Tuesday, 17 July 2012

Lawsuit over traffic forecasts for Brisbane's Clem 7 toll tunnel

Now it appears the lawsuit is proceeding. Australian public broadcaster, ABC, reports that:

“A law firm has launched a $150 million class action on behalf of 700 clients who say they were misled by traffic forecasts for Brisbane's $3.2 billion Clem Jones toll road”

“The law firm Maurice Blackburn says investors relied on forecasts by the multinational engineering group AECOM.

It predicted that by now 100,000 vehicles would flow through the tunnel daily but current levels are only a quarter of that.”

“the forecaster AECOM Australia says investors were given detailed assessments of the project beforehand as well as its risks and says it will defend the claim.”

Given that investors have been burnt before in a couple of other high profile Australian toll road forecasting mismatches, this case will be interesting. It may come down to whether AECOM was professionally negligent, or if it provided sufficient detailed background for there to be enough provisos about risk and exclusions of liability that it can be said that investors should have known better. Consultants do this sort of work all of the time, and it is fundamental to the success and failure of such roads (the other two biggest risks are construction costs and government intervention either as regulator or in funding competing infrastructure from taxpayers).

It may expose the key tension for demand forecasters commissioned by investment companies, and the incentives they face. It goes beyond this case, as AECOM, for now, must be presumed to have acted properly. One of the issues was the presence of two sets of traffic forecasts. AECOM did work on the traffic demand study for both the Product Disclosure Statement (the document intended to outline the project as an investment) and the Environmental Impact Statement (the document intended to obtain planning approval). They delivered vastly different forecasts (100,000 trips per day by 2011 for the PDS. 57,000 for the EIS). AECOM will claim they were based on different criteria, but it raises some serious questions for all of the parties involved. Many investors would have looked differently upon the road with the EIS traffic forecasts.

How does a consultancy respond to a client if that client seeks forecasts to attract investors, particularly if their own professional opinion may be that demand wont be enough to be viable, in the face of government promoting and encouraging a project to proceed?

What if a demand forecaster said "look this doesn't look like it will work", which essentially suggests either government has to subsidise the project, or it does not proceed? Therein lies the key tension with public-private partnerships.

My key point is that there will be, and ought to be cases, where governments seek roads to be built, using PPPs and tolls, but in actual fact they are not viable. In such cases, reality should not be evaded. If a road cannot be funded through tolls, and the traffic forecasts are such that private investment is not interested, then government either must contribute more (i.e. use a shadow toll based on fuel tax consumed on the new road) or defer the project.

Nevertheless, I am sure concessionaires, consultancies and government authorities will watch this case with interest.

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