Transurban (ASX:TCL) share price edges higher despite $1.7 billion West Gate Tunnel blowout

Here's the latest on the company's West Gate Tunnel project dilemma.

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The Transurban Group (ASX: TCL) share price is edging higher in early morning trade on Friday. This comes after the company announced a revised agreement to proceed with the West Gate Tunnel project in Melbourne.

At the time of writing, the toll road operator's shares are fetching $13.69, up 0.66%.

Transurban reaches agreement with Victorian Government

In today's statement, Transurban advised that it will now deliver the West Gate Tunnel project by late 2025.

The revised terms of the contract were mutually agreed upon with the Victorian Government and the CPB John Holland Joint Venture (D&C subcontractor).

The parties involved are now finalising the formal documentation. This is expected to be completed by early 2022.

This follows disputes that arose between the project parties relating to changes in the requirements for disposal of soil potentially contaminated with PFAS.

Transurban said it remained confident of its legal position but agreed to the revised terms to accelerate the project's completion.

Under the modified terms, the D&C subcontractor has committed to commence tunnelling in early 2022.

The total cost of the D&C contract has been increased by $3.4 billion. Transurban and the Victorian Government will each contribute $1.7 billion.

Additional costs to Transurban of approximately $300 million include site activation and insurance fees, and project management expenses.

Furthermore, Transurban will also incur revenue impacts due to the now delayed completion date. The D&C subcontractor withdrew their claims to additional construction costs, which were significantly higher than the agreed contract sum adjustment.

Transurban CEO, Scott Charlton, commented:

We recognise this situation has been disappointing, however we believe this agreement represents the best path forward to deliver the West Gate Tunnel Project in the interests of all stakeholders, particularly the millions of Victorian motorists who will benefit from a vital alternative to the West Gate Bridge and a second river crossing.

Transurban share price summary

Over the past 12 months, Transurban shares have moved in circles, down 3.18%. Year to date, the company's shares are fairly flat for the period, up just 0.74%.

Transurban commands a market capitalisation of roughly $41.8 billion, making it the thirteenth largest company on the ASX.

Motley Fool contributor Aaron Teboneras has no position 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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