Transurban Group (TRAUF) CEO Scott Charlton on Q2 2020 Results - Earnings Call Transcript

SA Transcripts profile picture
SA Transcripts
128.18K Followers

Transurban Group (OTCPK:TRAUF) Q2 2020 Earnings Conference Call February 10, 2020 5:30 PM ET

Company Participants

Scott Charlton - Chief Executive Officer

Adam Watson - Chief Financial Officer

Tess Palmer - Head of Investor Relations

Conference Call Participants

Ian Myles - Macquarie Equities

Simon Mitchell - UBS

Rob Koh - Morgan Stanley

Ben Bradshaw - JP Morgan

Cameron McDonald - Evans & Partners

Owen Birrell - Goldman Sachs

Nathan Lead - Morgans Financial

Paul Butler - Credit Suisse

David Lloyd - Citigroup

Scott Ryall - Rimor Equity Research

Operator

Thank you for standing by, and welcome to the Transurban Half-Year Results Conference Call. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Mr. Scott Charlton, CEO. Please go ahead, Scott.

Scott Charlton

Great. Thank you. And thanks, everyone, for joining us today for our half year results briefing. Hopefully you have the materials that we put out on the ASX. I'm going to be going through the investor presentation that we released. I'm joined today by our CFO Adam Watson and will take probably about 30 minutes and then leave time for quite a few questions. Also on the call is Tess Palmer, our Head of Investor Relations. And if you have any follow up questions that we don't get to, please direct those to the investor relations team and they will follow up with you as soon as they can.

Alright, so let's get into it. So if I could turn to Page 4 of the presentation and talk a little bit about the highlights, we've seen traffic growth up across the portfolio of 2.3%. Despite we've seen some weaker conditions, particularly in Sydney, and we'll talk about that when we get to the market. We do believe, though, across the whole portfolio that the traffic number does demonstrate sort of the resilience and diversity of the overall portfolio. And again, like I said, we'll go through the individual markets.

EBITDA increased by 9.5%, close to $1.1 billion. We continue to focus our management on the cost line. And that's resulted in underlying cost growth of 2%. And if we take out the FX loss, less than 1% growth and Adam will go into bit more detail on how we accomplish that. The board has reaffirmed our full year distribution guidance of $0.62 per security and our interim distribution which we announced back at the end of last year $0.31 per security is more than 100% covered by free cash flow. This also will include for the full year $0.04 per security fully franked and $0.02 of that for the half year.

So if I move to Slide 5 and we talk a little bit about some of the key issues or highlights in the operations, we've made steady progress on both the operations and development pipeline. During the half, we've opened two new assets to traffic the new M4 in Sydney as part of the WestConnex connects the new M4 tunnels and the 395 Express Lanes in the US. And both of these assets are performing in line with or ahead of our expectations. And pleasingly we're achieving some very significant travel time savings for our customers.

We acquired the remaining 34.6% minority interest in the M5 West. We fully funded that acquisition by an underwritten institutional placement and a security purchase plan that many of you participated in, and we're very pleased with a strong support from investors for that, and again, thank you for your support.

If you've been watching the media or ASX release of the last few weeks, we've obviously had a challenging period on the West Gate Tunnel. I'll talk more about that status of the project in a few moments. Suffice it to say that we are very actively working with all the project parties to get the job done as quickly and safely as possible. And there's a significant amount of work progressing on site, including today where there's across the subcontractors, the work on site, there's approximately 4000 people working on the site.

We continue to strive for improvements in road safety and this half we achieved our best ever safety performance since introducing the road injury crash index around our assets. Safety is a very important part of our value proposition and of course the right thing to do. An independent research has shown that Transurban roads are up to 68% safer than the comparable alternatives.

I'll move to some of our customer highlights and we've been spending a lot of time over the last three years working various processes platforms to deliver additional benefits to our customers. We now have and this is Slide 6, we now have more than 5.5 million customers in Australia, of which approximately 65% of our customers spend less than $20 per month on toll, and they save over 350,000 hours every day on average workday, travel time savings, and 83% of our customers spend less than $50 a month.

So we're pleased with the value proposition for our customers. We also continue to look for ways to enhance the customer experience and we've introduced a new Linkt rewards program. So if you're with our total retailer Linkt, you can get rewards particularly on fuel savings. Our GPS LinktGO app also continues to prove very popular and we've now had more than 1.5 million trips through that app that we've put out over the last year.

Turning to Slide 7, which just highlights some of the broader stakeholder issues and some of the initiatives that we're taking across the community, we had just recently negotiated and signed up to two power purchase agreements, under which we'll source up to 80% of our electricity needs in both Brisbane and Sydney, from wind energy projects and these power purchase agreements represents depth change in which we power our roads and tunnels. It will provide pricing certainty for our business, and it will help us meet our targets to reduce our emissions by 50% by 2030. Also looking offshore, this period, we made our first payment as part of our public private partnership with the Virginia Department of Transport. This annual payment under the 395 Extension deal is for public transport and will be invested in new bus services that are expected to move more people through that transport corridor every day and benefits the wider community.

Just quickly on Slide 8, this is something we did at Investor Day, just an update on our strategy. Nothing really changed. Provide sustainable transport solutions offering choice, reliability, safety, transparency and value. And of course, we do this through our core competencies, which we believe we have advantages in how we look at network forecasting, delivery through our customer and community operations as well as our financial discipline.

Turning to Slide 9, you may recall that the near term priorities that we articulated after the WestConnex transaction in which we are very focused on delivering our committed projects, and maximizing our performance and continue to enhance our customer and community offering, so we've made substantial progress on this. We've delivered a lot under our project pipeline today with seven major projects to be completed by mid-year and we'll go through the specifics.

Secondly, continue to run our assets efficiently across the portfolio. And obviously you see this in our cost results and some of those initiatives that are leveraging our scale across our core markets, including we now consolidating our control rooms in Brisbane we've eliminated a lot of duplicate back office functions. We're streamlining our maintenance programs and asset management. And we've in-housed most of the operations across the group.

And finally, we continue to enhance the offering for our customers and the community. Technology has and will continue to play a very big role in our enhanced value proposition for customers. On the community space, we're investing in solutions that we consider hopefully a win-win for our relationships with our neighbors in the communities where we operate.

So just on that on Page 10, we touched on a slide that you've seen for a period of time, it shows our delivery pipeline, and again, we've delivered now five of these projects in three of our markets and all of the projects that have been delivered are contributing to growth in traffic, cash flow and distributions for security holders and they're all performing in line or better than our original estimates.

One thing that I would like to point out on Slide 11 is again showing the significant progress we've made on the project pipeline highlighting the CapEx we've deployed again as a proxy measure for our construction profile. And as you can see, our exposure continues to decrease as we deliver on our major projects. And as of 31 December, our CapEx to enterprise value had reduced to 5.1% from where we were at first half '18, which was closer to almost 16%.

And after more than 20 years in this business, we have deep expertise and track record and managing these risk inherent, delivering large scale, highly complex projects. And every project does have its challenges. But the management of these is within Transurban's skill set to work with our partners to get results.

Now moving to Slide 12 and again, I'll take a minute to reflect on sort of where the organization is today, where it's come from, and where we're moving to. So we believe particularly over the last two years, we've done the groundwork to prepare our company for the next stage of opportunities. We have substantially delivered on the near term priorities we've set ourselves.

We are now a scalable organization with substantial and increasing capabilities to serve our customers and all of our markets. And we have a strong capital position which provides optionality in our portfolio. At the same time and pleasingly we're tracking a substantial opportunity set in our core markets in which we operate, and some of which are advancing quickly and we'll go through each of the markets.

Taking together these opportunities represent the largest pipeline of potential work that we've seen in Transurban's history. And in the longer term, we see substantial opportunities in the future state of mobility. And again, we're preparing to ensure we're ready to act and take advantage of what may develop. But with all that we will continue to be disciplined in our approach to these emerging opportunities, both with capital resources and delivery.

As part of that, if you turn to Slide 13, we've made some changes to the leadership team to ensure that we're best place to seize on these upcoming opportunities, and dynamic developments in the transport industry. So this is all about not where we've been. But this is all about setting stuff for the futures. So we've made some changes to the existing roles, and we'll be adding two new roles to our executive team.

Our new Group Executive Partners, Delivery and Risk will oversee our significant and growing construction agenda, while working with our partners around the development areas as well ensuring that Transurban is a preferred partner of today and tomorrow's motorways. Our new Group Executive, Customer and Technology will combine our capability from our customer and technology teams and ensure that we're at the forefront of this rapidly evolving space. Just by way of example, over 93% of our customers choose to interact with us through digital channels.

Now I'll move into the various markets. In Sydney, on Page 15, toll revenue increased by 10.8% in the period and the travel time savings are approximately 196,000 hours saved each workday. The portfolio performance in Sydney in particular continues to be impacted by some softer economic conditions, including weaker consumer sentiment and housing construction activity.

And the speed at which we see the recovery in both these markets will influence growth, particularly in Sydney and maybe Melbourne markets through 2020. I do know though, if we look at the throughputs through the port that it seems to bottom out and the port numbers do seem to be recovering, but there's some other external factors that may impact that, but we do think it has been at the bottom and coming out of that and hopefully that is the case. And we'll continue to watch carefully.

On Page 16, you'll see an update on our big development projects. We've now commenced commissioning activities on both NorthConnex and the new M5 and we look forward to both of them opening mid-2020. And we'll continue to keep the market updated on that. We're also making very good progress on the M4-M5 link which remains on schedule for opening in the financial year '23, which is the critical section of WestConnex and is expected to deliver improved connectivity across our portfolio and the entire Sydney road network.

Now turning to Slide 17, you can see there's a large opportunity set in Sydney and a very ambitious agenda in the road space, but also in the public transport space. Obviously, we're focused on the roads. And this includes the Western Harbour Tunnel project, which we have consistently flagged our interest in. The environmental impact assessment statement is now out and being reviewed by the community and processed under planning by the government. And we expect some form procurement process later on this calendar year and we await the government's process under that procurement.

We've also highlighted the Sydney Gateway and Stage 1 of the M6, which was previously known as the F6. These projects are currently being managed by the New South Wales Government and proceeding. And although we're not involved, potentially post construction, we might look to support operation and incident response integration with the rest of our assets and working collaboratively with the New South Wales Government there, all these projects and hence the value of WestConnex for Transurban and our partners in that transaction.

Moving to Melbourne, where toll total revenue growth was 3.7% for the year, and large vehicle growth at 3%, outpaced car growth. CityLink continues to be the tale of two assets, with the Western Link benefiting from the additional capacity from the widening project we did on the taller last year or the year before, while Southern Link growth was constrained by congestion and disruption from the West Gate Tunnel works.

Now, if I move to the West Gate Tunnel project and update, so you see that we had an ASX announcement two weeks ago under which the D&C contractor reported to terminate their contract for matters relating to the per-and polyfluorinated alkyl substances, which is colloquially known as PFAS. The D&C contractor has confirmed in that that its intention is to continue to work and continues to tell us their intention is to continue the works and again is on site as I speak in there approximately 4000 people working across the project today.

Like all large complex infrastructure projects, there are challenges, we've had them on NorthConnex, we've had them on WestConnex and we've had them on almost every major project that we've worked on. But we'll continue to work with all the project parties and our stakeholders and EPA Victoria, and particularly to finalized plans for tunneling activities.

Now, as it stands and we're currently reviewing the project, the contractor has informed us that the project is unlikely to be completed by the end of 2022. And there is pressure on the project schedule. However, and notwithstanding the challenges, we're working closely with our project partners to implement opportunities that would enable us to deliver this project by 2022. So again, there's been a lot of discussion, the media, I just want to make sure that everyone understands what we're saying. We believe it is possible, again, at this point to deliver the job by 2022. But the schedule is under pressure. But we are two years in a five year build at this point in time.

We're delivering this project under a standard public private partnership framework. And we have a fixed time fixed price contract with the D&C joint venture. And during the half, we've made significant progress across the full project quarter and we've deployed approximately 400 million on the works across the half, including widening works on the West Gate Freeway. We're building the certain portals on the western – on the West Gate Freeway and construction of 114 meter long gantry on Footscray road which will soon start lifting 1600 concrete segments into place to form the elevator road connecting the new tunnels with the CityLink, the port and the city.

To date, we've spent approximately $2 billion on the project and work is convincing at pace, although not the tunneling at the moment. And we are working as hard as we possibly can to get this great project delivered for the Victorian motorists. And let me also make it clear, we have a good working relationship with the government delivery authority and the government agencies and finding a solution to the project issues that confront us. If I move on to the Melbourne map, you can see that our focus is on delivering the West Gate Tunnel while we continue to maximize the operations of CityLink to the benefit of our customers.

On Slide 21, in Brisbane our largest assets Gateway and Logan continue to ramp up following the completion of the network enhancement works during 2019. And across the portfolio, the average daily traffic increased by 3.6% and toll revenue by 6.6. And I think there's some commentary around Clem7 and Airportlink on the traffic, so we've seen some of the traffic from Clem7 and Airportlink has moved over to Gateway with the upgrades and the additional capacity there, which is what we expected.

In North America, toll revenue on Slide 23 grew by 16.2%, including the three 95 Express Lanes, which commenced tolling in November of 2019. And on a like for like basis, toll revenue growth remained very strong at 15.3%. And the A25 in Canada continues to experience strong traffic growth of 6.6% which is a reflection of the economic conditions in Montreal, as well as the benefit we're receiving giving public works on a competing route.

And in November, the Capital Beltway Accord project which is the Express Lanes crossing the American Legion Bridge between Virginia and Maryland and proceeding into Maryland was announced in partnership with the two governments with the potential for construction to commence as early as 2022 and Transurban would be the developer of that project with the two governments.

If I turn now to Slide 24 on our updates of our development projects in the Greater Washington area, as I said earlier, the 395 Express Lanes are performing well with traffic and revenue in line with expectations and our customers receiving significant time savings everyday which we're very pleased about. Construction of the Fredericksburg Extension has commenced and the 495 Northern Extension projects, which takes us to the American Legion Bridge to the north on 495 is progressing with the procurement of design and build contractor now underway.

If I turn to Slide 25, there is now a significant pipeline of opportunities in our core markets in North America. And we expect those to advance in 2020. We're committed to growing in the region and in 2019 we set up the North American advisory board to ensure we again had more capability in place to support our ambitions.

If you turn to Slide 26, we've given you more detail in particular, on the Maryland Lanes Express project where an RFQ process has recently kicked off. This project is estimated around 9 billion over its total build in the first phase of the project, is worth around US 4 billion, and will extend the Express Lanes beyond the Capital Beltway Accord project to the northeast.

And the Maryland Department of Transport has refined their procurement on this project with a developer led approach, putting public private partnerships in place for different phases of the project. And this approach enables the state and the developer they pick to work collaboratively to drive value, and to best meet the needs of customers in surrounding communities. We obviously know this market well given our operating track record, and we believe we're well positioned to compete for the first phase of the project.

And just before I hand back to Adam, I should also point out, one of the other opportunities we're looking at on Page 25 is the Elizabeth River Crossings, which we expect to come to the market around mid-year as a private cell from the additional hundreds and something that we think we can add significant value given our relationship with our customers in Virginia, the Virginia Department of Transport and our understanding of those assets. So that's the highlight on the market.

Now, I will turn over to Adam to take us through the financial results.

Adam Watson

Thank you, Scott. And I'll take everyone through this in the usual format. I'll speak largely about our proportional results shortly, which again, we believe provides our investors with a better indication of our financial performance, but before that, let's start on Slide 28 with our statutory results.

So you can say for the six months ended 31, December 2019, we reported a stat net profit of $162 million. We see EBITDA growth, driven by positive contributions from both our existing assets and our new assets. And you can see the detail on the slide. Our new assets as Scott articulated before include the full year of WestConnex, the full year of consolidating the M5 West. It includes the impacts from the legislative approval of the West Gate Tunnel project, and the opening of the M4 tunnels, the Logan enhancement project and the 395.

So a lot of movement there, largely impacting our depreciation, amortization and finance costs, which I'll talk to in a moment. These new assets whilst delivering positive EBITDA contributions, as I said, have created a statutory uplift in those non-cash finance depreciation amortization, which is why you can see our statutory net profit before significant items being lower than the prior period.

Significant items this year include the integration costs for WestConnex and the M5 West, which we will continue into the second half. And as a reminder, significant items in the prior corresponding period included the accounting guide upon consolidating the M5 West into our group accounts, and also the stamp duty and integration costs associated with the acquisition of WestConnex.

So moving on to Slide 29, where we talk to our proportional results, and you can see that our proportional toll revenue increased 8.6% during the period comprising an increase of 58 million from our new assets, 41 million from our existing assets, and $11 million from favorable movements in foreign exchange rates.

Our other revenue increased largely as a result of the WestConnex management fee which you first saw in the second half of last year. Our other revenue though did also include the liquidated damages we received as a result delayed opening at the Logan enhancement project, again confirming the strength of our project delivery contracts.

We are pleased to have once again demonstrated cost discipline in the half as part of our commitment to maximize the performance of our operation. And Scott has taken you through some of those initiatives. This has translated into EBITDA increasing 9.5% for the half and delivering a 76% EBITDA margin.

And whilst EBITDA continues to be supported by our new assets, we're pleased to see that the underlying EBITDA growth from our existing operations is at around 5% in line with our targets despite the impact of the software economic conditions across Australia, and most notably, on our New South Wales assets during the period.

So Scott has spoken about our focus on ensuring Transurban scalable for next phase of growth and the investments we've made in systems and operating models, process improvement and the like, have ensured that we've maintained a low level of underlying cost growth throughout FY '19 and again in the first half of FY '2 as you can see from our analysis on Slide 30.

Excluding foreign exchange movements in new assets, our underlying cost growth has remained below inflation at just under 1% for the half. In fact, 0.8% is the exact number. Our headline cost growth of 8.3% is heavily influenced by the inclusion of the new assets to our cost base. In addition, we saw the impact of a non-cash adjustment to our CityLink maintenance provision, as we flagged at the full year of FY '19, reflecting the works required to maintain the asset for a further 10 years through to 2045.

This follows the legislative approval we recently received for the concession extension as part of our West Gate Tunnel project. That'll be around $10 million, and as an annual impact year-on-year, so just under $5 million for the half. We have restrained our development activity over the past 18 months as we will focus on integrating our new assets and driving efficiency across the group. Our investment in strategic projects over this time has largely been focused on customer initiatives, as well as the ongoing monitoring and assessment of new technologies and the impacts they will have on our business in the longer term.

Looking to the second half of FY '20, as indicated by Scott, we will increase our focus on strategic growth projects, which will translate to higher development costs to ensure we are well positioned to pursue our development opportunities. And looking more broadly at costs into the second half, we continue to benefit from our cost discipline and scale as it relates to our core activities, keeping operations, maintenance and corporate cost growth low.

We are seeing above average growth in electricity and insurance costs, driven entirely by market factors, which will reflect straight to the second half results. However, it's important to note that we do remain confident that overall we can keep our costs growth low and continuing to improve margins for the full year.

Slide 31 highlights that our EBITDA margin at a group level has remained stable at around 76% during the half. You can say that Sydney has been impacted by the weaker economic conditions and the redistribution of traffic across the network. So the margin contract during the half. In Melbourne, our EBITDA margin was impacted by the rebasing of the maintenance provision on CityLink as I mentioned before.

In Queensland, we're pleased to report that we've achieved our targeted EBITDA margin in line with what we guided to at the time of the acquisition of Queensland Motorways. This margin now reflects the benefits of the consolidation of our operations and maintenance contracts, as well as other efforts to streamline that business.

And in North America too we can report that our EBITDA margin continues to grow year-on-year reaching 68% during the period and reflecting not only the scalability that business as its toll revenue grows, but also the ongoing drive to make that business more efficient in areas such as our customer operations where there a number of initiatives that provided us with benefit during the period.

Moving on to the next slide, with our free cash, which you can see has increased almost 30% during the period to $927 million. That translates to a coverage of 109% of our first half '20 distributions. We've seen the typical ups and downs in our finance costs and working capital, which largely net each other out. So our underlying free cash flow growth remains strong, delivering a 15.8% increase for the half on the back of our EBITDA growth and our additional ownership of the M5 West.

Importantly, our free cash flow growth continues to support our distribution coverage targets, with underlying free cash being supplemented with our ongoing capital releases, which I will now take you to on the next slide.

So during the half, we did receive two capital releases, 52 million coming from the M2 and 160 million coming from the Lane Cove Tunnel. Both were enabled by the NorthConnex development agreements we established with the New South Wales Government back in 2014. It's important to note that these capital releases were not contingent on any construction milestones for NorthConnex, but instead, they were triggered by our ability to improve our credit metrics with ongoing cash flow growth in those assets. Importantly, we've maintained strong investment grade credit metrics of both entities following payment of their respective capital releases.

In the second half of this year, we expect to receive capital releases of around $125 million from the M7 and Transurban Queensland. Again, these are based on the pre agreed arrangements with their respective state governments and the capital releases will be done within the boundaries of our Treasury targets.

So finally to the capital summary on Slide 34, again, highlighting the financing activity that we've undertaken during the half and all of it has placed us in a strong position to deliver our project pipeline and to enter the new phase of growth which Scott described earlier. The capital markets continue to be supportive of Transurban and we successfully raised $4.6 billion of proportional debt during the half, in addition to the 812 million of equity we raised through the pro-rata institutional placement and the security purchase plan in August of last year.

And like Scott said, we again take this opportunity to thank our investors for their support with this most recent equity raise, which facilitated the acquisition of the M5 West minority interests. We continue to progress our integration on the M5 West and importantly, we can confirm that it remains on track to achieve its investment case targets.

You can see that the average duration of our data is higher than last year, and we've continued to reduce her average cost to debt. So pleasingly they're both moving in the right direction and delivering value for our security holders. And our key FFO to debt metric remains above our target of 8% and all other metrics, including a disciplined hedging profile, are also in good shape.

So thank you for your time, and I'll hand you back to Scott.

Scott Charlton

Great. Thanks, Adam. So I'll just come to the summary page before we do questions on Page 36. So we believe that we're well positioned for our future opportunities. We spent the last sort of two years, 18 months delivering on what we classified as obviously our near term priorities where we focused on delivering our project pipeline. We've invested substantially in our organizational capability and now restructure the expert team to prepare for the future. And we continue and finance the customer experience. But we're now at the point where we're seeing some significant opportunities develop, again, all in our core markets, and we're preparing to take advantage of them. As always, and we've discussed it many times, we will continue to focus on balancing distribution growth, and creating long-term value while we maintain our capital discipline.

So with that, I'd like to say thank you to the team, particularly Transurban who contributed to these great results and putting the day together and obviously to our security holders who've supported us and for everyone attending today's call. So with that, we will now open to questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from Ian Myles of Macquarie Equities.

Ian Myles

Guys, couple questions for you. Firstly, can we just talk about the change in executives? Have you seen the two people in those roles leave the platform? I guess also why the change at this point given, I think you've emphasized technology's been a pretty critical piece. And obviously project developments pretty important.

Scott Charlton

Yeah, so Tony Adams remains with the organization and will continue on in a very large and major project delivery role reporting to the new group executive. When that executive appointed, he remains on the executive team until that appointments may, but Tony will continue on and be responsible for major project delivery. So Tony is still with the organization, he's doing a great job and will main critical to the group going forward. So but if you look at the scale and the size of the organization and what we're doing and almost everything we're doing now and as you can appreciate with WestConnex will probably be looking for partners when we look at the Maryland Express. Almost everything we're doing is in a partnership. So that is a much bigger role. We couldn't put everything that's encapsulated in that role, including partners delivery risk includes development, HSE, operational excellence, it's just a massive role. And we had a matrix structure with 12 reports to the CEO that was given the size of the organization was becoming a bit unwieldy and creating friction in the group when you consider where we want to go, going forward, so Tony is still with the organization.

In regards to customer and technology, Kris Cooney is still with the organization leading the customer function, but if you look at, there is the technology side of it, which is obviously the road side, which is very important the infrastructure side, which is very technology driven, but a lot of the technology as well integrates directly with our customer teams and everything that we're doing there. And if we look at longer term, mobility as a service, road usage charge, technology, customer and Transurban's operations just makes more sense to bring those and they become more inter intertwined. So, Tony and Kris are still with the organization. But Lisa, through the restructure and Wes Ball have decided to leave the organization.

Ian Myles

Okay, that's great. Thank you on that. Okay, in terms of West Gate Tunnel, I appreciate you're going to get lots of questions. Have you actually gotten approved so disposal program by the API? And I guess the conundrum here is the tunnel boring machines haven't been turning for some time. And you've known about this issue for some time. What's been the roadblock to resolve this issue three or four months ago because this is probably no different?

Scott Charlton

Sure. And so, first of all, let's start with, again, it's a fantastic project and we need the second river crossing, and it's going deliver a lot of value for Victorians when it's delivered. And again, we're at 4,000 people approximately working on the site today. So the issue with the tunneling and the spoil management is historically the PFAS was an unregulated contaminant and was considered fill material. But that arrangement with the EPA has been evolving over the last few years. And as part of the process, like you said, we need a soil – spoil management plan with the EPA, and we need a site that's capable of taking the quantities and at the speed of which the TBMs will create the spoil. So we – everyone's been aware of the issue for a long period of time, I mean, it was discussed back in the EES. But the way the EPA is looking to manage it has been evolving. And with the changes, there, again, hasn't been landfill sites in Victoria that are capable of taking the quantity and at the speed of which these TBMs will be generating the material. And this whole issue has been evolving. So we've been working with the contractor, with the EPA, with the state. Everyone's been working collaboratively to try and find a solution. We are hopeful that in the next few months, we will have a technical solution. And then we'll work through the other commercial arrangements as we go forward. So it's just been an evolving issue and we've had to work through the process to make sure that the spoil is treated safely and disposed off in an environmentally approved way.

Ian Myles

So what's your finance indication, it's actually really a pure capable problem at this point in time.

Scott Charlton

At this point in time, there is no site that's capable of taking the quantities and at the speed the TBMs would deliver it, which is different than what was envisioned when the EES was done.

Ian Myles

Got it, okay and just to clarify capital spent via cord, have you got actual first concession rights over that or some sort of specific rights on that project that isn't going to turn up?

Adam Watson

Yes, it is.

Scott Charlton

Yeah, with the developer, we're working in partnership with the Maryland government and Virginian government to deliver that and we'll go to tender on the construction.

Ian Myles

And that project is about is about a billion dollars?

Scott Charlton

I think when you add them all up – when you add – when you put it in project next and it's about a billion dollars.

Ian Myles

Got it, okay.

Scott Charlton

Put to together. So the northern extension is around half a bill, and then you add another half a bill.

Ian Myles

Okay. And one final question, maintenance provisioning on Gateway, is that a one off in the first half will go back to a normal, is that changed in the maintenance provisioning now?

Adam Watson

Sorry, do you mean spend thing, the spent?

Ian Myles

The accounting spent, not the maybe the physical spin.

Scott Charlton

So I just want a clarification here, so we're working with on the Capital Beltway Accord, we're working with Virginian government on the Virginia side. So even though we're extending into the Maryland side, we're working with Virginia on that, and then Beltway is delivering their side but it's all part of the Capital Beltway Accord.

Adam Watson

So the maintenance spend on Gateway, the provision, the accounting provision is the same period-on-period. I think what you're referring to is the cash spend, which is now that we've finished the Logan enhancement project where we're ramping up again the usual rectification works on the on the Gateway.

Scott Charlton

Logan you mean, okay, yeah, the connection. Yeah.

Ian Myles

Okay, that's good on sight.

Scott Charlton

Thank you.

Operator

Thank you. Your next question comes from Arnie Mitchell of UBS. Please go ahead.

Simon Mitchell

I think that's Simon Mitchell. Good morning. Just a follow up on West Gate Tunnel, obviously still an evolving situation. But if you could just touch on the range of outcomes here in terms of incremental cost, potentially an issue to Transurban and ability to recoup that in project economics.

Scott Charlton

Look, we're not going to talk about the commercial arrangements. I think what we've stated here is that we're working under a, what would be a consistent PPP framework with Transurban in our previous projects. So if you look at those arrangements, we've got a fixed time fixed price contract with the contractor who's responsible for tunneling activities. We've got certain obligations and at the end of the day, the government obligations are regulatory and planning approvals. So we're not going to play out these contract negotiations in the media, but we will say that we believe there's a material impact on Transurban and we'll make a statement to the ASX.

Simon Mitchell

Okay, but in terms of the initiative to still deliver the project on time, 2022 presumably there are cost implication to do that. And this day, there is still a potential that Transurban pays additional cost for those initiatives.

Scott Charlton

I think what we're saying is all the parties are looking the opportunities, but again the schedule is under pressure. All the parties looking to opportunities, how we can make that happen, and still believe it's possible. Again – but if there is any material cost impact, Transurban will make an announcement to the market and we haven't made that announcement.

Simon Mitchell

Okay. And then just on the Sydney projects the NorthConnex and M5, obviously, two key milestones middle of this year given we're only four months out just any better visibility on expected timing. Are we talking about June quarter on those projects, are we talking about the December quarter?

Scott Charlton

Well, this is where this is where you always have fun with different contractors and timing. So I'll say plus or minus three months, so you can have the optimist or the pessimist, but I'd say plus or minus three months. So I think it's likely to be just after the June quarter probably and probably more into first quarter of financial year '23 likely, but right now we believe they're both around the middle of the year. But you got to go through those last commissioning stage and approval stage there's a lot that has to happen in the last few weeks. We have our Investor Day in May so obviously; we can give a better update then. But again from us financially or contractually it has no material impact on the group whether they open in May or July. It's no material impact on the group.

Simon Mitchell

Okay, and then capital releases. So thanks for the guidance for the second half this year. But what should we be thinking about beyond this year, can you just give an update on that?

Scott Charlton

You want to go out for another 20, 30 years or just next year.

Adam Watson

Simon, its Adam, as we've always flagged, we do have opportunities to undertake capital releases across a range of assets. WestConnex will be a potential new asset that we have the ability to be able to do that moving forward in addition to the ones that you've seen in the past, but again, that's a matter for the board, for them to decide. And they consider that on a periodic basis.

Scott Charlton

So I think you would realize Simon, when we talked about WestConnex and the M4 will be in operations now for come here to a second year of operation. So once we get through that ramp up period, you would expect there would be capital raise. And as we said at the time of the capital raising for WestConnex, we almost fully funded that acquisition with equity, because it was in its construction phase and that when we went through this process, we would look at redistributing some of that capital that we spend it up front.

Simon Mitchell

And just last question from me, cash interest bill was pretty flat on the same period last year despite debt thing up about $2 billion. Is that a real go forward cash interest cost or is there any timing issues in there we should be aware about?

Adam Watson

Look, there's always timing issues. So for example, when we do the new bonds, particularly in the Euro bond market, then you effectively pay in a raise so you haven't got your cash expense going through despite having raised the money. There's – some of the new debt relates to construction activity which capitalizes into the project. So you're not seeing it flow through the finance costs. We obviously have been raising the new debt at significantly lower rates and lower rates than now are average. Some of that is because it's shorter term capital funding. And some of it is just because rights through a lot lower. So it's a range of those factors.

Simon Mitchell

Okay, there is always thank you.

Operator

Thank you. Your next question comes from Rob Koh of Morgan Stanley. Please go ahead.

Rob Koh

Good morning, guys. So one more question on West Gate Tunnel, if that's okay, you've been very clear and upfront with that, so that's appreciated. I guess. The papers and your friends at Fairfax have reported that the FM notice actually; there was a pre-notice six months before the actual FM notice was received. I just want to confirm if that's true or not, and if you've received any kind of other such notices for any of your other projects?

Scott Charlton

So under the contract, there's all kinds of rights or notices. So yeah, we see received a notice that they reserve the right to potentially call an FM event, but they – under the contract, they have lots of rights to do everything, so they reserve the right doesn't mean that they would actually issue the FM event. So we are aware of that, but at the time it's just reserving the right that already existed on the contract. So it was nothing really new. In relation to other contracts are this contract, they reserve the right for a lot of different things, whatever they want to potentially put in claims or disputes and we go through the contract as we've done on every one of our other major projects. And the end, we work through the contract and we get an outcome according to the risk profile that was put forward in the contract and working with our parties and all the stakeholders. So I guess what we're saying is, it is situation is unfortunate, but all the stakeholders, government, the delivery authorities, government agencies, ourselves and the JV are all working to find a solution. But obviously, everyone's working to the contract and everyone's reserving their rights.

Rob Koh

Yeah. Okay. Thank you that that makes sense. Alright, if I move to the traffic result in Victoria, and it looks like in this quarter there was reasonable light commercial and heavy commercial vehicle growth. Can you give us some color on how much of that is better identification of vehicles versus underlying volume growth? And then assuming that that revenue quality improvement is continuing can you talk to whether there's a similar kind of identification upside in any of your other jurisdictions?

Scott Charlton

Yeah, I don't think it's – I'll double check, Rob, but I don't think it has to do – and we went through that process a couple years ago. So I think it just has to do with stronger growth in that category in Victoria. In New South Wales, we're looking at some of the – there was some confusion or confusion difference in definition of heights of trucks, which we've gone through, I think six months ago, so some of that might flow through, but they're very small numbers. So we had different I guess, sensitivities around height of trucks and we've aligned them across all the different assets, including data assets, so we get consistency. But those would be very small numbers. So I don't think there's a big difference in again, classification.

Rob Koh

Yeah. Okay. Cool. Thank you. Alright, last question for me, so you've highlighted a new customer initiative where you're giving some kind of fuel discount via Shell Coles Express. Can you maybe give us some color on what the kind of cost impact there is or assets offset by stimulated demand? And I guess you could – to those of your customers who have EV's is there anything for them to compensate them?

Scott Charlton

There's nothing to compensate me. I have an EV, so I'm sure hopefully we'll come up with something. But I don't think I need compensation. Look, we've had a good take up. It's just been going now for I think a couple of months, but it cost us zero. So it's an advantage that we give to our customers through our partnership with Coles Express and so it's a benefit to them and hopefully stimulates activity with Coles Express and their stores. And so far, we've had a really good take up and I think you can get up to like 10 or 14. It's a combination of the existing sort of ramping up of existing discounts. I think you can get up to $0.10 to $0.12 of each later. So I think it's a pretty good deal, but we'll look at the electric vehicles and what we can do there Rob.

Rob Koh

Okay, thanks very much guys.

Operator

Thank you. The next question comes from Ben Bradshaw of JP Morgan. Please go ahead.

Ben Bradshaw

Good morning guys just a question firstly on traffic for the M2 and Lane Cove, are you calling out the M4 and the opening of the Sydney Metro have impacted the traffic growth this period. I'm just interested in your thoughts around whether traffic is stabilized with those two concessions or whether you think that there's still some adjustment that will flow through potentially in the near term?

Scott Charlton

I think it's – so what we said is the impact is probably when six months ago I guess at the AGM or the full year results we're talking about a third impact Northwest, M4 and the economy. I think the further that we see M7 growth is was a bit anemic for the last quarter and into – Lane Cove as well and M5 is probably a little bit softer than we had expected. So I think most of the impact now is we would suggest is water, economic impacts in Sydney, particularly housing, consumer sentiment and a few other things. We're hoping that that is toward the bottom of that, and we don't see any further falls and then we're not I guess, we consult as many sources as we can, but obviously, we can't predict the future. We've seen as I said the port of botany the declines have sort of stabilize and starting to pick back up. So hopefully that is the case that the economies hit the bottom and starting to recover. So it's more to do probably now with the softer economic conditions. We've seen the impact of the M4 and northwest will we believe flow through. Again for us, we're investing again on sort of 30-40 a year outcome. So we sort of revolve around our traffic forecasts. And sometimes we do a bit below sometimes we're a bit above, but again, for our long term investment, we're very obviously happy with our position and then once NorthConnex opens around the middle of the year, that'll give a boost both to the M2 and to the M7, which will, which will be nice to see.

Ben Bradshaw

Okay, thank you and just on capital releases, Lane Conve and M2 have refinance in the order of 730 million this period, but the capital release is total in the order of 212 million. I'm just interested Adam, how you've determined how much of the equity release is capital release for this period. And I can say that M2 has a refinance to the end of this or into the last year. That was circa 350 million. It doesn't appear to explain the difference. So if you could just perhaps feel your thoughts on that please?

Adam Watson

So without going into specifics, effectively, what we do is we look at the credit metrics for each of the assets. And when you look at something like the M2, it's a rated entity. So we need to ensure that we've got enough headroom and coverage. So that if we read base by doing a capital release, that is raising additional debt than the usual refinance, that we can stay within those writing span. So that's principally how we do it. And for certain assets, we can stage that at where we can do it at the next refinance or periodically, but it's simply just a matter of making sure that we can stay within our credit ratings not only at the asset level, but ensuring that that it doesn't have any negative or detrimental impact on our corporate writing as well.

Scott Charlton

But the question is the amount is because that's the amount over the refund of the existing refund.

Ben Bradshaw

Okay, thanks, guys.

Operator

Thank you. Your next question comes from Cameron McDonald of Evans & Partners. Please go ahead.

Cameron McDonald

Good morning, guys. A couple of questions for me on just the traffic performance in Sydney, is ECB in your mind leading or lagging indicator around the heavy vehicle, large vehicles given a decrease of 3.7%. I know, Scott, you've mentioned that you think that you've met the bottom of or some sort of recovery, but both Queensland and Victoria are getting heavy vehicles or large vehicle growth of positive 3%.

Scott Charlton

So I think like if you see where we were a year ago, where Victoria was down further and Queensland was down further and they both picked back up. So we're hoping that Sydney at the moment is a bit of a lagger because the other two have picked back up. So like I said, we are hoping and if you look at the port volumes had started to come back and so we're hoping Sydney is a bit of a lagger. But again, there's a lot of extraneous factors out there. But we think maybe Sydney is a bit of a lagger at the moment.

Cameron McDonald

And if you can send it all about the impact of the tourism volumes and bushfires and coronavirus, we thought about what that potentially could do.

Scott Charlton

Look, there's always weather related events, whether it's storms in Queensland or bush fires or other events that impact on a, I guess, on a very short term basis traffic. Again, long term where we see our forecast, again, it's just revolving around our forecast line. So this could be some quarterly impacts or maybe half year impacts, but I guess we're very confident, long term with what's going on. Again, most of our traffic relates to driven around the commuter traffic and driven around urban traffic, which is impacted by a whole variety of things, but long term the economic position of Sydney, Melbourne and Brisbane and Virginia, we don't believe you could be in better markets. So short term I appreciate everyone looks at what happened in a quarter, but we're investing over 40, 50 years.

Cameron McDonald

You mentioned sort of Virginia in the US within this project with Maryland Express Lanes, whereabouts are you – I mean, given a timeline but we're bad see you in your own planning and assessment of that project. And I think you mentioned earlier that you would be looking for a partner, so is there anything you can give us in terms of guidance around the way of thinking would be around sort of percentage, what role you would have, what the partner is have you identified who a partner could be and then ultimately how you would be thinking about the financing of that project?

Scott Charlton

Sure. So as much as I can say, I mean, obviously, we – you know how traditional partners have been both finance partners, equity partners, construction partners and we're at advanced stages with the partners there. But that's not been announced the RFQ actually came out on Friday. So the project processes started. But we've been looking at Maryland since we've been in Virginia. So whether it's traffic or options or what we can do to improve our view of what we can do to improve the wider network is just something that we've been looking at for a very, very long time, so not starting from standing start. And we'll have more to say once we start the process, about our partners, but at this moment, it's not public information. It's again, it's working with the government with a – as a project development, getting in and working side by side and make sure you get the best outcome, and something we're pretty excited about. I think it's a great opportunity to provide a lot of value to both government and to the community and hopefully provide better outcomes to the community as well. So it is a fairly long, obviously process. And it's just kicked off. And as we go through, we'll update the market. But I think you could just say, Cam, it's probably going to fall around our traditional partners.

Cameron McDonald

And then a quick question for Adam, just on the maintenance provision at CityLink, other than changing the provision because of the construction extension. How do we think about the cash flow impact of that? And presumably, this is a permanent provision we vision not a one off.

Adam Watson

Yeah, that's right. So effectively with the 10 year concession extension, then we obviously have an obligation to ensure that we've got an additional 10 years of maintenance so that we've got the usual hand back conditions satisfied. Basically, that results in a permanent uplift in our maintenance provision. And then again, you would expect from a cash perspective will be – there's a lot of time to run. But from a cash perspective, it just means that you would roll forward your maintenance program in the usual manner.

Cameron McDonald

Okay, thank you.

Operator

Thank you. Your next question comes from Owen Birrell of Goldman Sachs. Please go ahead.

Owen Birrell

Hi, guys. Just a few questions for me, just firstly, just following up on West Gate Tunnel. I'm just wondering, you've just had your 10 year extension to CityLink approved. Is there any possible outcome on the tunnel project that puts that at risk now that's been approved?

Scott Charlton

Look under the arrangements that's been approved for the consumption our approach is deliver the tunnel and get it up and operating. So at this point, it's sort of a, I guess, superfluous discussion or just a theory. But now we're in the process of delivering the West Gate Tunnel, and that's what will – and we've got the concession extension. So that's just I guess, at this point to speculate on something like that is not something we're going to do.

Owen Birrell

If the tunnel project is delayed, is there any impact on that expansion?

Scott Charlton

Under the contract there's all kinds of different I guess, mitigations to speed mechanisms, but the delay in the contract does not result in a change the ceiling concession extension.

Owen Birrell

Okay. Excellent and just moving on to Maryland, the phase one if I understand was a project you walked away from or sort of announced publicly that you weren't interested in about 12 or eight months ago, I'm just wondering what's changed in the environment over there in that time.

Scott Charlton

Sure, under the original, sorry, on the original, under one of the approaches that Maryland was considering was what we consider a fixed time fixed price sort of design build finance operate sort of process. So probably, a yearlong bid process under sort of a traditional sort of PPP project, we believe – and that would end up with being two or three parties bidding. So probably for us wasn't optimum from what we might consider. We think there's some challenges and we think a better outcome is working collaboratively with the government and resolving some of the community network and other issues because it's a very large project that's going to be integrated with the next rest of the network. And so we just thought that that sort of traditional greenfields approach wouldn't be the best outcome for the project. So therefore, we decided at that time that we would step back. The government is looking at an approach now where they would appoint a project developer, in effect, to work with them and the community and work through delivering a holistic best outcome for the network and for the community and for the customers. And we think that's something that suits our skill set and makes a lot more sense for the project overall and remembering that 30% of our customers actually live in Maryland. We just – it's a different approach, which we think fits with our skill set and what we think is right for the project and what was proposed or was potentially considered just over a year ago.

Owen Birrell

So am I right in assuming a successful bid for phase one basically engages you into your other phases?

Scott Charlton

No, it could be that they look for a developer, a separate developer in the other phases, but phase one is a significant portion of the work. And we're focused on qualifying and meeting the criteria for delivering a phase one and then we'll see where the government wants to go from there.

Owen Birrell

I know you've, you've basically contracted to build the northbound lines of the American Legion Bridge. I'm just wondering if you're unsuccessful in that phase one bid, how difficult is it going to be to work with another contractor to build the southbound lanes.

Scott Charlton

Look, we always work with different partners, whether they're government partners or private sector partners. I mean, we're trying to get the best outcome for our customers, which end of the day gives us the best outcome for the network. So whoever wins that project will work collaboratively, get it done. So I mean, the more people that can travel freely around the network and see the benefit of the networks, more people that will use our Express Lane, so it's in our interest to make the project successful.

Owen Birrell

You mentioned the capital of the project will be about 500 million costs, do we double that if you successfully win the other side of that bridge?

Scott Charlton

Well, now you're talking about then the phase one of the project, which includes all the way up to the north is you talking about its overall it's a $3 billion to $4 billion project. So when you say the other side of the bridge it's – the other side of the bridge includes delivering up to phase one as well. So it's a significant increase.

Owen Birrell

Okay and you talked about financial partners before and obviously, you make an announcement to the market as you go through your process. But I'm just wondering, is it WestConnex consortium model where you have a controlling 51%, is that the style of model we should be thinking about when looking at financial partners for this project?

Scott Charlton

It's worked well for us in the past. So it could be, but again, something we're announcing there but we're on these large projects, both for capital support as well as expertise and other things. We look to manage these projects and risk with partners who have been tried and tested with us. But yeah, so it could be something along that arrangement.

Owen Birrell

And just finally for me, Elizabeth River Crossing it's a pretty produced private project or I guess asset, are there any strategic benefits to you owning that and just be just wondering who the seller is and why they're selling and if there's any other approvals required.

Scott Charlton

The sellers are – so is a private consortium that developed and has built that and operates that, which is a combination of Skanska and one of Macquarie era or one of the Macquarie funds. I'm not sure it's Marin or Macquarie, but one of their funds. And they've developed that and we understand they're looking to potentially sell that. We obviously have relationship with the Virginian Department of Transport, we think we can bring some real customer benefits and operation benefits. It is a large and water network down there with the existing hotlines with the government. It owns, it's a growing area. And it just fits in, obviously in our core market of Virginia. And we believe we can bring some benefits both to our clients and to our customer or to the customers down there and a lot of the customers down there as well use the Express Lane. So we do see some benefits and obviously, it is an operating asset, more traditional toll road and generating a good EBITDA. So we believe it fits in our core market and our strategy and there'll be longer term opportunities down there we believe to potentially enhance that network for the client and the customers.

Owen Birrell

And it comprises three tunnels.

Scott Charlton

Yeah.

Owen Birrell

Excellent, okay, thank you, that's it for me.

Operator

Thank you. Your next question comes from Nathan Lead of Morgans Financial. Please go ahead.

Nathan Lead

Good day, gents. Thanks for your presentation. Just a couple for me, first up, just wondering how much capacity you go in your balance that you think that the fund growth opportunities like you talked about the day without needing new equities from investments?

Scott Charlton

Sure, look, we don't necessarily talk about capacity. We have some optionality in our portfolio that we'll look at, potentially bringing in partners in and other ways to mitigate some of that. I think the most important thing is, again, we look at always managing distribution growth, and creating long term value. And we'll continue on with that dramatic if we need to come to the market. And we think it's an outstanding or substantial transaction that we think that the security holders will support and fits in with what we've done in the past and obviously bring that to the market. But we don't want to speculate on that because we do have options with partners and some of the optionality in our portfolio. That's really all we can say at this time.

Nathan Lead

Okay. Scott, can you maybe talk about – we've got obviously a low interest rate environment which is remaining stubbornly low? Surely that's starting to fade true and to sort of project returns. How do you avoid watering down the benefits of the existing portfolio by acquiring, I suppose, lower returning new projects?

Scott Charlton

Sure. So again, when we look at the investment horizon, we look at it still over the long term. We always assume that interest rates trend back to the long term average. So to the extent that we can lock in some level of interest rates in the short term or lower rate, obviously, that helps us, but those interest rates are locked in. But then we assume they go back to the long term averages. So we're very comfortable with that, the investments we're making are accretive in value to the Transurban investors versus our cost of capital, certainly. And we do believe that they create long term strategic and other value, so very comfortable with our investment position. That's why we're pretty much focused on our core markets and where we believe we can bring some competitive strengths to bear in either operations, customers, delivery or how we approach with our partners. So again, we're not looking to water down investments because the short term sugar hit of interest rates.

Nathan Lead

To ask some cost related question. So you've called out the renewable PTIs. Will they lower the costs of electricity in Sydney and Brisbane?

Scott Charlton

No, they're about the same. So they're about the same as the other, so it's not going to cost us the way we've structured it. It shouldn't cost us anymore. But it gives us some pricing certainty for a period of time and obviously that market's been pretty volatile over the last bit of time, but more importantly, it helps us hit our target of reducing our emissions by 50% by 2030. And obviously, both projects or the projects in Sydney and Brisbane are wind related. So the good thing is the wind blows at night, which is when we obviously need substantial electricity given the tunnel operations.

Nathan Lead

And he called it the increase in strategic project costs going forward. Could you give us an idea of what sort of quantum that could look like?

Scott Charlton

Yeah, it's hard because it depends on some of the ramp up of the project. So whether it's things like – we're not sure of what the timing might be some procurement of something like Western Harvard Tunnel or exact timing on Elizabeth River Crossings, Maryland Express, we're obviously spending money now. So now it could be the order of, I don't know $5 million to $15 million, depending on timing and acceleration. And that would mostly do with external legal other parties that we will require some internal resource but mostly external processes depending on the timing.

Nathan Lead

Yeah and just one for you Adam, I think we've talked about this offline before, but could you just give us an idea about how much interest was paid and capitalized into CapEx instead of being a dispensary operating capitalist?

Adam Watson

Sure there's a chart at the back of the pack. So and you're recall that there's two types of capitalized interest, one is interest that is the debt instrument itself is capitalizing and the other one is the interest that capitalizes into the asset. So it's about $34 million for the half has been capitalized into the into the construction projects.

Nathan Lead

Okay, that's proportional basis?

Adam Watson

No, that's step.

Nathan Lead

Do you know what the proportional number is?

Adam Watson

I don't know off the top of my head. We'll get one of the IR to get back to you. Yeah.

Nathan Lead

Okay. Let me just throw this one out final question to you, Adam. Looks like on that Slide 52 the M5 West did amortization doesn't seem to be getting deducted from me is that seized or are you still no longer deducting it, what's the logic there?

Adam Watson

Yeah, that's consistent with what we announced when we acquired WestConnex Express because the M5 West will revert to WestConnex at the end of that concession expiry, and because the debt is amortized and what we agreed was that we would add that back as part of our free cash flow calculation, so that is consistent with what we've done for the last couple years.

Nathan Lead

Okay. I thought you were going to see us doing that. Okay. Thank you. That's all my questions.

Scott Charlton

I think we got two or three more people on the line. So we'll try and move through those pretty quick and that's been a long call.

Operator

Your next question comes from Paul Butler of Credit Suisse. Please go ahead.

Paul Butler

Good morning. I'll be quick. I just wanted to come back to the West Gate Tunnel project, how long – I mean, when was that the tunneling meant to start or how long have the tunneling machines not been operating?

Scott Charlton

So originally roughly the tunneling was mid to start about middle of last – the first machine, so it was two machines and they're staggered was about the middle of last year, but the machines weren't ready. The first one probably more started September, October so it could have been – the first one could have been in position to September, October. I understand the second machine is just now kind of finishing its pre commissioning. So yeah, so there's a few months behind, what was the revised schedule.

Paul Butler

Okay and I mean is it – is the tunneling activity on the critical path for the project.

Scott Charlton

Look, there's different ways to look. You can – well at the moment it depends on who you talk to and how you want to look at the opportunities. But clearly, we need to resolve the problem over the next few months or it will be absolutely critical. So the issue is to resolve it over the next few months.

Paul Butler

Okay. And I mean, if we take the scenario that the Victorian EPA sticks with their current interpretation and you need to – or somebody needs to find a site that can take this material.

I mean, is there – are you or the contractor currently looking at finding or creating a facility that can handle the spoil?

Scott Charlton

So all the parties, we're – so all parties are engaged in and doing their different roles. So again, government and EPA have planning approvals and regulatory approvals that they need to put in place if we do find a side, the JV needs to find a site that can take the spoil and we're trying to facilitate as best we can have those arrangements and so we're exploring three or four different sites that could be capable of taking the amount of spoil at the rate that needs to be done. But we're not disclosing where those sites are. But we're in discussions with multiple parties for potential sites.

Paul Butler

Okay, well, I'm just wondering what the timeline is around one of the sides of slowly being ready to accept material.

Scott Charlton

We would hopefully – hopefully, in the next few months have a technical solution, Paul, but I can't. Some of this is out of our control. So we would hope in the next few months to be a technical solution.

Paul Butler

Okay, very good. Thanks very much.

Operator

Thank you. Your next question comes from David Lloyd of Citigroup. Please go ahead.

David Lloyd

Good morning, guys. Again, I'll try and be quick, Adam. Just quickly on the capital releases. I think on the call, you said that demands that were relate will all agree with the government's in advance essentially, is there any way of you being able to sort of quantify as of today, what is the total amount coming on the future from your existing concessions it's already been integrate with governments side by side what's in the bucket or how big is the bucket.

Adam Watson

The simple way to answer that is that it's not a pre-agreed dollar amount with the state. It's effectively with the various governments. They are a great metrics in that in so far that we maintain minimum credit metrics then effectively we have the capacity to be able to raise the additional debt. So it's all about from a government perspective ensuring that we have strong investment grade credit metrics that we maintain them consistently going out into the future. But if our cash flows strengthen, and they continue to grow and our credit metrics improve, then we do have the capacity for most of our assets now to be able to undertake capital releases in the future.

David Lloyd

Okay. And just a different – on a similar topic, I think, based on consensus if we got consensus rather capital relations would be that 15% of EBITDA in '20. Is there any kind of sort of level where you feel comfortable with having capital raises proportion of EBITDA or should we expect to maybe to gravitate a bit higher, a little bit low? I mean, the range.

Scott Charlton

I don't think there's a specific sorry, I just jumped in. I don't think there's a specific way I don't think it'd be much higher at all. But there's no specific range at the board sets, it just sort of depends on the timing of the development and the pipeline that comes on and the amount of financing occurs, but there's no specific criteria, but the substantial material and always substantial portion is going to come from operating earnings.

David Lloyd

Okay and just one last one. Just if you can confirm Adam, the capital raises, they're included in the FFO, which is and you said FFO to debt metrics, is that correct?

Adam Watson

No, they're not.

David Lloyd

Okay. So capital raise is not included in the FFO?

Adam Watson

No.

David Lloyd

Okay, thank you.

Scott Charlton

Okay, I think we got one more question and then we'll call it. So Scott, you're lucky last, I think.

Operator

Your final question comes from Scott Ryall of Rimor Equity Research. Please go ahead.

Scott Ryall

Okay, thank you very much. Yes, it won't be a long one. Scott, you made a comment about – so a couple of questions about the heavy vehicle decreases in Sydney and compared them to Melbourne and Brisbane. But I just wonder if you could you guys get much better data than we do and maybe even government. But the port statistics if I look at this, the headlines in Sydney and Melbourne actually looked pretty similar that December half was pretty weak, the preceding June half was pretty flat. So I'm just wondering what the difference you see at the moment between your Sydney and Melbourne networks are? Obviously, you had some widening in Melbourne that about it and that hasn't taken place in Sydney, you've had a bit of – it's a new opening I guess in Sydney that you are in, but that maybe have moved traffic around on your network a little bit more. Is there any factors like that influences your rebound the traffic that you're seeing in Melbourne that you think the biggest factor or over the long term as you look at your traffic data have you tended to say that heavy traffic in Melbourne is not as import export related as perhaps it is in Sydney?

Scott Charlton

I'm not sure I mean, when I'm referring to the port, I guess that's just one indicator. In Sydney port dropped farther than Melbourne. I still think I think that for the quarter or for the year combined, it's down 5% or something versus Melbourne which is now more like 3% or something, but I think more Sydney is the – in particular housing activity out in the West which affects obviously things like M7, it does affect the M2. The vehicle classifications in Sydney are a little bit different if you are heavy vehicle or car, so there's no light, sort of the vehicle classification which we do have in Victoria or light heavy vehicle. So we do think it's more sort of economic driven, we just using the port as sort of one data point to try and sort of illustrate that. Again, we're not economist, but we're just trying to see what is the difference between Melbourne and Sydney and Brisbane where we're seeing a pickup over the last six months in both Melbourne and Brisbane.

Scott Ryall

Yeah, all right. No, I understood. Thank you. That's all I had.

Scott Charlton

Okay, great. So I think we'll leave it there. It's quite a long call. Appreciate everyone's interest. Again, if you have any follow up questions please contact Tess Palmer and yeah, hopefully we'll get around to a few of the parties and thank you for your interest.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.