East West Link would sink under Labor

A project finance adviser writes: Re. “Rundle: East West Link could go ahead, Labor or no Labor” (Wednesday). Guy Rundle’s story misses the point because its perspective is legalistic, not financial. In fact, Victorian Labor’s policy position (to not contest a legal challenge to the project from two councils scheduled for after the state election) renders the transaction unbankable, and without secured finance the contracts can’t be executed.

Put simply, in major structured finance transactions (including “public private partnerships”), execution of the contracts typically takes place in two stages: contract close, followed by financial close. Although finance must be secured at contract close, two stages allow the financing agreements (typically involving parties more removed from the contract negotiations) to reflect the final terms in the executed project agreements.

No financier (and the finance for this transaction must be syndicated around the world) will commit to financing while the uncertainty of the councils’ court case and a hostile new government hangs over the transaction, so in practice at contract close the preferred consortium led by Lend Lease won’t be able to confirm it has secured finance, meaning it won’t meet the conditions precedent to contract close, and the East West Link contracts won’t be executed before the election.

There is one PPP in Australia where the consortium could not confirm it had secured finance at contract close but where this condition precedent was removed. The Victorian desalination plant consortium couldn’t secure all its finance at contract close because the finance markets were too shallow at the time. To get it across the line the Victorian treasurer agreed to provide a syndication guarantee effective for the period between contract close and financial close, committing Victorian taxpayers to underwrite the transaction’s shortfall in finance until it could be fully syndicated. It worked, because it provided a route for the losing bidder’s financiers to join the winning consortium and close the gap, as was its purpose. This type of government syndication guarantee has not been done before or since.

To achieve East West Link’s contract close before the election, the Lend Lease consortium could seek a syndication guarantee like the desal plant’s, or the government could remove the condition precedent to contract close that finance be secured, but even in Victoria’s currently crazy desperate policy environment you can’t imagine government or Treasury would have the stomach for such reckless adventures. You would very much hope they don’t.

So in practice, for financing not legal reasons, the East West Link project is now dead, until a future government resurrects it.

Queensland govt itching to cut sexual health services

Dr Sandy Donald, Together union rep, writes: Re. “Caught with their pants down” (Wednesday). It is worth noting that the cuts to sexual health are not accidental — they are planned.

When Campbell Newman was asked a question about cutting staff at Biala, he said:

“Coming back to the question, let us be very clear: the responsibility of the state government is not primary healthcare. What the honourable member has referred to is primary healthcare, which is — and I will speak very slowly for the benefit of the member — the responsibility of the federal government.”

In other words, the Queensland government takes no responsibility for anything that it unilaterally decides is primary healthcare — especially if it is closing down a unique service funded by the Queensland government for many years.

That helps to explain why the attack on health  jobs in the “bloated corporate office” resulted in so many workers in population health and disease prevention — including regional workers employed by Tropical Public Health in Cairns — losing their job. It’s a shame the minister still insists on referring to “jobs in head office” instead of admitting they wanted to stop people preventing disease in Queensland.

I am surprised the Premier hasn’t held a press conference to claim credit for recent increases in HIV, syphillis, and other STDs.

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Peter Fray
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