Illustration: Ron Tandberg As part of an unsolicited proposal to build the $5.5 billion second crossing from Melbourne's west, Transurban has negotiated a deal including an extension on its existing CityLink tolling concession for 10 to 12 years. The concession was due to expire in 2035. Under the Transurban bid the cost of the project is to be split three ways between tolls on the new road, federal and state government contributions, and the extension of the existing CityLink concession. The analysis by The Age and transport actuary Ian Bell indicates a 12-year extension would generate $20 billion to $30 billion (nominal) in extra toll revenue, or between $3.8 billion and $5.7 billion discounted to 2022 dollars.

One transport industry analyst told Fairfax: "Transurban is now in a position where it can go to governments and say 'We can solve your traffic headaches and get you in good standing with the electorate, and we're happy to get paid in the long term. Future generations can pay for this'." Mr Bell said the concession extension appeared to be worth considerably more than one-third of the cost of building the Western Distributor. "I can't see a strong case for the government to grant a concession extension, certainly not for 12 years, and without competition," said Mr Bell, principal at Financial-Architects.Asia. "In any case the $20 billion to $30 billion seems better in government hands because they have a lower cost of borrowing." It also highlights how Transurban's control of the spine of Melbourne's road network gives it leverage over government, and a competitive advantage under the policy of so-called "market-led" proposals which allows business to propose major projects. In 2015, the Andrews government announced the Western Distributor as a much needed alternative to the West Gate, and improved road link to the port, with Treasurer Tim Pallas acknowledging Transurban had proposed the project to him while he was in opposition.

The government has claimed the new road network would save commuters from the west up to 20 minutes a day and take 6000 trucks off the West Gate Bridge. The business case, released by the Andrews government, has supported the extension of the CityLink concession, and found the project to be an economic winner with $1.30 benefit from each dollar spent. However the business case documents are heavily redacted and key financial information deleted. The Age analysis is based on the limited business case data, information gleaned from Transurban's own financial reports, analysts' insight, and conservative assumptions about demand growth. When the Kennett government signed the original CityLink contract with Transurban in 1995 the concession period was to end in 2034, at which point the network was to revert to government control. But so lucrative is CityLink to Transurban that the company appears intent on extending the concession for as long as possible in return for road upgrades and road widening that boost capacity and, therefore, revenue.

CityLink has already been a massive money spinner for Transurban with toll revenue rising nearly 8 per cent a year since 2008 generating tolling and fee revenue of $5.78 billion since 2000. The company now boasts almost $600 million a year in revenue from CityLink. Based on current forecasts, analysts at UBS expect toll revenue to reach $850 million a year by 2020. With Transurban assuming the role of a virtual major roads authority in Melbourne governments struggle to match their knowledge and negotiating skills. Credit Suisse analysts Paul Butler and Gretel Janu have valued the Western Distributor project as a 90 cent boost to Transurban's share price, and extra $2 billion to the company's market value, pointing out that the company could benefit from the extra traffic generated from by the new west east crossing, more traffic on CityLink road, and the concession extension. Mr Pallas refused to divulge the government's own estimates of what the concession extension would be worth to Transurban.

He said it was a project of state and national economic importance, which will allow for more efficient movement of freight around Melbourne and to the port, and remove trucks from inner west suburban roads. Transurban refused to directly answer a series of questions about the value of the concession extension. The $20 billion to $30 billion are nominal figures based on modelling for a range of scenarios that factor in Transurban's own financial reporting of growth, analyst forecasts, increased capacity from road widening, changes to toll levels and road usage (for ease, modelled to mid-2047. CityLink concession ends 14/1/2035). The $3.8 billion to $5.7 billion figure is a Net Present Value based on a discount rate of 8% which is 6% plus inflation to 2022 dollars. However the analysis also modelled discount rates at 4% and 10% across a range of traffic scenarios producing Net Present Value figures from $2.7 billion to $10.9 billion. An 8% rate is realistic given analyst forecasts and recent market observations.

No allowance has been made for the likely advent of driverless and autonomous vehicles widely expected to improve traffic flows and toll revenue. The figures assume a relatively stable interest rate environment. Figures are based on assumptions that cannot be verified including about traffic statistics and toll data.