The cross city tunnel in Sydney has been a fairly spectacular failure as a Public Private Partnership (PPP). The operating company went into receivership less than 2 years after the tunnel opening in August 2005. The tunnel, built at a cost of about $800 million, failed to attract the traffic required to meet interest payments. Even when use of the tunnel was free, the traffic did not approach the forecast traffic levels of 90,000 vehicles per day. The paper argues that the project was always a marginal one - the volume of traffic that needs to move east-west across the city is relatively small. This fundamental problem was exacerbated by the high cost of the toll ($3.56), the lack of traffic growth in the east of Sydney and the negative reaction of consumers to what they saw as government attempts to force them to use the tunnel. Whilst a major difference of this project when compared to earlier PPPs is that the private partners bore most of the risk, the actions of the government in breaking the terms of the original contract will expose them to higher risks and financing costs in the future. The issue for the private infrastructure sector is that the public views the project as a dismal failure and hence their appetite for future PPPs may be diminished.
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