By contrast, the Liberal opposition has previously estimated that cancelling the project would cost just $30 million.

Unlike the Victorian reverse-course on its road project, the Canberra rail project cancellation cost would likely punch a far larger hole in the city's budget, which enjoys the benefit of a AAA rating, said Mr Lyon.

The territory's rating – one of just three remaining AAAs at the state and federal level – is already facing the flow-on threat of a federal ratings downgrade, following Standard & Poor's putting Canberra on notice last week that it faces a one-in-three chance of a cut within two years.

Mr Coe, the ACT opposition transport spokesman, reiterated that a Liberal government would "exercise the terminate for convenience clause in the light rail contract or come to an agreement with the consortium".

"There is a reason why terminate for convenience clauses are in such contracts and if we are elected to government in October we will have an explicit mandate to take this course of action," he said. "The biggest risk to the ACT economy was the government's decision to hastily sign up to a $1.78 billion contract.

"There's no doubt it's a decision forcing the territory to live beyond its means. Only a tiny fraction of Canberra's population will be within walking distance of this tram.

"It is unfortunate that Infrastructure Partnerships Australia continue to do Labor's bidding in the ACT."

IPA's Mr Lyon writes in his letter to Mr Coe that Canberra is running out of room to maintain its AAA rating.


"You should be very cognisant that sovereign credit ratings are determined through much more than a simple tally of government revenues and expenditure," he said.

"Avoiding contracts is not consistent with the behaviours that allow governments to achieve and maintain a prized AAA rating.

"When you committed to cancel the light rail project, you thought that termination costs would be around $30 million.

"I again respectively request that you return to predictable, stable and responsible policymaking."

More than a year ago,The Australian Financial Review revealed concern within the then Abbott government over threats to tear up light rail project contracts because it risked undermining Australia's attractiveness as a destination for investment.

"Any government that decides it's going to rip up contracts that have been signed by a legitimate government escalates this issue of sovereign risk," said then federal parliamentary secretary to the Treasurer Kelly O'Dwyer.

The Canberra Liberal threat undermined former prime minister Tony Abbott's attacks on Labor over sovereign risk after Victorian premier Daniel Andrews triggered massive costs after scrapping the former Coalition's East-West road tunnel project.