Transurban’s M7 traffic 38% less than expected

According to Transurban’s ASX press release dated 17thFebruary 2003 on the financial close of the Western Sydney Orbital, now M7 (Project debt of A$1.25 bn and A$ 980 million equity) average daily traffic (AADT) expected for 2011 was supposed to be 220,000. In September 2010 it was 136,076 or just 62 % of estimates.

This peak oil ignorant investment decision was made in the following context (selective only)

(1) A 1999 presentation of Irish oil geologist Colin Campbell to a subcommittee of the House of Commons


(2) In March 2002, Woodsides’ Managing Director John Akehurst warned of peak oil in Australia:

(3) In May 2002, there was an ASPO conference in Uppsala, Sweden, organised by Prof. Kjell Aleklett, who is currently visiting Australia and points out in his slide shows that ASPO’s forecasts were correct.

(4) Continuing warnings in ASPO’s newsletters, a historic record of which can be found here:

In the January 2003 edition the 2002 base case showed a peaking around 2010

(5) Last not least we also remember that Australia’s participation in the Iraq war was discussed at the time and that this oil war should have been another indicator for everyone to stay away from investing in oil dependent infrastructure.

Let’s have a look at actual traffic data that have been published quarterly on Transurban’s site:

Although traffic falls very short of expectations this graph shows continuing growth of around 8% except for short periods in the March quarters of 2007, 2008 and 2010 (holiday months). While this growth may be considered as good news for Transurban, such growth rates are absolutely unsustainable.

(1)  Australian oil production is declining,

(2)  global crude oil production will remain flat for 20 years at best (IEA WEO 2010), but will more likely decline

(3)  global oil export volumes will shrink due to rising demand in oil exporting countries

(4)  whatever is exported, Chindia will consume more and more of it which has to be saved somewhere else

As the diverging and conflicting trends are heading towards a clash, we can expect following impacts of peak oil on all tollways:

(a)  higher fuel prices kill discretionary travel

(b)  an oil dependent economy cannot grow if oil production does not grow. Flat or even declining economic activity means less commercial and private commuting travel

(c)  convergence of limited oil supplies and accumulated debt means the credit crisis is permanent and roll-over of debt continues to be difficult. Once peak oil becomes mainstream it will be impossible to re-finance toll-way debt

(d)  when oil prices go high enough, there will be car pooling, whether voluntary or involuntary, and traffic will go down further

(e)  in the oil endgame, fuel rationing will have to be introduced which ends the concession period of even the most robust toll-way operator

This is how the M7 was financed in 2003:

Banks have just refinanced part of the project debt, WITHOUT HAVING REPAID A SINGLE CENT, despite an annual toll revenue of around $180 million. In fact, the debt has increased slightly.

Westlink M7 raises $505m to re-finance a tranche of maturing debt

Transurban announces today that Westlink M7 (Westlink) has reached financial close on the financing of $505m of debt to replace a tranche of its debt due to mature in December 2010.

Westlink is 50% owned by Transurban and 50% by Western Sydney Roads Group.

The new debt tranche has been provided by Australia and New Zealand Banking Group, Commonwealth Bank, Credit Agricole CIB, Industry Funds Management, National Australia Bank, Natixis Australia and Westpac Banking Corporation. The tranche has a four year maturity. Westlink has further $500m and $250m debt tranches maturing in December 2012 and 2015, respectively.

Transurban CFO Tom Honan said “This re-financing has been successfully executed on competitive market terms which align well with recent toll road financings. This reflects Westlink’s strong investment grade credit rating and its strong traffic and earnings growth history and outlook.”

With another oil crunch and a repetition of a 2008 crisis expected around 2012 the next maturity dates will create some real headaches.

Conclusion: It is to be hoped that banks will refrain from investing in the planned M2 and M5 widening and stop throwing good money after bad money.