Sydney Cross City Tunnel

Cross City Tunnel Overview

• Description: A 2.1km fully

electronic east-west tunnel
• Time Saving: Up to 20 mins,
avoid 18 set of traffic lights
• Scope: One of the most
technically complex tunnels
• Tolling: Fully electronic
• Traffic: One of the fastest
growing toll road in Australia
Traffic Flows
 What is PPP ?
• ‘An arrangement for the provision of assets or
services, often in combination and usually for a
substantial or complex “package”, in which both
private sector supplier and public sector client share
the significant risks in provision and/or operation’.
(Infrastructure Implementation Group, 2005).

• Concentrate on long term service delivery rather

than asset creation
WHY are PPPs attractive to both

PPPs

Government Private Partner

Competitive Tendering+Flexible Negotiation

Different PPPs options

20-30 yrs

20-30 yrs

8-15 yrs

3-5 yrs

1-3 yrs
• SERVICE CONTRACTS are the simplest form of PPP. The private partner does not operate any
public assets, but simply contracts with the public sector to provide a specified level of service.

• MANAGEMENT CONTRACTS typically involve the operation of public assets by a private partner.
The private partner receives a management fee and, if there is risk-sharing, a profit-sharing
incentive.

• LEASES are similar to management contracts, but involve a greater transfer of operational risk as
the private partner pays a lease fee and generates income solely from the use of the assets.

• DESIGN/BUILD-OPERATE-TRANSFER (DBO/BOT) involves significant investment by the private

partner, which constructs and operates the infrastructure, often with an offtake agreement from
the public partner. The assets are returned to public ownership at the end of the PPP. While the
demand risk can be shared by the public and private partners, the operating and finance risks
remain squarely with the private partner.

• CONCESSIONS transfer a maximum amount of risk (e.g., demand, operating, investment/finance,

etc.) to a private operator in exchange for some form of exclusive operating license. Contracts
normally demand new investment to expand services and may include the assumption of existing
assets. These are the most complex of PPPs and require careful structuring and monitoring.
 Original Capital structure
$ million
Construction cost 680
Financing costs during construction 160
Development costs 113
Up-front costs 97
Total Funding Required 1,050

Sources of Funds:
Private sector Equity 450
Project Debt 580
Pre-completion revenue & Interest earned 20
Total Funding Required 1,050
P3 Project Management
1. Genesis

2. Feasibility

3. Plan & Test

4. Procure

5. Implement

6. Operations
 RISK ALLOCATED TO RISK ALLOCATED TO
GOVERNMENT CONSORTIUM
Native title risks Design, construction & commissioning
risks

Force majeure Delay & completion risks

Uninsurable risks Ground/ geotechnical conditions risks

Legislative & Government Policy Operation & maintenance/ facility

management risks

The above arrangement of risk allocation ensures that the consortium or the
private partner over sees all the operational and the risks which it is better to
handle. And the other risks are handled by government which brings in the
required accountability of both the parties
 Critical Success Factors (CSFs)
1. Need of greater transparency in PPP contracts
2. Private sector and government needs to be
more open about the issues regarding the trade
off between the risk and the pricing
3. PPPs should not be used as instruments against
competition
4. PPPs consider the skills, finance, project skills of
the private sector to provide economic and
social benefits to the society at large
PPP structure
 Rationale for PPP
• Availability of additional resources to meet the
increasing needs of investment in infrastructure
services
• Increased efficiency in project delivery and operation
• Access to advanced technology
• Sustainable development in infrastructure facilities
and services.
• Off-budget mechanism for infrastructure
development
• Govt reducing the GDP spend on capital
expenditure over the last years
• Increasing pressure on the govt from financial
markets to reduce debt
• Private sector filling the gaps not only in terms
of
– Funding
– Expertise
• Collaborative Agreements
• Accelerate development of infrastructure
projects
• Central theme is potential financial benefits
and ability to transfer risks from the public
sector to the private sector
• PPPs face collaboration inertia
 Criteria for measuring success of PPPs

• Public sector acceptance

• Society acceptance
• Budget
• Timeliness
What Went Right?

Designed and constructed in very efficient manner

Project opened two months ahead of schedule

Very little traffic disruption during the construction period

Government recovered all of its project tender costs and ancillary work costs
(although the recovery of certain ancillary costs received criticism)

Market risk was effectively transferred and the tunnel continued to operate despite
low traffic volumes and financial stress of the operator
What Went Wrong?

Motorists did not use the tunnel in numbers when opened

Motorists complained about toll price

Media criticised Government for closing roads and seemingly forcing traffic into
tunnel

Media frenzy erupted and politicians started to criticise the project, the procurement
process and seemingly overly optimistic traffic forecasts

Community developed negative views about PPPs in general and perceived them as
secret deals

The Cross City Tunnel was a catalyst for a number of PPP – related inquiries in 2005
and 2006, including specific Cross City Tunnel ones
Lessons Learnt from CCT
Relationships with key stakeholders are long term & ongoing

The third ‘P’ in PPP is often understated

Community engagement critical

Building on accumulated knowledge & Understanding the key drivers

Understanding the risk involved -optimal risk transfer

Comprehensive traffic studies & Aligning traffic forecast outputs with design
requirements effectively

Service delivery & Sustainable practice