Project Finance

Topics: Road, M2 Hills Motorway, Road infrastructure Pages: 7 (2736 words) Published: November 15, 2011
1. Introduction
This report is to discuss and figure out the reasons behind the failure of the infamous project Lane Cove Tunnel. The project costs around $1.1 billion for a 3.5km long twin tunnel which run underneath the Epping Road, and will connect the M2 motorway from North Ryde to the Gore Hill Freeway at Atarmon (Connector, 2010). The tunnel started to build in 2004 and it started operating in 2007. The tunnel was set to allow a shorter transportation time between City and Northwestern suburbs. It also represents a local benefit by reducing the overall noise and air pollution whilst reducing the traffic on Epping Road (Connector, 2010). The Connector Motorways was the original owner and operator for the tunnel; however it was sold to Transurban in May 2010 for $630 million after the tunnel underperforming for several years. 2. Project Overview

The Lane Cove Tunnel has a structure of public private partnership (PPP). This form of finance involved both public and private sector worked as a joint venture to develop a large infrastructure project (Thia, 2009). The origin of Connector Motorways was the Lane Cove Tunnel Consortium which consists of Thesis Pty Ltd, John Holland Pty Ltd, ABN AMRO Ltd, Transfield Services Limited and Transfield Holding Ltd. The consortium won the project contract from the state government which was then in charge of the design, construction, funding and operation for the Lane Cove Tunnel. 3. Project Structure

The Lane Cove Tunnel project was in charge by the Lane Cove Tunnel Consortium which consists of several companies which have different role in the project. The consortium comprises of Thiess Pty Ltd, John Holland Pty Ltd, ABN AMRO Pty Ltd, Transfield Services Limited and Transfield Holding Pty Ltd. ABN AMRO Pty Ltd acted as a sponsor, financial adviser, bond underwriter and major equity participant (Roadtraffic-technology, 2010). As the sole financial advisor, it developed the capital structure of the consortium (ABN AMRO, 2006). The entire project is financing by raising capital through bond market, as such ABN AMRO Ltd become the underwriter for the debt raising (ABN AMRO, 2006). It also manages the credit ratings process conducted by the credit rating agencies (ABN AMRO, 2006). The credit rating is an important process before the issue of bond which will then use to finance the project. Thiess Pty Ltd and John Holland Pty Ltd are both act as a sponsor, design and construction contractor and equity participant (Roadtraffic-technology, 2010). It’s important to have a construction company to be involved as a sponsor in a large infrastructure project. This can ensure the project will be completed no matter what. The construction companies as the sponsors are liable to the project outcome that means they are on the hook. The company will try their best to deliver the project on time and with the cost spending along with the parameter. The Transfield Holdings Pty Ltd and Transfield Services Limited are related by the fact that Transfield Holdings Pty Ltd is the major shareholder for Transfield Services Limited. However they have different role in this project. Transfield Holdings Pty Ltd is the sponsor and equity participant, which does not entitle to any operational role (Roadtraffic-technology, 2010). The Transfield Services Limited is the operator and maintainer of the project which does not act as a sponsor or equity participant (Roadtraffic-technology, 2010). In this case, Transfield Holdings Pty Ltd has separated its financial role and operation role by having two entities to control each part. 4. Project Delivery

The project is delivered by raising fund through debt capital market and equity participants. The project is the first toll road project to be financed entirely by raising fund through capital market. The way the fund is raised is by issuing bond via a special purpose vehicle setup by the consortium as Lane Cove Tunnel Finance. Before the bond is issued, credit...
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