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The Eastern Distributor A private venture in urban road tunnelling

Humphrey G Roads and Traffic Authority, NSW, Australia Poon W Roads and Traffic Authority, NSW, Australia ABSTRACT: The Eastern Distributor is a key part of the Sydney Orbital road network. It runs from the eastern side of the Sydney Central Business District to Sydney Airport. The motorway has been tunnelled under the inner eastern suburbs of Sydney for environmental reasons. The main tunnel is 1.7 km long and has been constructed in a piggy-back configuration to further reduce environmental impacts. The privately financed project formed a total transportation package with complementary road, public transport, and urban environment improvements, delivered in a manner which harmonised with the character of the area. This paper provides an overview of the project, reviews the environment and procurement processes, the private sector participation in the project, and evaluates the performance and benefits of the project. 1. INTRODUCTION The motorway network of Sydney was established by the County of Cumberland Planning Scheme in 1951. It involved a series of freeways radiating from Central Sydney. Following a review of the transport system in the 1970s many of the reserved corridors were abandoned with the objective of encouraging the development of public transport as the principal mode of transport servicing central Sydney. An alternative freeway system was developed utilising an orbital motorway as the major component. An o rbital was adopted as an appropriate road complement to Sydneys public transport system, providing efficient circumferential road based travel around the Sydney metropolitan area. Until the early 1990s construction of the Sydney Orbital was slow with little opportunity in sight for allocation of the significant amount of the necessary government funding. Business, freight and commuter traffic competed for use of the limited existing road space with consequential detrimental effects on the environment and economic development of Sydney. The pressing need for improvement of Sydneys road infrastructure placed pressure on the NSW Government to either provide greater funding for road infrastructure or to seek alternative financing methods. Lack of government funds and concern over the financial ramifications of increased borrowing led to the private sector being invited to become involved in financing of Sydneys moto rway system. The method of delivery chosen was the BOOT scheme. The Eastern Distributor is the fifth and most recently opened BOOT project. It is a key part of the Sydney Orbital providing an eastern bypass of the Sydney Central Business District (CBD). It has formed a vital road corridor facilitating transport, commercial and freight movements to Sydney Airport, the major port areas of Port Botany and Port Jackson, and the Central Industrial Area. In addition, it has provided high standard road access between the CBD, the airport and the northern, eastern and southern suburbs of Sydney. 2. SUCCESS OF SYDNEYS PRIVATELY FINANCED MOTORWAY PROGRAM The first private sector agreement, for the Sydney Harbour Tunnel, was entered in June 1987. Since then, privately financed motorway infrastructure valued at more than A$2.5 billion has been opened to the public in Sydney achieving considerable travel efficiencies and removing large volumes of traffic from roads that were not designed to carry them. The privately financed tollroad projects have been mainly provided on the Sydney Orbital; with th e M4 Motorway, which runs west from Parramatta, being the exception. Details of the projects are listed in Figure 1.

2 Project M4 M5 Sydney Harbour Tunnel M2 Eastern Distributor Length 12.5 km 21.0 km 3.0 km 20.0 km 6.0 km Cost A$246 m A$380 m A$685 m A$644 m A$700 m Opened May 1992 Aug 1992 Aug 1992 May 1997 Dec 1999

Figure 1 Tollroads in Sydney 3. THE PROJECT The Eastern Distributor provides a 6 km motorway standard, limited access road incorporating a 1.7 km driven tunnel and a 0.6 km cut and cover tunnel. The location of the project is shown in Figure 2. Prior to construction of the Eastern Distributor, the existing road network along the corridor consisted of a series of congested narrow roads, carrying heavy traffic volumes far exceeding their design capacity. Traffic was subject to frequent delays and residential areas were heavily degraded by poor air quality and traffic noise. The project was developed to: provide a defined and efficient entrance way from Sydney Airport to the CBD and northern suburbs; foster the economic development of Sydney; relieve the local area of its myriad of traffic problems, and improve its visual and environmental amenity, air quality and safety; and, provide opportunities to improve public transport; in a way which would: achieve a balance between traffic demand management and increased capacity along the corridor; and deliver the project in an environmentally responsible manner taking account of recognised urban design principles;

Figure 2 Sydneys Motorway Network

3 4. PROJECT PROCUREMENT 4.1 Private Sector Involvement The Eastern Distributor was originally planned as a government funded project and an Environmental Impact Statement (EIS) was prepared by the Roads and Traffic Authority (RTA) on this basis in 1985. However, because of a lack of government funds the project was deferred in 1987. With the opening of the Sydney Harbour Tunnel in 1992, the redistribution of traffic to the eastern side of the CBD led to renewed interest in the project. In order to facilitate delivery of the project years ahead what was otherwise possible, a decision was made by the NSW Government in 1994 to invite the private sector to finance, design, construct, operate and maintain the Eastern Distributor as a tollroad. Following the invitation, submission, and assessment of preliminary proposals, three proponents were shortlisted to submit detailed proposals on 15 May 1995. The announcement of the outcome of the assessment of detailed proposals was delayed by a Federal Government decision to no longer allow tax concessions for infrastructure borrowings for urban tollroads. With the reversal of this decision, Airport Motorway Limited (AML) was announced as the Preferred Proponent on 13 August 1996. AMLs proposal at that stage was projected to generate sufficient income to fund all of the Eastern Distributor works plus provide to RTA an additional A$163 million to fund other works. Under the proposal, the benefits the RTA stood to gain would be subject to interest rate fluctuations until financial close (18 August 1997). To mitigate this risk, a hedging agreement was entered into with AML to transfer all risks associated with interest rate movements from 2 April 1997 until financial close for a one-off fee of A$5m. 4.2 Government Requirements the Provision of Pub lic Infrastructure. This document, the latest version of which was published in November 2001 (NSW Government 2001), emphasises that it is Government policy to maintain a competitive and transparent process to provide fair opportunity for all prospective private sector participants. 4.3 Planning Approval

Under the NSW Environmental Planning and Assessment Act, the Minister for Urban Affairs and Plannings approval is required before a project can proceed. The Act requires a Proponent to prepare and exhibit an Environmental Impact Statement, to receive and consider representations and to submit a Representations Report to the Director General of the Department of Urban Affairs and Planning. 4.4 Preparation of the Environmental Impact Statement

For other earlier projects an EIS was prepared prior to the invitation of private sector proposals. With the Eastern Distributor, proposals were invited first for the following reasons: - there was considerable uncertainty about the form of the project and it was considered that the private sector could contribute innovative solutions to the traffic problems, and - the financial viability of the project was not clear and therefore the scope of the project that could be financed could not be established. An EIS (Roads and Traffic Authority NSW 1996) was prepared for AMLs proposal and exhibited in November 1996. 4.5 Consideration of Representations

The NSW Government aims to provide opportun ities for private partnership in the delivery of services as long as this results in net benefits to the community. However, the Government will not guarantee private sector borrowings and will not take an equity share holding and it is a requirement that the project must fulfil individual agency strategic planning priorities as well as whole of government strategic priorities. It was the responsibility of the Roads and Traffic Authority of NSW (RTA) to ensure that the project met these requirements and that the invitation and evaluation of proposals was carried out in accordance with the requirements of the NSW Governments Guidelines for Private Sector Participation in

The Eastern Distributor EIS proved to be controversial. The common theme expressed by the community was that the main tunnel should be lengthened. In fact, some members of the community pressed strongly for the project to be in tunnel over its entire 6 km length. This would have doubled the construction cost of the project and rendered it financially non-viable. The community concerns focussed on the severance caused by the surface motorway elements passing through the various neighbourhood areas and the visual impact of the motorway itself. At the northern end, the high quality parklands of the Sydney Domain and the historically significant Woolloomooloo area were already severed by the existing motorway. Further to the south, the motorway separated the terrace houses of Surry Hills and Redfern

4 from the Centennial and Moore Parklands, and impacted the residential properties along Dowling Street. To address these concerns, the main tunnel was lengthened and other changes were made at a total cost of approximately A$132.2m, including a landbridge providing almost one hectare of parkland at the Domain and a Parkway in Su rry Hills and Redfern that lowered the motorway about four metres below street level. These changes were introduced to address the environmental impacts of the project. 4.6 Terms of the Agreement Make cash payments to RTA of A$2.2m and A$8m at financial close and on the third anniversary of financial close, respectively; Make further cash payments of up to A$6.5m per annum if the projected traffic volumes are achieved in the first three years of operation; Make 25 annual payments of A$15m, part or all in the form of promissory notes, and pay a 10% share of surplus cash once promissory notes are paid off.

The Project Deed provides for renegotiation of the terms of the Agreement in the event of occurrence of certain material adverse effects. A summary of the Agreement was made publicly available (Roads and Traffic Authority NSW 1998). 5. PROJECT EVALUATION 5.1 Economic benefits

An Agreement to deliver the project as a privately financed tollroad was executed on 27 June 1997. Under this Agreement, AML and RTA accepted certain responsibilities. Some of the principal responsibilities were: RTA - Acquire the land required for the project and provide AML with access to that land; - Indemnify AML against damage, loss, or liability arising from certain defined events relating to: Aboriginal and European Heritage; failure of assessment of a project activity; legal challenge to the planning approval or delay caused by non compliance of the work; or economic loss by a third party; - Manage the Sydney Metropolitan Traffic system to recognise the importance of the Eastern Distributor; - Implement certain traffic and bus priority measures and fulfil other undertakings relating to: connecting roads, tollroad declarations, road blockades and civil action, upgrading of Southern Cross Drive, and opening the M5 East. AML - Finance, design, and construct, the Eastern Distributor (including the environmental changes) and operate and maintain the project for a period 48 years; - Surrender the Eastern Distributor to the RTA at the end of the term in a condition consistent with its maintenance obligations under the Project Deed; - Carry all risk associated with achievement of traffic predictions and revenue projections based on a toll of $3.00 for cars and $6.00 for other vehicles (except toll-free STA buses) being charged from time of opening (subject to inflation see section 5.4);

Economic evaluations of the Eastern Distributor undertaken in 1996 and 1997 indicated that the Eastern Distributor would bring substantial economic benefits to the co mmunity. Economic benefits in the order of A$2 billion with a cost benefit ratio of 4.5. were predicted in revised economic analysis undertaken in June 1997. The economic benefits taken into account in these studies included travel time savings, reduced accident costs, amenity improvements, and the residual value of the Eastern Distributor assets at the end of the studies evaluation period. The costs taken into account included construction costs, land acquisition and disturbance costs, road maintenance costs and vehicle operating costs. Externalities such as such as changes in air quality or noise were not directly quantified. However, the Director-General of the Department of Urban A ffairs and Planning noted in June 1997 that the projects benefits would significantly outweigh any tangible adverse impacts that are not amenable to costing . The benefit of the project were supported by a report by the State Chamber of Commerce (NSW State Chamber of Commerce 1997) which reported that the net economic benefits of the Eastern Distributor project would likely be around A$3 billion and that the overall impact would be positive for the business community of Sydney and the States economy.

5 5.2 Road user benefits ready reduced traffic flows significantly on a number of roads in the LAIP areas. Final round of traffic counts for the Before and After Study is being undertaken and the results will be used to assess the effectiv eness of the LAIP. The Landbridge over Cahill Expressway adjacent to the Art Gallery also provides almost a hectare of parkland linking the Domain, Art Gallery, Royal Botanic Gardens and Woolloomooloo. The construction of three pedestrian bridges in South Dowling Street over the motorway and connecting with Moore Park together with the improvement works in Moore Park has also enhanced the community amenity in Surry Hill and Redfern. 5.4 Delivery by the Private Sector

Road user benefits of the Eastern Distributor include reduction in travel times, vehicle operating costs and accident costs. The Eastern Distributor enables southbound motorists to bypass 14 sets of traffic lights and northbound motorists to bypass 9 sets of traffic lights. Traffic monitoring conducted eight months after opening of the motorway in August 2000, as part of the Eastern Distributor Before and After Traffic Study, indicates that the travel time between Cahill Expressway and Mill Pond Road using the motorway is about 9 minutes. This is a saving of about 11 minutes in the morning peak and up to 30 minutes in the afternoon peak when compared to the travel time before opening of the motorway. The savings in travel time together with the free flowing condition on the motorway obviously lead to a reduction in vehicle operating costs. The accident costs were also expected to reduce with less traffic in the surrounding road network, although there is not enough accident statistics to confirm this to date. 5.3 Community amenity

A major component of the Eastern Distributor project was the Local Area Improvement Program (LAIP). The LAIP was developed to: take advantage of the opportunities presented by the reduction in traffic volumes on a number of streets as a result of the Eastern Distributor, improve the local env ironment by introducing measures which restricts through traffic; and ensure that alternative routes for those motorists wishing to avoid the toll were not attractive. The $6 million LAIP works included the conversion of one-way streets to two-way, road closures, reduction in speed limit, installation of traffic calming devices and landscaping. The volume of traffic using the Eastern Distributor each day has been around 30,000 vehicles northbound and 45,000 vehicles southbound. This means that about 75,000 vehicles have been removed from the road network in the vicinity of the Eastern Distributor resulting in improvements in air quality and local amenity for the residents. LAIP works to restrict intrusive and toll-avoiding traffic from local streets were completed within six month after opening of the Eastern Distributor. The remaining works were practically completed by end of September 2001. Traffic counts conducted in August 2000 indicate that although LAIP was not fully implemented at the time of survey, it had a l-

In addition to other benefits of private investment, tollroad projects in Sydney have always achieved early completion due to the incentive of receiving tolls earlier. For the Eastern Distributor, the Project Deed required AML to use its best endeavours to open all of the Eastern Distributor except th e William Street ramps to traffic by 18 August 2000, in time for the Sydney 2000 Olympics. The Eastern Distributor was opened on 19 December 1999, eight months ahead of schedule. This enabled an earlier realisation of the economic and community benefits of the project. As AML carried all the design and construction risks, the Government was not exposed to increases in cost traditionally experienced in other methods of delivery, such as latent condition claims. However, negotiated changes were made to Scope of Works and Technical Criteria at RTAs cost. The total of variation payments was about 0.5% of the construction cost, which is very low when compared with traditional contracting methods.

6 5.5 Financial performance sion rate. The difference in the directional traffic flows was about 40% at the opening of the moto rway but has steadily fallen to the current figure of about 33% as more northbound motorists avail themselves of the benefits of the project. The traffic volumes achieved to date are shown in Figure 3. The toll on the Eastern Distributor is charged in the northbound direction only. With the toll on the Sydney Harbour Bridge and Tunnel charged in the southbound direction, motorists therefore pay only one toll in each direction on each round trip on the adjacent facilities. Tolls are collected manually (with change given), by automatic coin machines and by an electronic toll collection system. The question of how do the traffic volumes achieved on the project compare with predictions is a frequently asked. AML has not publicly released its traffic predictions, although the Infrastructure Trust of Australia (now known as the Macquarie Infrastructure Group), the major investor in the Eastern Distributor, stated in its prospectus that traffic is expected to build up to an average daily northbound traffic volume of nearly 60,000 vehicles by 2006.

The issue critical to financial performance of a tollroad is patronage. In Sydney, the private sector has become more confident in the acceptance of patron age risk as more urban tollroads have come into operation. This confidence has been based on a demonstrated willingness of Sydney motorists to pay tolls where there is a real benefit to be obtained. The Eastern Distributor is the fifth tolled motorway built and operated in Sydney. The Eastern Distributor was opened with a A$3.00 toll for cars and a A$6.00 toll for heavy vehicles. The tolls were increased to $3.20 and $6.40 in July 2000 with the commencement of the Federal Go vernments Goods and Services Tax. Under the Agreement with the NSW Government and RTA, the toll that may be charged is determined by a Theoretical Toll that rises in line with a formula based on the Consumer Price Index and the Average Weekly Earnings Index or by 4% per annum (whichever is the greater). When the Theoretical Toll exceeds the Charge Toll by 25 cents, the Charge Toll may be increased by a fifty cent increment. As tolls are collected in one direction only, it is interesting to compare the traffic volumes in the two directions to obtain an indication of the toll diver-

EASTERN DISTRIBUTOR North Bound Traffic Volumes

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Figure 3 Northbound (toll-paying) Traffic Volumes

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7 5.6 Public transport The Eastern Distributor project has created opportunities for improvements to public transport. These opportunities have been created by way of new bus lanes and reduced traffic volumes on a number of streets in the corridor. These bus priority measures were completed within three months after opening of the motorway. State Transit Authority acknowledged that the bus priority measures have reduced bus travel times and increased reliability and is investigating the introduction of new express services using the motorway. 6. CONCLUSION The Eastern Distributor demonstrates that the private sector delivery of tunnels under a Build Own Operate and Transfer (BOOT) arrangement can be a successful method of delivering public infrastructure. The experience in Sydney is that privately financed tollroads are invariably completed early and with limited claim by the Proponent for negotiation for relief from additional costs. With private projects, outcomes such as that achieved with the Eastern Distributor can be reasonably expected, as all design and construction risk is placed with the private sector and revenue incentives flowing from early opening of toll booths are high. After some initial hesitancy, the private sector has shown a willingness to fully accept tollroad market (financial/traffic) risk in Sydney. The complexity of traffic modelling does mean that traffic volumes are difficult to predict but the private sector has developed sufficient confidence and experience to confidently carry patronage risk. From the perspective of RTA, the need to negotiate significant change to AMLs proposal as a single proponent demonstrated that in other than exceptional circumstances it is preferable to take a well defined project to the private sector. Maintaining a competitive situation as far as possible into the invitation process together with minimised change is likely to lead to the best outcome for government. The construction and operation of the Eastern Distributor as a privately financed tollroad has resulted in the delivery of significant economic benefit to motorists and the community in general, together with an enhanced local environment through the removal of a large volume of traffic from residential and commercial streets in the inner eastern suburbs of Sydney. 7. REFERENCES NSW Government (2001), Working with Government, Guidelines for Privately Financed Projects. Roads and Traffic Authority NSW, (1996) Eastern Distributor Environmental Impact Statement, prepared by RUST PPK Pty Ltd. Roads and Traffic Authority NSW, (1998), Eastern Distributor - Summary of Contracts, prepared by Catalyst Communications.