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Rural and Regional Affairs and Transport Legislation Committee
26/02/2018
Estimates
INFRASTRUCTURE AND REGIONAL DEVELOPMENT PORTFOLIO
WSA Co

WSA Co

[12:06]

Dr Kennedy : Chair, I might just note at the outset very briefly: this is the first time that Western Sydney Airport has appeared as an entity itself. This is Mr Paul O'Sullivan, the chairman, and Mr Graham Millett the chief executive officer. Previously, questions were taken by the department. Similarly to the ARTC, matters for Western Sydney Airport will now be taken by the company WSA Co.

CHAIR: Did you get suspicious when the secretary decided that's what would happen in the future? He might know something you don’t! But anyway, we're about to find out. I welcome Mr O'Sullivan and Mr Millett, representatives of WSA Co, and Mr Whalen from the Western Sydney Unit.

Senator RICE: Thank you, gentlemen, and welcome to estimates. I want to start with the business case for Western Sydney Airport. What is the status of the business case for the Western Sydney Airport?

Mr O'Sullivan : Chair, I was going to make a few opening remarks, if I may, just to give a bit of context and to introduce ourselves. Thank you to the committee for the opportunity to be here. This is, as the secretary said, our first appearance, and hopefully the first of many, at Senate estimates. I thought, before we proceed, I might just give a bit of context to the committee and talk a little bit about our work.

We were established in August, so we are just over six months old as a company. I'll begin by giving a bit of context around our governance and board. We have seven board members who have been appointed. To give the committee some confidence about the way the company is governed, I'll briefly describe their backgrounds. We have Fiona Balfour, who's a former chief information officer at Qantas and at Telstra. We have Tim Eddy, who's a former managing partner at Ernst &Young. We have Vince Graham, who's a former CEO of Networks NSW and also of RailCorp NSW; Vince lives in Western Sydney, and is very active indeed in the community there. We have Anthea Hammon: Anthea is the CEO of Scenic World, which is a major tourist destination in the Blue Mountains. We have Christine Spring, who's a civil engineer with 20 years experience in the aviation sector. Christine has worked in senior roles at Melbourne Airport, at Abu Dhabi airport, and is currently a director at Auckland Airport. Our final board member, other than myself, is John Weber, who is a former managing partner of Minter Ellison, a leading law firm, and he's also a board member of Airservices Australia. So you can see that we've got a deep level of expertise on the board.

CHAIR: What is your history, Mr O'Sullivan?

Mr O'Sullivan : I am a former chief executive of Optus, and prior to that I worked with Shell. My experience and knowledge to this event is both on spending extensively on capital investment—Optus has been putting in about $1 billion a year in infrastructure every year since 2001—so I'm quite familiar with tendering and with the competition in the market, and also with competing with a powerful incumbent. Kingsford Smith Airport, which has a monopoly today in Sydney, is one of the most profitable airports in the world so, as we compete with them, we'll need to be very nimble and very disruptive in how we approach the market. I'm very familiar with that from the telecoms world.

CHAIR: Thank you for that.

Mr O'Sullivan : I just want to stress to the committee a really important philosophical approach that we're taking. Our instructions to management are that we do not see this as building a piece of infrastructure and that's it. We're actually about building a sustainable and viable airport business, and to be successful and viable we need to have strong support and custom from the community in which we operate in Western Sydney. From day one, our focus has been all about how the airport can be not only a good partner in the community but how we can actually be a cornerstone for jobs and economic growth in the community. And beyond that, indeed, we have set ourselves a goal that we want to be a symbol for the Western Sydney community that they are proud of and that demonstrates the energy and the ingenuity that exists.

We've achieved a number of goals in the first six months, which I will touch on very quickly. We've opened our head office in Liverpool, in the CBD. We've commenced some work on what we call 'enabling' activities. An example of that is working with TransGrid to bury a major transmission line, which otherwise would go right across the runway where aircraft are taking off. We've also done geotech and land survey work. We've continued the air- and noise-monitoring work commenced by the department. We've commenced work in getting contractors doing early earthworks in the north-east corner of the site, and that includes the realignment of a local road. A registration of interest for this work was put out to market in December.

In January, we issued an expression of interest for a project partner and a delivery partner, and we held an information session for industry in December. We issued an ROI in February for the procurement of the first of the major packages of the work on the airport. That is for what we call the earth-side civil works, which include earthworks, utility works and laying the pavements. That would be known in the public as laying the runway, the taxiways, and the apron. We expect to have contracts for that awarded sometime next year.

Finally, I would just say that senior management and I have been involved very widely in engaging with the local community. I have personally met with nine of the local councils, including mayors and general managers. We had a stakeholders forum in Parramatta and a briefing at Panthers Penrith which attracted over 600 local and corporate businesses, and we've attended a large number of community events. For us, that is a major priority in the coming months. I will stop there and pass back to the committee for questions.

Senator RICE: What is the status of the business case?

Mr Millet t : The business case was originally put together by the Commonwealth to look at the aviation demand in the Sydney Basin. That business case found that Sydney Kingsford Smith would become severely constrained in a relatively short period of time, probably by approximately 2030. When it looked at the ongoing demand by carriers for airspace in New South Wales, it was thus determined that there was a requirement for a second Sydney airport. As a result of that, there was a technical specification put together for that airport.

We've been charged with delivering an airport by the end of 2026 which will have, initially, a 3,700-metre runway and a terminal that will accommodate up to 10 million passengers per year. In the first instance, when the airport opens, it's expected that we will have between three and possibly four million passengers per year, but it will grow over time to that 10 million. And after that, the airport is being designed—and will continue to be designed—in a modular format, so that over time it will increase to a maximum number of 82 million passengers per year and in fact there will be a second runway. It's another 3,700-metre runway, parallel to the first runway, and will be installed in approximately 2041-2042, based upon current forecasts.

Senator RICE: All right, but is there a business case for the Western Sydney airport?

Mr Mille t t : Yes, there is a business case.

Dr Kennedy : The business case is published on our website. We can send you a link. It was completed in late-2016.

Senator RICE: Okay. The Sydney Airport Corporation didn’t take up the Badgerys Creek airport project last year. It said that this was because it didn't have a business case and that it would be years before a return on investment was realised, if at all. How do you respond to that reluctance from them compared with your excitement about the project?

Mr Millett : I wasn't party to those discussions with Sydney Airport and so I might refer your question to the department.

Mr Whalen : As part of the right of first refusal process, the notice of intention was provided to Sydney Airport in December 2016. They advised in May 2017 that they were unwilling to accept that offer.

Senator RICE: When was the business case for the airport produced? Did you say it was on your website?

Mr Whalen : The business case for the airport was produced by the department as one of the key steps in leading up to the government's decision to release the offer to Sydney Airport. So it was completed prior to that offer being made to Sydney Airport.

Senator RICE: Why did they say that it didn't have a business case?

Mr Whalen : The terminology they used had more to do with—and I cannot speak on their behalf—the nature of investments they were interested in. It wasn't a good fit for the types of investments they were making and their shareholders were interested in. The airport, at the end of the day, is a long-term investment, and I'm sure that would have factored into their decision.

Senator RICE: So it's going to be a longer-term investment, and Sydney Airport wanted a quicker return. In summary, is that the difference?

Dr Kennedy : It wouldn't be appropriate for us to start speaking on behalf of Sydney Airport's considerations. The business case—the benefits versus costs, if you like—went through Infrastructure Australia and it is published, as Mr Whalen said, on our website. It wouldn't be appropriate for us to speculate on why they should or shouldn't have taken up that decision. That's really a matter for them -

Senator RICE: In summary, it sounds from what you just said that they wanted a quicker return on investment—

CHAIR: Same pony different saddle, Senator Rice. As the witnesses have indicated, they can't respond to that. Rephrase your question if you want to try a different angle.

Senator RICE: In what year is it expected there will be a return on the investment for the Western Sydney airport?

Mr Whalen : We can get that information for you. We can take that on notice. I don't have that in front of me right at the moment. It's a number of years off—it's 20 or 25 years at least after the airport begins operation before it starts to make a return. In more technical terms, it's when it gets into the net present value positive space and that is 20 to 25 years after the airport begins operations.

Senator RICE: So we're looking at post 2050 then. Did you say it was not opening until 2026?

Mr O'Sullivan : That's correct, Senator.

Senator RICE: So we're looking at about 2050 before there would be a return on the investment.

Mr Whalen : If you want the exact date, I'd need to take that on notice.

Senator RICE: So we won't see a return on the government's investment of $5.3 billion until that time effectively.

Mr Whalen : The government's return on its investment will come down to the government's decisions in the future as to whether it wants to continue to hold onto the airport or divest it, and that is a matter for government.

Senator RICE: With the business case you are accommodating the potential of cost overruns. With almost all large infrastructure projects that we've seen in Australia in recent times there have been substantial cost overruns. How are you accounting for that?

Mr Millett : Within the budget there is a contingency amount, which is based on industry norms. To be frank, until we find the results of the market tenders, which come in after the first major package is let, we won't really know how the market is responding to our tender. However, we believe that the contingencies that have been provided within the budget are sufficient to accommodate escalations and to accommodate any unknowns that may arise.

Senator RICE: How much are those contingencies?

Mr Millett : I'll take that question on notice, if I may.

Senator RICE: Are you taking into account the potential of paying compensation for aircraft noise? When the third runway at Sydney Airport commenced operations, millions of dollars' worth of compensation for aircraft noise had to be paid to affected residents, because the EIS failed to accurately state the impact of aircraft noise.

Mr Millett : The air space and the flight corridors have not been determined at this stage, and so I am unable to answer your question.

Dr Kennedy : If you like, Senator, we could provide you with some information on that now. Would that be helpful?

Senator RICE: Yes.

Mr Taylor : There has been a costing done for the noise amelioration package that will be required for this airport, and that costing has been built into the business case and the business plan.

Senator RICE: And can you tell us what that costing is?

Mr Taylor : There is an amount for Commonwealth preparatory activities—that is a certain term we use within the project, CPAs. That amount has been built into—

Senator STERLE: How much?

Mr Taylor : The total amount is $444.9 million. That is not—

Senator STERLE: Whoo!

Mr Taylor : That is not wholly for noise amelioration but the total amount is $444.9 million.

Senator RICE: Half a billion dollars on—

Mr Taylor : That includes flight path delivery. That includes a biodiversity offset delivery, the noise amelioration package and a number of other things that the Commonwealth has taken on with regulatory risk. The Commonwealth will continue to—

Senator RICE: So that $444.9 million is broader than aircraft noise amelioration?

Mr Taylor : Yes.

Senator RICE: Can you tell us how much the noise amelioration proportion of that is?

Mr Taylor : It is $75 million, as we have put aside, in that $444.9 million.

Senator RICE: Okay. Thank you. And how has the future construction of a rail connection been taken into account with the development process.

Mr Millet t : Senator, we've allowed for a rail corridor, a rail easement, to the airport. However, the matter of providing the rail is an issue for the state government. Both the federal and state governments are in consultation over this very issue. What I can say to you is that from day one the airport will be rail ready.

Senator RICE: Right. But you don't have an expectation that there will be a rail line there from 2026?

Mr Mille t t : Again, I await the conclusion of discussions between the Commonwealth and the state government.

Dr Kennedy : That's a matter for the department, Senator. Sorry for the confusion there. There are, as Mr Millett outlined, ongoing conversations between the Commonwealth and the New South Wales government about Western Sydney rail needs and there is a Western Sydney rail needs scoping study that has been undertaken. Some of these matters come up in the context of the department's appearance later this evening, where we can have the relevant officials to go into more detail. But those conversations are ongoing. Perhaps that is the best way to put it.

Senator RICE: Yes, but the provision of a rail connection would, you would agree, impact on how attractive the airport is and its patronage. If you've got a good rail connection, it's going to improve—

Mr Millet t : The airport will have excellent public access. As you may be aware, Senator, the state government is spending significant funds on upgrading the road system. It has just been announced that the M12 will provide a direct connection between the airport and also the M7. So, as long as we have that sort of access, I think the airport is not dependent on rail for its economic stability.

Senator RICE: And you don't see that the rail connection would vary the attractiveness of the airport and hence the rate of return and its financial success?

Mr Millet t : As I said, I think the better the public access to the airport, the more attractive it will be.

Dr Kennedy : Just on rail and road—we spoke about this earlier in the cities conversation with Infrastructure Australia—the airport is part of an overall development in Western Sydney that New South Wales has been talking to the Commonwealth government about. So the provision of a rail connection for Western Sydney airport should be seen in that context, as part of the broader rail needs of emerging Western Sydney. As Mr Millett outlined, there is already some substantial money being invested, including $2.9 billion by the Commonwealth government into improving the road system, such that on day one there is motorway grade connection to the airport.

Senator RICE: Okay. I have to rush. So thank you very much.

Senator STERLE: I might just follow on from there, Chair. Can someone tell me: what is the estimated average travel time by road from the new airport to the city and by rail? Obviously, you've done all those studies. I just want to know out of curiosity.

Mr O'Sullivan : I think it's important to also make the point that this airport will have a primary catchment area in the Western Sydney area. That's two to three million people, estimated, who will see this airport as their natural point of—

Senator STERLE: So there will still be the opportunity—without looking into the crystal ball—people from Perth who fly into Sydney will probably go into Kingsford Smith rather than—

Mr O'Sullivan : Both airports will operate and then it will be a question of competition and choice as to which one you choose. I will be working hard to make sure you choose ours.

Senator STERLE: The four-hour flight is fun enough but you wouldn't want a two-hour drive on top. That's why I'm just asking.

CHAIR: Where do you originate from, Mr O'Sullivan?

Mr O'Sullivan : I'm from a place called Athlone in Ireland. But I've been in Australia since the 1980s, so I am a long-term resident and citizen.

CHAIR: We could be cousins.

Senator STERLE: How scary is that?

CHAIR: In the southern part? Anywhere near—

Mr O'Sullivan : The part of the world the O'Sullivans come from is County Derry, but of course as I said—

Senator STERLE: So were your mob on the run too?

CHAIR: I will see that no-one gives you a hard time here.

Mr O'Sullivan : Okay. Much appreciated.

CHAIR: I thank the witnesses for their attendance. Safe travel back to where you're going.

Proceedings suspended from 12 : 25 to 13:31