Transurban faces Melbourne tunnel delay amid project standoff

Digging for the West Gate Tunnel project was supposed to start around September last year but has been delayed amid a standoff between Transurban, builders CPB Contractors and John Holland, and the Victorian government over who should pay to deal with soil contaminated with the chemical PFAS.

“Like all large complex infrastructure projects, there are challenges,” Transurban chief executive Scott Charlton said.

“We believe it is possible at this point to deliver the job by 2022 but the schedule is under pressure.”

Mr Charlton said that if Transurban became aware of a material cost blowout on the project it would make an announcement to the ASX, which it had not done.

He also said there was no avenue for the Victorian government to reconsider the 10-year extension on Transurban’s lucrative Citylink concession, which it awarded in return for the company proposing and building the West Gate project.

Macquarie analyst Ian Myles said he thought Transurban would not start generating revenue from the West Gate road until at least July 2023. However, the company would already receive benefits from linked toll hikes on Citylink.

“So deferral has a cost but it’s not like they’re not receiving income already,” Mr Myles said.

“A six or 12 month delay is pretty minor in the scheme of the valuation. The issue is cost – will have Transurban have to face higher costs, that’s more important for that West Gate Tunnel.”

Transurban on Tuesday revealed that its profit from ordinary activities after tax grew 11 per cent to $162 million for the six months to December 31, off the back off higher toll revenue. Toll revenue for the six months to December 31 grew 8.6 per cent to $1.4 billion.

RBC Capital Markets analyst James Nevin said Transurban earnings were lower than he expected, with softer traffic numbers in Sydney and Melbourne traffic only partly offset by a stronger result in the US.

Mr Nevin said it appeared Sydney traffic, growing at 2.2 per cent, was suffering from “cannibalisation” as Transurban’s new Westconnex M4 road takes traffic from the M2 and Lane Cover Tunnel.

Transurban declared a 31¢ interim dividend, up from 29¢ in the same half last year. The company reaffirmed its guidance for a full-year dividend of 62¢. Shares closed 1.4 per cent higher at $16.33.

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