Pie-in-sky traffic and revenue forecasts for Australian tunnel pike hit with class action suits

June 1, 2012
By Peter Samuel

2012-05-31: AECOM and possibly other companies are facing potentially costly class action law suits for pie-in-the-sky traffic and revenue forecasts they produced that were used to sell stock to investors in a failed Australian toll tunnelway. This week a class action law suit was filed in Australian Federal Court in Sydney against AECOM on behalf of about 700 investors in the CLEM7 toll tunnel in Brisbane built by RiverCity Motorway.

The 700 investors in the latest Brisbane tunnel suit say they have lost $150m. (Australian and US dollars are presently similar in value.)

This follows the filing of a separate lawsuit against AECOM by the receivers for bankrupt RiverCity Motorway. The operator of the tunnel charges AECOM with"misleading and deceptive conduct" and "negligent misstatements."

Aecom forecast CLEM7 tunnel traffic of 60,000 a day when tolls started, rising to 95k a year later. By comparison actual traffic started at 20,000 in April 2010, rising in the next several months to 30,000, from which traffic has generally been in decline again and bobs around at 20,000 to 23,000 currently.

Robert Bain, London-based T&R consultant and a leading analyst on traffic forecasting accuracy declined comment on CLEM7 specifically. But as part of recent work for the Australian Government Bain (as RBconsult Ltd) has reviewed all of the Australian pikes forecasts and results. We reproduce the CLEM7 chart of his below.

Three quarters of the AECOM traffic never showed up!

Three quarters of AECOM-forecast traffic has failed to materialize!

The revenue shortfall is even greater.

In a statement on the RiverCity Motorway suit AECOM said: "We do sincerely regret that investors in the CLEM7 tunnel have seen a loss on their investment. However, Aecom in Australia is neither legally or ethically responsible for this loss."

Richard Ryan of the firm Maurice Blackburn Lawyers is quoted in the announcement of the latest shareholder action: "AECOM claimed to have applied conservative and reasonable assumptions when preparing its traffic forecasts. Our clients' claim alleges that what AECOM did was apply unreasonable assumptions that had the effect of making the tunnel project look viable when it was a dud. AECOM should be held accountable for its misleading conduct and negligence."

Lead plaintiff Stephen Hopkins: "I read the (prospectus) for the RiverCity (CLEM7) tunnel project carefully and I was impressed with the traffic projections and invested accordingly. I've now lost a lot of money that my wife and I would have otherwise have had for our retirement."

The case is getting support from a for-profit litigation funder titled IMF Australian Ltd where the Queensland manager Andrew Charles says that as well as producing forecasts that were wildly inaccurate AECOM failed to disclose material facts to potential investors - notably that it had earlier provided the City of Brisbane (where the tunnel is located) with a traffic forecast one half that which was published for investors.

$690m was raised from investors for the CLEM7 toll tunnel by RiverCity Motorway in a public share offering in 2006.

AECOM is a large international company headquartered in Los Angeles with many aspects to its engineering practice.  Its extensive website makes no mention of traffic and revenue forecasting services, or of the CLEM 7 tunnel.  We asked them for a response on the law suit but haven't gotten any yet. (We'll write in here any response they care to provide - editor)

Former AECOM officer admits downside risks not made clear enough to 'Mom and Dad investors'

Denis Johnston now an independent consultant but previously director of advisory services at AECOM recently wrote in a paper for the Australian Government on current forecasting controversies:

"(E)ach of the participants in a PPP has a different appetite for risk. It is therefore to be expected that each will want to adopt different assumptions about the future - which reflect their risk appetite. In other words each participant wants a different forecast (or range of forecasts).

"Where recent PPPs have come into disrepute, is when the public has been invited to invest - essentially adopting the risks and the forecasts that the developer has accepted.

"Despite the prospectuses for the IPOs setting out the risks and the basis for the forecasts (as required by the Trade Practices Act), it is probably true that the 'downside' risks were not clear enough to 'Mum and Dad' investors - and even to small institutional investors. They generally don't have access to the full traffic report - just a summary included as a 'Product Disclosure Document' in the prospectus - where there is limited
scope to review all possible forecast risks and outcomes.

"The real issue here is that it if a developer wants to take an optimistic view of the future and ask his traffic advisor to prepare forecasts on the basis of these optimistic assumptions, it is not the fault of the advisor that the forecasts are 'high.'

"However, if the developer attempts to involve other investors (institutions or the public) he has a responsibility to clearly identify the assumptions underpinning the forecasts. Similarly, the investors (and lenders) have a responsibility to do adequate due diligence - preferably using a professional traffic advisor to assist them."

One of three

Australian's big cities have seen three bankruptcies of road tunnel projects - Sydney's Cross City Tunnel under Kings Cross immediately east of the central city, the Lane Cove Tunnel on the north shore of Sydney, and here the CLEM7 oriented north-south bypassing the Brisbane CBD. And there is worry about the prospects for a fourth, the Brisbane Airport Link due to open end-August 2012.

BACKGROUND: CLEM7 provides a neat river crossing that links Brisbane's northern and southern suburbs bypassing traffic destined for and from the central business district proper. It is an underground bypass of the CBD. However it competes with untolled bridges.

Brisbane metro area has 2.08m population well behind Sydney #1 with 4.63m and #2 Melbourne's 4.14m, but ahead of #4 Perth 1.74m and #5 Adelaide 1.21m.

The heart of the project is twin 2 lane tubes 4.8km, 3 miles long plus 2km, 1.2 miles of approach ramps for the facility which has twin access and egress at each end plus intermediate access/egress on the south side. The work was mostly deep bored rock tunneling by 12.4m, 41ft diameter Herrenknecht tunnel boring machines. The tunnels are 60m, 200ft below the Brisbane River at their lowest point.

3.5m metric tons of rock were excavated, 38,000 prefabricated concrete wall segments were installed, and 280k m3 of concrete used in the project. Construction  began September 2006 and the tunnels were opened to traffic March 2010 and tolling began April 2010.

Major destinations served north of the Brisbane River are the Brisbane Airport,  Chermside Shopping Centre, RBH Hospital and RNA Exhibition Grounds. South of the river are 'The Gabba' (Brisbane Cricket Ground), PA and Mater Hospitals and the Pacific Motorway heading to the Gold Coast beaches southeast of Brisbane.

RiverCity Motorway is a Queensland public company established in 2006 solely to build, own and operate the CLEM7 toll tunnelway, the first private tollway in Australia's third city.

Tolls are $3.95 for cars, $6.61 for light commercial vehicles (2 axles, <4.5t) and $11.66 for heavy trucks (3 or more axles, >4.5t.) Tolling is managed by FLOW Tolling, which tolls through a transponder, or by license plate imaging and character recognition algorithms plus motor registry lookup of vehicle owenrship.

RiverCity Motorway was publicly listed on the Australian Stock Exchange (ASX) in 2006 after raising $690m in an initial public offering. No taxpayer money was spent on the CLEM7 project.

RiverCity Motorway was suspended from trading on the ASX ten months after tolls began when its financial future looked hopeless and receivers were appointed February 25 2011.

Brisbane's Clem Jones Tunnel (CLEM7) is described by the company as a "faster, safer, more reliable choice for significant time savings in cross-city travel."

The 6.8km, 4.25 mile toll motorway links five major Brisbane highways - the Pacific Motorway, Ipswich Road, Lutwyche Road, Inner City Bypass and Shafston Avenue at Kangaroo Point.

The CLEM7 forms the first part of Brisbane's new M7 motorway, to be completed in 2012 when the Airport Link tunnelway opens.  Overall the M7 will provide a expressway link between Brisbane's established southern suburbs, the Airport to the northeast and the fast-growing northern suburbs.

The term CLEM honors Clem Jones Brisbane's longest serving mayor 1961 to 1975. Jones was responsible for pushing much of Brisbane's transport planning and major infrastructure including the first expressways as well as city parks, sports fields and swimming pools.

Clem Jones died in 2007, at 89.  

The '7' is the tunnel's designation as part of the M7 motorway.

CLEM7 website:

http://www.clem7.com.au

RiverCity Motorway website:

www.rivercitymotorway.com.au

http://www.imf.com.au/

The Australian Government's Department of Infrastructure and Transport has sponsored a critical look at traffic forecasting. See:

http://www.infrastructure.gov.au/infrastructure/public_consultations/patronage_forecasting_submissions/index.aspx

COMMENT: we've never quite understood why anyone would go to an engineering company for traffic and revenue analysis which is not engineering. It is economics. Like calling the plumber when your circuit breakers keep popping...

...though it was an economist who told us recently that if his firm was instructed by the state government of California to assume that 2/3 of the airline passengers between Los Angeles and San Francsisco would choose high speed rail, then they'd be happy to use that 2/3 assumption in their HSR traffic and revenue forecast.

Maybe the plumber would get better results - editor.

TOLLROADSnews 2012-05-31

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