Transurban (ASX:TCL) share price slumps amid latest West Gate Tunnel drama

Shares in Transurban Group (ASX: TCL) have been bathed in red during today’s trading session.

The slump comes after more controversy surrounding Transurban’s West Gate tunnel project.

At the time of writing, the Transurban share price is exchanging hands at $13.93 apiece, down 2.6%.

Let’s cover what this means for investors in closer detail.

A bit of background

The West Gate tunnel is a large infrastructure project in Melbourne. Transurban started a joint venture with building subcontractor John Holland back in 2017, after it was awarded the tender.

However, tunnelling has not started on the project to date, due to a “result of disputes” between the major parties.

The disputes relate to “changes in the requirements for disposal of soil contaminated with PFAS (per- and poly-fluoroalkyl substances)”, as per Transurban.

As a result, a purpose-built site was required to dispose of the material, which is “currently being activated”, after approvals in the first half of 2021.

The saga doesn’t end there, however.

What’s the latest?

Transurban released its FY2021 results outlining its progress at the West Gate project earlier today.

In the presentation, Transurban outlined the headwinds the project faced moving forward, explicitly as a result of the PFAS saga.

To illustrate, Transurban estimates the subcontractor’s construction cost could now mushroom “in the order of $3.3 billion” on top of the $6.7 billion costs already baked into the contract. Not to mention, the subcontractor’s “claims are higher” according to Transurban.

In addition, the company must now advance a number of cash flow support initiatives to John Holland, totalling over $500 million.

In order to reach any settlement, the company estimates that “all project parties would be required to make a meaningful financial contribution”.

Unsurprisingly, the original planned completion in 2023 “is no longer considered achievable”. Moreover, a further update on West Gate “cannot be provided at this stage”.

It’s not only the two construction giants that are unhappy with the squabbling and lacklustre results exhibited from West Gate.

Victorian Minister for Transport and Infrastructure Jacinta Allan was quoted in today’s The Australian as saying: “We need an alternative to the West Gate Bridge – and that’s why we’ve been working with Transurban to try and fix their mess, and we’ve been clear with them that time is running out”.

Investors have punished Transurban shares today after the news and the company’s FY21 results.

Transurban share price snapshot

The Transurban share price has posted a year to date return of 1.98%, extending the previous 12 month’s 1.8% gain.

Both of these results have lagged the S&P/ASX 200 Index (ASX: XJO)’s climb of around 25% over the past year.

Transurban shares are also down 4.2% over the past month.

The post Transurban (ASX:TCL) share price slumps amid latest West Gate Tunnel drama appeared first on The Motley Fool Australia.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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