Melbourne’s privately owned Citylink tollway is operated subject to a ‘Concession Deed’, a contract between the State Government and private operator Transurban. This specifies the obligations on both parties over the 33 year term of the contract. In particular, it places obligations on all Victorian Governments over that period in relation to transport policy and management.

At around the same time as Citylink a similar project, the Hills Motorway (M2), proceeded in New South Wales. The Concession Deed for that project implied that if the State were to develop new public transport services parallel to the M2, it would be required to pay compensation to the private tollroad operator. By agreeing to this, the government had effectively restricted itself from pursuing sustainable transport policies in the future, and this led to a public outcry over the contract terms.

The Concession Deed for Citylink also includes strong ‘Material Adverse Effect’ provisions that are broadly similar to those for the M2. These can be found in Clause 2.9 and the Appendix to the Deed, which is available from the government’s online contracts system at www.contracts.vic.gov.au. These provisions might oblige the State Government to compensate Transurban if, for example, it

• introduces free or near-free public transport;
• fails to treat Citylink on equal terms with other Melbourne freeways when managing traffic flows, or fails to maintain the arterial roads that feed traffic to Citylink;
• connects another road to Citylink that removes traffic from it;
• removes any of the Agreed Traffic Management Measures: a package of lane closures, clearway removals and traffic calming on roads parallel to Citylink that encourage motorists to use the tollway instead;
• introduces car parking restrictions with the objective of reducing traffic in inner Melbourne (apart from in the CBD itself); or
• introduces new roads or public transport services that have a detrimental effect on Citylink’s financial performance.

Since the western section of Citylink is also the main road route to Melbourne Airport, it would appear that a train line to the airport is just the kind of thing that would trigger compensation. Were this the case, advocacy of the train line might face problems (though even this is far from clear, as we explain below).

Fortunately, however, the Deed also expressly excludes certain items from triggering compensation. In particular, Exhibit J to the Deed outlines a set of Major Transport Network Changes that cannot constitute or give rise to a Material Adverse Effect. In case of any doubt, Clause 12.12 also provides that the State shall not have any liability in regard to these Major Transport Network Changes.

Exhibit J itself is not available from the contracts website, but it can be found on the Vicroads website. It lists a number of potential projects that the government at the time wanted to reserve the right to build at no risk in the future. This included on the one hand all the road projects from the Kennett Government’s Linking Melbourne freeway plan of 1994 (most of them now built), and on the other hand,

the development of a new public transport rail link between the central city and Tullamarine Airport as part of the metropolitan heavy rail network.

In other words, there is no obstacle or liability for the government under the Citylink contract if it wishes to build a passenger rail line to the airport. The Deed does provide in a specific clause that this rail link may still give rise to a Material Adverse Effect if it is utilised for the purpose of transporting freight. But as long as the airport rail link is not a freight line the rules would seem quite clear: there are no grounds for Transurban to claim compensation if an airport line is built.

More recently, negotiations between the government and Transurban have led to Transurban relaxing aspects of its Concession Deed in return for generous government-funded road improvements (such as additional lanes on the Monash Freeway). Transurban has already stated in its 2006 ‘Sustainability Report’ that it would not seek a financial payment by the State for non-exempt public transport improvements, but would instead negotiate to extend the CityLink concession beyond its current end. So the government should feel in no way constrained by the CityLink contract when improving public transport or freight rail, even where it can’t rely on Exhibit J.

But even if airport rail or some other improvement weren’t specifically excluded, and Transurban reversed its current stance to insist on financial compensation, it’s still not at all certain they would be entitled to claim it. A legal argument can be made that if Transurban could reasonably foresee at the time of signing its contract that the government might build an airport line sometime in the next three decades, it ought to have factored this possibility into its business case.

Returning to Sydney’s M2 motorway, it turns out that the government has since built a train line parallel to the M2 (the Chatswood to Epping link) and the private operator has not made any claim for compensation. As the NSW Auditor-General has noted, the operator made clear at an early stage that it was taking into account the likely construction of the line. So even though the NSW government didn’t protect itself by providing for the project in its contract, ultimately it has not been exposed to compensation claims.

Advocates of a train line to the airport, then, need not be sidetracked by the threat of Citylink compensation payments. A ‘first stage’ rail connection to the existing suburban network at Broadmeadows is feasible and could likely be built for around $100 million – about the same, according to the ACCC, as the airport operator takes each year in profit from its car parking operations.

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Last modified: 23 October 2013