East-West Link shows miserable failure of planning process

Two cheers for resolving the East-West toll road project mess. The agreement reached by the Andrews Government in Victoria to pay the consortium $339 million for its bid costs and early work is unprecedented, but also honourable and transparent. It was always going to involve considerable pain on all sides, because it was created by Labor, by the Coalition and by the consortium in the first place. But what a tangled government-business ‘partnership’!

Signed contract deals, a hurried side letter, four court challenges and an election fought and won over whether the five kilometre East-West toll road was good for Victorians or not… The signed business contract said “yes”, the democratic verdict was “no!” All the hallmarks of a comedy show on television. But it was our reality; $339 million down the drain. Opportunistic behaviour on all sides fanned along by a bunch of voracious bankers and eager businesses counting their future revenues.

Payout is lesser of two evils

Perhaps this agreement is the lesser of two evils, though. After all, with a benefit cost ratio for the project of just 0.45, after spending $10 billion we would also be losing around $5.5 billion straight down the drain. No-one in their right mind would “invest” in such a massive waste. In this respect, the price tag of only a few hundred million dollars to stop this financial catastrophe may be cheap.

But let’s talk about the bigger picture here. The past two Victorian elections have resulted in huge Public-Private Partnership controversies - firstly over a $5 billion desalination plant (which the conservatives apparently tried to renegotiate) and the second over the East-West toll road (which Labor, smelling the blood of infrastructure politics, did renegotiate.)

Both episodes have put into doubt the State’s professional planning capacity and resulted in arguably illegitimate project proposals being implemented through long-term privately funded infrastructure contracts.

Stop burning money

A new approach is needed so that we can make better infrastructure decisions. It is only by doing this that we will avoid burning so much of our money on stupid “Taj Mahals”. Business Councils can also play a role here by stopping their self-serving calls for new projects to replace the current failed ones. Perhaps they could devote their energy to ensure current businesses pay their tax bills here instead of sheltering in faraway tax havens?

Contract renegotiations of this size are extraordinary. And they are also tough because of our dual expectations. On the one hand, we expect government to maintain commercial legitimacy, drive a hard deal in our name, and behave in legally responsible ways. And as part of this we assume that governments believe in the sanctity of commercial contracts. After all, private contracts are the building block of the economy.

But on the other hand, we equally expect governments to take their democratic mandate and carry out policies taken into an election. In big projects such as the Desal plant and the East-West toll road, there is a clash of expectations. We want government to be both commercially sensible on our behalf, and democratically responsible on our behalf.

Legitimate projects, not ministerial favourites

Of course governments have always been able to sign us up to long-term projects and long-term debts - whether aluminium plants, hospitals or dams. And we will never take all the politics out of public infrastructure projects - this would be naive.

We do though need governments to put infrastructure priorities into a bipartisan process in which legitimate projects gravitate towards the top (instead of just the Minister’s personal favourites), undertake competent economic assessments (instead of back-of-the-envelope trumped-up business cases worth less than the napkin on which they were developed) and seriously consider whether dozens of smaller expenditures are likely to be better than the “Taj Mahal” mentality that government egos still seem to thrust on Victorian citizens.

It would also be better if governments could leave aside their love of long-term infrastructure contracts, private finance and commercial secrets and level with us. We are not mugs. Citizens expect to know what governments are doing in their name, how they are behaving with the power they temporarily hold and how the relationship they have with businesses is being employed.

Big secrets?

Can this be solved through legislation stopping governments from signing contracts before elections? I doubt it. Business and politics are both incredibly innovative in getting around new rules. But let’s try anyway. Big infrastructure projects imply big decisions, with big risks. Public risks.

Our current Victorian PPP habit, though seems to imply big secrets, and big “success” fees, even for failed public projects! These are particularly galling. But together, these form a cocktail of complex ongoing deals that could cripple the state if we keep going like this. If we can’t improve our infrastructure priority planning, our assessments, our transparency and bipartisan discourse we will repeat the recent history many times over in coming decades. So the real task here is to take another road.

Independent institutionalised professional planning needs to be reintroduced into the picture, not sidelined. Consultation needs to be undertaken. And priorities need to be re-established so that debates around medium and long-term project options, alternatives and relative timing can occur. Not just the immediate personal choices of ministers as if they were purchasing something in a retail shop.

We need to get on and re-professionalise for a more democratic approach to medium and long-term infrastructure success. And quickly.

Graeme Hodge receives funding from the Australian and New Zealand School of Government for research into the long term governance of public-private partnerships. He is affiliated with the Accountability Roundtable.