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A PROPOSED $7 billion rail tunnel from Footscray to Caulfield could be privatised under funding options being considered by the Brumby Government and being backed by Metlink, the body that promotes Melbourne's public transport operations.
The Government has also refused to rule out fare increases to help pay for the tunnel.
The tunnel was among the key proposals in Sir Rod Eddington's report earlier this year on east-west transport options for Melbourne.
As the Government considers its response to the Eddington report, it has emerged that Metlink's submission to the inquiry included private finance options for rail projects.
Metlink's chief executive, Bernie Carolan, said the Footscray-Caulfield rail tunnel would be an attractive private financing opportunity because it was a "stand-alone" line and not an add-on to an existing line.
"This sort of rail tunnel proposition lends itself to it (private financing) more than most public transport initiatives simply because it is stand-alone," he told The Age.
Rail lines in Sydney and Brisbane have already been built using private finance.
Metlink, a strong advocate of the rail tunnel proposal, would prefer public funding for the project, but would support private finance to ensure it is built.
The operation of Melbourne's train and tram system was privatised by the Kennett government in 1999, but the state has retained the ownership of the tracks and trains.
Under the private funding model for the proposed rail tunnel, a private consortium, which could include investment banks and superannuation funds, would own the rail line for up to 30 years and receive payments from the Government for the use of the line and new stations.
Melbourne's Southern Cross Station was built under a public-private partnership model that included income from retail outlets on the site.
Similarly, the proposed underground train line and its stations could include retail space to help pay for the project, industry sources have indicated.
Public Transport Users Association president Daniel Bowen said that for a new rail line to be privately built, benefits to passengers would need to be demonstrated.
"As with the privatisation of the (public transport) operating companies, there is nothing necessarily wrong with that as long as the outcome is good for passengers and taxpayers," Mr Bowen said.
He said he was yet to be convinced the rail tunnel was justified. But if the project did go ahead, it was important public transport costs did not soar.
"So you are not stinging passengers for that infrastructure given they are already paying high fares," Mr Bowen said.
But the Government has not ruled out raising public transport fares to help pay for new infrastructure, with a spokesman saying it was not ruling out any funding options.
"We want to make decisions which address infrastructure needs but also deliver a strong, secure and sustainable future," the spokesman said.
The Government has already established a precedent for charging consumers extra to help pay for public infrastructure, with water bills expected to double in five years to finance projects designed to secure Melbourne's supply, including a desalination plant.
State Opposition Leader Ted Baillieu said he did not oppose public-private partnerships, but he could not say whether a fare increase could be justified for public transport projects without knowing the cost of the individual project.
Sir Rod's report suggested a toll on public transport tickets could be used to help pay for large rail projects.
"The study team considers a ticket levy to be a logical and practical revenue option that warrants further examination by the Victorian Government," the report said.
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