliance has already signed with RailCorp.

The best case for the government is that a private sector investor steps in to take over Reliance before 2018, allowing the government to walk away before committing any money.

Attracting a white knight would be unlikely without renewed confidence in the project. Reliance's debt has sunk from a AAA credit rating to the status of ''junk''.

The delivery of trains from China will play a crucial role in any renewed optimism. The 78 Waratahs, which will make up half of the CityRail fleet, are expected to be on the tracks by some time in 2014.

The six trains so far in service were beset by technical problems during testing by RailCorp and, as a consequence, have been confined to the Airport and East Hills line and South line, where multiple tracks reduce the impact of any breakdown.

A spokeswoman for Mr Baird declined to comment while a Reliance Rail spokesman said: ''We can't comment until a deal has been finalised and signed.''

Read more: http://www.smh.com.au/nsw/taxpayers-train-bailout-20120128-1qn1t.html
Half baked projects, have long term consequences ...
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O_128

damn, lets hope we don't end up with something like this. I never understood why they didn't just buy trains in the usual manner?
"Where else but Queensland?"

Mozz

Governments of all political persuasions are under pressure to do more with their budget base. It would be great to have a situation whereby governments were able to capitally acquire all the assets the community needs such as trains and pay for them without having to take out loans or enter into some sort of other complex financial arrangements, however the reality is otherwise and sometimes it works and other times... well .. Waratah, certain road tunnels are examples.

There are also pressures from the opposition of the day who will trumpet all sorts of ideas about how they would deliver if they were in power.


somebody

Almost universally these things (PPPs) fail.

Fares_Fair

Regards,
Fares_Fair


somebody

Quote from: Fares_Fair on January 29, 2012, 21:38:56 PM
Quote from: Simon on January 29, 2012, 20:56:55 PM
Almost universally these things (PPPs) fail.

e.g.?
Lane Cove Tunnel, Cross City Tunnel, Airtrain (failed as far as the original investors are concerned), Airportlink - rail line in Sydney and the road in Brisbane, Clem7 tunnel,

Things like the Sydney Harbour Tunnel and the M4 were only successful by tolling an existing road.  Pretty sure the Walter Taylor bridge and the Gateway Bridge didn't cover their costs either.  I can't think of a single example that stood on its own legs.  I think the M2 & M5 had public money injected, and the M7.  Eastern Distributor?  Can't remember either way.

Berowra-Calga Tollwork?  Maybe, I'm not old enough to remember.

SurfRail

The patronage-based equity raising model really does not work, but there are other ways to do it.

GCRT I expect will be workable with a private financing component.

EastLink in Melbourne is based on some different payment strategy, not sure how it works, but it doesn't seem to be in as bad a place as the NSW or Qld experiments.
Ride the G:

ozbob

Half baked projects, have long term consequences ...
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