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By one calculation, the $450-million contract that Keolis Downer has with the state government to run Newcastle’s buses, ferries and light rail could be worth as much as $800 million over 10 years.
But the government disputes this amount, describing it as “grossly inaccurate”, while confirming Keolis Downer could be paid more than the stated figure. When the contract was announced in December, both the government and Keolis Downer declined to put a dollar figure on the value of the Newcastle Transport contract. But one of Keolis Downer’s parent companies, Downer EDI, subsequently told the stock exchange that the 10-year contract was valued at “approximately $450 million”.
Sources close to the bid confirmed that the $450 million figure measured the “net present value” of the contract, a figure that represented what the contract was worth to Keolis Downer at the time of signing, rather than how much it would be paid over the 10 years. To obtain the overall or “future” value of such a contract, the $450 million figure would be compounded at a “discount” (or interest) rate of 6 per cent per annum, giving a theoretical total of $805 million over 10 years.
But on Tuesday, the government disputed the discount rate, saying it was not close to appropriate”.
“The 10 year contract is $450 million,” a Transport for NSW spokesperson said.
“This is the base contract rate that will be paid to Keolis Downer to plan and run services. Keolis Downer will receive an additional financial incentive for every additional passenger they carry, so the amount they are paid depends on how well they perform. The contract will also include financial penalties if patronage declines under the new operator’s watch.
“It is important to note that the Keolis Downer bid was not the cheapest bid, but it offered the best value because it delivered massive service improvements for Newcastle commuters while ensuring ongoing employment for staff. This is why it was chosen over bids that offered bigger savings to the NSW government.”
During the bidding period, Keolis Downer repeatedly said that the buses were the biggest part of the contract, with the light rail and Stockton ferry having far smaller operating costs. The government has declined to produce a business case and other financial detail on the light rail project, leading to criticism from the Labor opposition and the NSW Greens. But governments of both persuasions have tended in recent years to bundle Newcastle Buses results in with the much bigger Sydney Buses operation, making it difficult to work out the running costs of public transport in Newcastle.
NSW Audit office reports show that between 2008 and 2012, Newcastle Buses recovered less than 20 per cent of its service costs from passengers, compared with about 50 per cent in Sydney.
In a 2003 application to IPART over fares, Newcastle Buses said its cash costs, including asset replacement, were $39 million a year, compared with total income of $26 million a year.
This article first appeared on www.theherald.com.au
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