The federal government has confirmed it will sell the second Sydney airport at Badgerys Creek soon after it is built, following the Sydney Airport Corporation’s decision to reject taking on the project because it was too risky.
After an announcement by Malcolm Turnbull that the project would now be part of the infrastructure package in next week’s budget, Urban Infrastructure Minister Paul Fletcher said extensive financial advice had been sought on the profitability of the airport, and the government was confident it could be sold some time after its scheduled completion in 2026.
This was backed by shadow infrastructure minister Anthony Albanese, who said the airport would be servicing a region with a population of 2.2 million and which was forecast to grow to 4 million.
“There’s no doubt that private finance will be very interested, will be falling over each other, to gain the lease of this airport when that’s done,” he said.
But he stressed that to be viable, the airport must be connected by a rail link to the city
Despite risk warnings sounded by Sydney Airport Corporation, Treasurer Scott Morrison told The Australian Financial Review on Monday that governments could build such projects cheaper and more effectively, while managing risk.
Mr Fletcher said governments, unlike private investors, could afford to do things over a longer time-frame and were able to take a broader view about the economic benefits of a project.
As forecast last week by the Financial Review, the government will incur so-called “good debt” to borrow the money for the project. which is estimated to cost between $5 billion and $6 billion.
‘Decades of indecision’
The law requires the airport to be built by a company so the government will establish an entity similar to NBN Co, which is building the national broadband network. Because it will be a cash-for-asset transfer, it will not have an impact on the budget deficit.
“It is a vitally important project for Western Sydney, for Sydney, and the nation, which is why the Coalition government ended decades of indecision by committing to the project in 2014,” Mr Turnbull said.
“The airport will be a major catalyst for jobs and economic growth in Western Sydney, injecting more than $1.9 billion into the economy during the construction phase alone. It is expected to deliver 9000 new jobs to Western Sydney by the early 2030s, and 60,000 in the long term.”
The Sydney Airport Corporation, which owns Sydney’s Kingsford Smith Airport, decided to exercise its right of refusal to build the second airport.
“Sydney Airport’s decision not to accept the [Western Sydney Airport notice of intention] on the terms provided is in the best interests of our investors who represent millions of Australians through their superannuation funds,” managing director and chief executive Kerrie Mather said in an ASX release.
“Despite the opportunities that WSA will present, the risks associated with the development and operation of WSA are considerable and endure for many decades without commensurate returns for our investors.”
The markets and the federal government had anticipated it would reject the offer, meaning the government had two options – build it itself, or find another private company to construct it.
The government had already reasoned that finding a private builder would take a long time and the government was eager to stick to the proposed schedule, which included beginning major construction in 2018 – which is also an election year – and completing the project by 2026.
The government is encouraged by Kingsford Smith Airport having a $5 billion market cap when privatised in 2002 and it is now worth $15 billion.
NSW Premier Gladys Berejiklian said her government would do its best to facilitate the construction of the airport by constructing roads around the precinct and securing the land corridor for the rail line.
“We’re excited by the project and I can’t wait for it to happen,” she said.
Because the decision by Sydney Airport Corporation has been made early, the government will now include Badgerys Creek in the budget as part of an infrastructure splurge, which will also include building in partnership with the private sector the Melbourne-to-Brisbane rail link, with a total estimated cost of $10 billion.
On Monday, Finance Minister Mathias Cormann said the Melbourne-to-Brisbane rail link, which some experts believe to be of dubious cost benefit, would not have to be signed off by peak body Infrastructure Australia.
He said all projects above a certain cost, including relevant rail projects, would have to stack up economically with proposals and business cases to be signed off by Infrastructure Australia.
But the “nation building” Inland Rail project had already gone through a thorough benefit assessment, with government testing private-sector interest in helping to build it.
“It is a matter of public record that we have gone through a market-testing exercise in recent months to assess how such a project could best be delivered, including in partnership with the private sector to share risk with the private sector as appropriate. That is something we have done in recent months,” Mr Cormann said.