Transurban buys broke Lane Cove Tunnel concession in Sydney

Transurban is buying the Lane Cove Tunnel concession on the eastern end of their M2 Hills Motorway in the northern suburbs of Sydney. The company is paying A$630.5m (US$570m) for the twin tube tunnel 3.6km (2.25mi) toll facility that carries 63.5k vehicles/day. It has been in bankruptcy, operated by receivers for the lenders since January.

“Transurban is a natural owner of the Lane Cove Tunnel and we believe the asset sits extremely well within our portfolio of prime toll roads," CEO Chris Lynch is quoted in a statement.

The Tunnel of twin 2 and 3 lane sections connects at its western end to the M2 Hills Motorway, the major east-west toll expressway in Sydney's northern suburbs. The M2 is being widened and otherwise enhanced by Transurban at a cost of A$550m (US$494m) to carry more traffic. At its eastern end the Lane Cove Tunnel is connected to the Gore Hill Freeway that leads south to the Sydney Harbour Bridge and the central business district.

Transurban is already working on important enhancements to the north Sydney network, including a $550 million upgrade of the M2.

The Lane Cove Tunnel has all-electronic toll (AET) points on the tunnel proper and on a ramp to a surface arterial Military Road. Tolling began April 2007.

Toll revenue last financial year was A$53.1m (US$47.7m) and EBITDA (earnings before interest, tax, depreciation and amortization) was A$22.1m (cU$20m).

Can reduce costs

Transurban's debt on the tunnel will be a small fraction of that borne by the original developers. They also think they can substantially reduce operations costs by consolidating them with M2 operations. Enhancements to M2 should also deliver more traffic to the tunnel.

Transurban also owns 75% of the M1 Eastern Distributor that is linked to the southern end of the Sydney Harbour crossings and is a major route to Sydney Airport. It has 50% shares in the M7 Westlink toll road in the western suburbs of Syndey and the M5, s southwesterly radial tollroad.

A downside of the Lane Cove concession is that it ties maximum tolls to the consumer price index.  

Tolls are presently A$2.77 (c$2.50) for cars and double that for trucks. At the Military Road ramp the tolls are half those of the tunnel itself. Traffic last year was average daily 50.9k in the tunnel and 12.7k at the ramp toll point.

The tunnel motorway allows motorists to avoid five sets of traffic signals on Epping Road, a surface arterial.  Time savings using the tunnel are estimated at up to 17 minutes.

The Tunnel opened in 2007 with a 30 year toll concession.

Went broke

The Lane Cove Tunnel was developed by a special purpose company formed in 2003 initially named Lane Cove Tunnel Company, later renamed Connector Motorways.

The project was conceived by the state government which invited proposals in a procurement won by LCTC - a joint venture of two major Australian construction companies Theiss and John Holland.

During construction in Nov 2005 there was a collapse in a ventilation tunnel that caused subsidence and damage to buildings and the highway above.

LCTC/Connector Motorways was a commercial failure. They invested some $A1.1b (cUS$1b) in the project borrowing heavily based on traffic projections of 90k/day. Because of the high debt service costs they lost money from the beginning and filed for bankruptcy in January this year.

The sale to Transurban is by receivers on behalf of lenders to Connector Motorway.

Operations of the tunnel have continued unaffected by the bankruptcy.

Transurban is paying about 57c in the dollar that the tunnel cost.

TOLLROADSnews 2010-05-09