Private investor confidence recovers in Australia following pay-out for scrapped project

A deal reached between the East-West Connect Consortium and the State of Victoria has averted a major crisis of investor confidence for major infrastructure projects.

The East-west Link was a project backed by the Liberal Party which aimed to reduce congestion by connecting western suburbs to the Eastern Freeway. In the eyes of its supporters, the Link was a critical pre-emptive step to cope with projected traffic increases. However, the vocal majority (including a number of local councils) claimed that the need for the project was not supported by the statistics. Concerns were also raised about permanent loss of land in Royal Park.

The debate was ultimately silenced by the recently elected Labor Premier Daniel Andrews, who scrapped the project upon coming into office.  The decision was met with concern from project supporters, including Prime Minister Tony Abbott who voiced his fears about its impact on future investment:

The Victorian government’s decision to abrogate contractual responsibilities sets a dangerous precedent for future projects and threatens further investment in much-needed infrastructure in our country. It has damaged investor confidence in major infrastructure projects.

Fortunately commentators are more optimistic about Australia’s ability to attract investment now that an agreement has been reached. Tim Piper, the Victorian director of the Australian Industry Group, praised the resolution of uncertainty around the deal and observed that ‘[t]he way is now clear, to enable the government to pursue its projects and regenerate confidence.’

The Victorian Government has reportedly already relocated a $3.1 billion bond agreement with the consortium’s bankers for the Melbourne Metro Rail project.

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