News State Victoria Tunnel cancelled for $339m

Tunnel cancelled for $339m

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Victoria has agreed to pay $339 million to avoid building the $6.8 billion East West Link road tunnel in Melbourne, with the move labelled “obscene” by the federal government.

The total figure is a contested number, as on top of the $339 million, $81 million was spent on financing and Victorian Opposition Leader Matthew Guy said another $400-500 million should be added to account for other costs such as land acquisition, AAP reports.

The new Victorian Labor government went to the November election promising to axe the controversial road project, which the former Coalition government approved on the eve of the election.

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Premier Daniel Andrews said the deal kept Labor’s promise not to pay any compensation to dump the road, but the move was slammed by the federal government.

“No compensation payments for lost profits have been paid or will be paid,” Mr Andrews said on Wednesday.

He said more than $3 billion loaned for the East West link would be “repurposed” to fund the Melbourne Metro rail tunnel.

The $339 million payment represents net costs already drawn down and paid to the East West Connect consortium for the bid process, design and pre-construction, AAP reports.

Social Services Minister Scott Morrison accused Mr Andrews of having his priorities wrong.

“For the Victorian government to spend $420 million to pay to a company not to build a road is an obscenity,” Mr Morrison told reporters on Wednesday.

East West Connect said on its website the deal was a “satisfactory resolution” to the process.

“The agreement enables the Victorian Government to acquire the Project Companies for a nominal consideration,” the company said.

Commentators labelled the process a shambles after a contract was signed by one government, along with a side-letter promising compensation estimated at $1.2 billion if the contract would not go ahead, only to be shelved months later.

The rail project has so far failed to gather federal government funding which is considered necessary for its completion.

Victorian Treasurer Tim Pallas said the $339 million deal was roughly equivalent to the annual service payments, which the state would have paid each year for 25 years.

He said the previous government tried to force a “poison pill” on the Labor government, signing a side letter committing Victorians to pay $1.2 billion in compensation if the road was dumped.

Mr Pallas said he was confident Victoria’s AAA credit rating would remain stable.

– with AAP

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