ACT News

Business Council of Australia urges Liberals to rethink light rail strategy and avoid sovereign risk

Business Council of Australia chief executive Jennifer Westacott​ has co-signed a letter to the Canberra Liberals urging them to reconsider their strategy on light rail to avoid sovereign risk.

Canberra Liberals have been warned by business groups their position on light rail may cause sovereign risk.
Canberra Liberals have been warned by business groups their position on light rail may cause sovereign risk.  Photo: Supplied

The letter, also signed by Infrastructure Partnerships Australia chief executive Brendan Lyon, warned a cancellation of the $783 million light rail contract would damage Australia's international reputation as a stable market for investment.

 "Australia's executive governments have long observed a tradition -– with some regrettable exceptions – of respecting contracts entered into by their predecessors, even where such contracts prove politically inconvenient," the letter said.

Business Council of Australia chief executive Jennifer Westacott says light rail contract should be respected.
Business Council of Australia chief executive Jennifer Westacott says light rail contract should be respected. Photo: Jessica Hromas

"This provides the basis for businesses of all sizes to work with government without fear that political change might see arrangements change, bills unpaid or contracts cancelled."

Australian Industry Group chief executive Innes Willox​ also signed the letter and said the cancellation of a contract could have significant impacts on local employment and economic development in the territory.

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"While we respect your principled opposition to the Capital Metro project itself, we note that a valid contract will be in place – and construction underway – well before next year's election," the letter said.

"Cancelling multi-million dollar contracts is a false economy, because investors and contractors will factor in the costs of sovereign risk into Canberra's next project – and all the ones which follow."

The letter comes after former federal Assistant Infrastructure Minister Jamie Briggs warned the ACT opposition not to cancel contracts after the 2016 election, describing the move as "economic lunacy".

"As we have seen with the East West Link disaster in Victoria, tearing up legally binding infrastructure contracts raises sovereign risk, damages investor confidence and stifles economic growth," he said.

Final bids for the project were registered with Capital Metro in early September and the government is expected to sign a contract in early 2016.

In a letter to the three chief executives, opposition leader Jeremy Hanson and shadow transport spokesman Alistair Coe said they believed the government should delay signing contracts until after the October 2016 election.

"The opposition believes that delaying the signing of contracts is the fairest and most equitable way to proceed," he said.

"If the ACT government is successful at the next election we will drop our opposition to Capital Metro. However, if the Canberra Liberals win the election, we will be free to invest in other infrastructure projects which we believe have more benefit to Canberrans."

In June, Mr Hanson and Mr Coe wrote to the two international consortiums bidding for the project informing them they had called for the signing of contracts to be delayed.

Mr Lyons said he was not sure the Canberra Liberals were aware of the damage they were doing to Australia's reputation as a stable destination of infrastructure investment.

"The process of writing to bidders saying such things has triggered alarm bells in Paris, Sydney and across the world," he said.

 "It is entirely their right and obligation to question large-scale spending decisions by the government but there is a strong tradition of not engaging and causing sovereign risk."

In their letter, Mr Hanson and Mr Coe said it was their job as community advocates to hold the government to account and question infrastructure projects.

"We hope you would agree that there is nothing wrong with allowing Canberrans to have a say on the project," they said.

"The opposition supports the creation of jobs in infrastructure but we feel there are more beneficial projects worthy of investment."

But the three chief executives warned Canberra would become a more expensive place to invest if international companies did not believe it was a reliable place to do business.

"It is in the ACT's own interest to avoid sovereign-type risks in Australia's infrastructure market," they said.  "We respectfully urge you to reconsider this policy."