A government pledge that developers would fund $1 billion worth of public works at Barangaroo is in jeopardy after a Supreme Court ruling that could leave taxpayers hundreds of millions of dollars out of pocket.
The potential shortfall leaves the government with three options: curb public works at Barangaroo, including a much-touted headland park; find the money elsewhere, or recoup the funds through future development at Barangaroo, such as James Packer’s luxury hotel-casino.
The Barangaroo Delivery Authority confirmed on Tuesday it will appeal the ruling. It follows a dispute over how two commercial towers at Barangaroo South should be valued, which will dictate how much the government receives from the project.
In 2010, the former Keneally government announced Barangaroo’s headland park would be delivered at ”no cost to taxpayers”, and would instead be funded from commercial development at the south end of the site. The developer contributions were billed as the payoff to the public for allowing private development on prime state-owned land.
In exchange for developing commercial, retail and residential buildings at Barangaroo South, Lend Lease is required to pay the government fixed payments believed to total about $450 million, plus so-called ”value share payments” based on land values at Barangaroo South once the project is complete. The contributions were expected to largely pay for about $1 billion in works including the park and public infrastructure.
It is understood the court ruling means the value share payments paid by Lend Lease will fall far short of government expectations.
Other sources claim the cash-strapped government overestimated the potential land values and is seeking to squeeze extra returns out of the project.
An Auditor-General’s report last month warned big cuts to the value share payments may affect the Barangaroo Delivery Authority’s ability to fund the public domain and infrastructure, adding it ”may need to find other sources of revenue to deliver the site at nil cost to taxpayers”. In an earlier report, the Auditor-General also warned that if contributions from Lend Lease were less than expected, ”construction of uncommitted works may need to be reduced and the public domain curtailed”.
Barangaroo Delivery Authority chief executive John Tabart has previously said the dispute was ”very serious”. An authority spokesman said on Tuesday it would appeal the verdict.
A Lend Lease spokesman said the ruling confirms its interpretation of the contract and it would continue to work towards ”a great outcome for Sydney”.
Sources said the government may seek to recoup funds through future development at Barangaroo, including the hotel and residential components of Mr Packer’s Crown casino proposal.
A Crown spokesman said it continued to have ”productive discussions” with the authority and Lend Lease over the project.
Commercially sensitive financial information involved in the dispute has not been made public.
The Greens’ planning spokesman, David Shoebridge, said the government should ”come clean” on the extent of taxpayer losses, saying that ”vast swathes of harbourside land [have been] handed to a developer for a price that looks like it won’t even be enough to build a decent park”.
What the Lend Lease-BDA dispute was about:
In return for developing Barangaroo South, Lend Lease will pay the government a series of fixed payments and so-called ”value-share payments” based on land values.
Lend Lease has entered into agreements with several investors who will make cash contributions to fund the construction.
The Barangaroo Delivery Authority argued those payments should be included when calculating the land values, because they formed part of the project’s cash flow. But Lend Lease said the contributions should not be included because they were a funding arrangement to finance construction costs.
The court ruled in favour of Lend Lease. The BDA will appeal.
See the report in SMH here.