For a supposedly well-organised and determined group of protesters, those opposing Melbourne’s East West Link missed a golden opportunity at yesterday’s Transurban AGM. The world’s biggest listed toll road company, and key indirect participant in the controversial $6.8 billion East West Link project, only faced questions from two shareholders: namely Australian Shareholders' Association monitor John Curry and me. Proceedings were all wrapped up in just 75 minutes, and shareholders supported all resolutions, with more than 98% in favour. There was still some interesting territory covered with Transurban chairman Lindsay Maxsted admitting the complex Macquarie-created triple-stapled structure had not been dismantled because it would trigger too big of a tax bill. However, he did express surprise Transurban is being cited by Fairfax in the corporate tax avoidance debate, and reminded shareholders that the company wound up its offshore Bermuda structure a couple of years ago, partly for reputational reasons. Transurban shareholders have a lot to be happy with after the sweet City Link concession extension and capacity expansion that the company signed last week with Victoria's Napthine government as part of the East West Link project. For what was originally an unprofitable $1.15 billion fixed-price construction contract taken on by Transurban’s City Link sub-contractors Transfield and Baulderstone Hornibrook in 1996, the toll road giant has enjoyed remarkable profits out of Melbourne motorists. And the winning formula has been that old chestnut of "bid low" to get the original deal and then negotiate ongoing contract variations. The original City Link project was significantly under-scoped, so there have been a range of expensive bolt-ons and widenings. Motorists and taxpayers would have been so much better off with a government-funded “do it once and do it well” approach as occurred with the four-lane Eastern Freeway in the 1970s. For instance, the 1996 contract signed with the Kennett government involved Transurban paying the government $2.9 billion in effective profit share payments in the out-years of the minimum 25 year concession. These payments would have been boosting the Victorian budget about now. However, then-Victorian treasurer John Brumby foolishly negotiated all of that away in 2006, in return for a miserable $609 million in earlier payments as was outlined in this ASX announcement.
"City Link remains an absolute gold mine, which chairman Maxsted correctly claimed yesterday would cost $8 billion to $10 billion to replace in today’s dollars."
Whilst some investors believe Transurban over-paid with its $7 billion acquisition of Queensland Motorways in July, its share price took off after the terms of the latest concession extension negotiated with current Victorian Treasurer Michael O’Brien were revealed on April 28. Despite the dilutive impact of raising $2.74 billion at $6.75 in May, the stock soared to a high of $8.20 in early September as its market capitalisation burst through $15 billion for the first time. While Maxsted correctly claimed yesterday that City Link has boosted Melbourne’s famed livability, you have to ask: at what price? Truth be known, City Link has been one of the worst deals any government anywhere has ever negotiated on behalf of its motorists, who will have paid more than $15 billion in tolls by the time the road is handed back to taxpayers in the 2030s. For proof of this, look no further than the Transurban share price. A company that  floated at an effective $1 a share in 1996 is now closer to $8 and is forecast to pay out 39c to shareholders in 2014-15. Victorian Labor and Liberal have both been culpable in contributing to what has been a 10-bagger for those lucky Transurban shareholders who bought into the float and still hold those shares 18 years later. This includes the original chairman Laurie Cox, the retired Macquarie director who attended yesterday’s AGM and would now be sitting on shares worth almost $10 million if he had retained the 1.142 million stapled securities he held on the day he retired in 2007. While it would have been useful to debate at the AGM, Transurban today released its September quarter traffic and revenue data. It shows that City Link remains an absolute gold mine, which chairman Maxsted correctly claimed yesterday would cost $8 billion to $10 billion to replace in today’s dollars. City Link’s September quarter toll revenue was up 6.5% to a record $143.2 million, suggesting that Melbourne motorists are headed for a 2014-15 toll bill of close to $600 million. This staggering figure is more than double any other Australian toll road project. However, today’s September quarter data is also the first time in Transurban’s history that City Link has become a minority of its tolling revenue on all measures across what is now 12 different projects in four cities. Last financial year, City Link contributed $535 million out of $906 million of toll revenue on a statutory basis, and in the September quarter just passed it was $143 million out of $364.7 million, or just 39.3%. That said, City Link remains the second most valuable toll road concession in the world after Toronto’s Highway 407, which was valued at US$9 billion in 2010, when a stake was last traded. Once the latest $850 million Transurban-funded expansion is completed in 2019, and all that East West Link traffic is fed into its network, City Link could yet become No. 1.