It was Sydney's first cashless toll road with fines for those without e-tags, and involved many confusing new traffic arrangements which could negate the time savings until drivers became familiar with them.

The irritation felt by people who wanted to use the tunnel was nothing compared with the fury of those who chose not to. When the tunnel opened, the Government began closing surface roads. The idea was to reduce congestion in the CBD and make the city a more pleasant place for pedestrians and cyclists. That was not only the reason for the road closures, it was the rationale for the tunnel in 1998.

There was a long period of community consultation, including a 2000 environmental impact statement which showed lane closures on William, Druitt and Park streets. A supplementary environmental statement in 2002 included road changes in Woolloomooloo and Kings Cross.

Three years later, the new Premier, Morris Iemma, and the new Roads Minister, Joe Tripodi, did a woeful job of planning the changes and reminding people why tenders for the tunnel were called in the first place.

The only message that got through to the public was that the closures would help the tunnel consortium make more money. That was hardly surprising, as initial patronage was a measly 25,000 cars a day.

The plan was that the tunnel would leave surface roads relatively empty. The reality was that traffic was almost unchanged but the roads were restricted anyway. In the face of an outcry, the Government reversed the most unpopular closures last June.

While the decision removed the political heat and probably helped reduce a driver boycott, it had the significant longer-term effect of removing a practical incentive for people to use the tunnel.

ABN Amro and Leighton carry no baggage from these early disasters, but they still need to work out what was missing from the traffic model last time.

All the experts started with the same raw material, a mixture of government forecasts of population growth, work patterns and land use information as well as traffic patterns data on all major roads collected by the RTA.

Also known to all bidders in 2002 was the experience on Sydney's other toll roads. Drivers were prepared to pay to save 20 minutes and 18 sets of traffic lights. Why would the tunnel be different? One theory is that drivers will happily pay to cut 20 minutes from a 40-minute journey but feel ripped off if they pay the same amount to cut a 20-minute journey to two minutes. The trip is over so quickly that the perception of value evaporates.

The other critical ingredient is the level of the toll, now $3.50 for the main tunnel and $1.60 for Sir John Young Crescent. The political furore in late 2005 provoked the revelation that the consortium paid the RTA $96 million to fund associated roadworks as part of its bid. It also paid $75 million for additional work, for which the RTA agreed to increase the annual escalation in the toll.

After the contract was signed, the RTA wanted an extra $35 million spent on various amendments, including improving ventilation following public protests. In return it agreed to a 15-cent increase in the toll.

Much of this $206 million was spent on improving the general amenity of the city. In other words, tunnel users were paying for above-ground benefits.

It was a good outcome for a directive from the former treasurer Michael Egan that there be "no net cost to government", but it interfered with the consortium's ability to offer a toll that provided value for the trip. It meant fewer cars were removed from the CBD.

Financial concerns for the Government interfered in other ways with the policy aim of improving amenity above ground.

In 2001, the Department of Planning objected to the planned exit for westbound traffic at Harbour Street in Darling Harbour. Rather than removing traffic from the city, this would encourage drivers from the eastern suburbs to enter the CBD. The RTA responded that removing this exit would reduce tunnel traffic by 23 per cent, and significantly reduce toll revenue.

This statistic gives an interesting insight into just how many cars drive across the city each day, rather than into it, and thus what the tunnel's long-term potential is. Another factor here is that much existing traffic is commuters from the eastern suburbs heading to work on the lower north shore. They use the shorter Sir John Young Crescent part of the tunnel and pay a lower toll.

McKeith says he expects better signage and better marketing to make a difference, saying he is impressed with the ads for the Lane Cove Tunnel, of which ABN Amro owns 15 per cent.

He also believes the Cross City Tunnel will attract new traffic to east-west routes as, for example, inner-west residents realise how quickly they can reach eastern suburbs attractions such as the Westfield shopping centre at Bondi Junction.

ABN Amro paid $700 million for the tunnel. Its partner Leighton invested $20 million for a 6 per cent equity stake, leaving 94 per cent of the shares, worth about $310 million, for two infrastructure investment funds run by ABN, one in Australia and one in London. The bank will also contribute the interest-bearing debt of about half the purchase price. Needless to say, its bid was based on lower traffic forecasts than last time.

"Incorporated in those lower forecasts we have also used some of our financing techniques for long-term assets that we have had some good experience with [on other projects]," McKeith says.

The price raises the question whether the CKI consortium erred in December when it handed control to administrators from the insolvency firm McGrathNicol. As commonly happens, the banks appointed their own receiver, Martin Madden, from a rival firm, KordaMentha, to retrieve the $570 million they had lent. As secured lenders, they had first say in what would happen next and they instructed Madden to find a buyer.

There was talk that the 18-bank syndicate would be lucky to be repaid, with suggestions it would retrieve 80 or 90 cents in the dollar, implying a value as low as $450 million. Some published reports even suggested $350 million.

The lead bank in the syndicate, Westpac, made a provision in its accounts for a loss. CKI, with a 50 per cent shareholding, wrote off its investment in full. So did a 20 per cent shareholder, the German construction firm Bilfinger Berger, which said in its annual report: "In the future, the company will only participate in transport infrastructure models involving limited risk from traffic volumes."

Three big Australian superannuation funds were forced to reassure members that losses ranging from $33 million to $53 million were a mere drop in their billions under management.

Now we discover the asset is worth $700 million. Last week's sale price will deliver the banks their original loans plus all outstanding interest, which will accrue until the sale to ABN Amro is settled, probably in August. Westpac, and any of the other 17 banks that amended their accounts, will now increase reported profits by reversing the provision.

After that, there will even be a small return to CKI, Bilfinger and the super funds. Did the shareholders throw in the towel too early?

They had strict legal obligations not to trade while insolvent. But they had the option of negotiating with the banks. In common with many large infrastructure projects with anticipated "ramp-up" periods, the first interest payment was not due until last December. This gave the directors of the tunnel operator plenty of time to consider whether it was, as the law requires, able to pay its debts as and when they fell due.

Perhaps the shareholders could have offered to make interest payments if the banks accepted a standstill on capital repayments. Maybe they could have tried to persuade the banks to convert some of their debt to equity. As a last resort they could have invested some more money to keep the project afloat a bit longer.

Instead, it appears the only option they offered was for the banks, as they say in finance circles, to "take a haircut", or share the losses. The banks evidently said no.

Late last Tuesday night, only hours after Westpac's Chronican so publicly admitted the bank's errors, Madden signed the deal to sell the tunnel, proving that Westpac's traffic estimates were high enough to ensure the bank got all its money back.

The remaining question is whether the shareholders will contemplate suing to reduce their losses even further. After handing cheques to the secured lenders who appointed him, Madden will give the surplus to his counterpart at McGrathNicol, Scott Kershaw.

Kershaw's job is to look after the only group still out of pocket, the shareholders. In January he received court approval to delay until next month the report he must by law present to creditors and shareholders.

He has the power to sue on their behalf and there are two obvious potential targets: the original traffic forecasters and the Government.

The estimate that the tunnel would attract 90,000 trips a day was made by Hyder Consulting, a company listed on the London Stock Exchange and formed from the merger of some venerable engineering firms including Fox and Partners which provided the detailed design for the Sydney Harbour Bridge.

Kershaw would need to prove that Hyder were negligent or incompetent, which might be an uphill task given that so many others also got it so wrong. Even if a court found Hyder had failed in some way, a judge might say the expertise and sophistication of the shareholders reduced their rights to damages.

As for the Government, it reversed some of the road closures last June in the full knowledge that this left taxpayers vulnerable under the contract.

The December 2005 parliamentary inquiry into the fiasco was shown advice to the RTA from barrister Bret Walker, SC, and the law firm Clayton Utz. Both said the contract did not prevent the Government from making road changes, but compensation might be payable.

After the Government reversed the road changes, the CKI consortium started negotiating over damages. The talks broke down and the shareholders decided the cost of legal proceedings did not justify the potential gains.

Given that Kershaw is acting for the same companies, he is unlikely to reach a different conclusion. He will probably distribute the surplus he receives from Madden to the shareholders and wind up the once optimistic company called CrossCity Motorway Pty Ltd.

If that happens, the Roads Minister who replaced Tripodi, Eric Roozendaal, will be able to say the Government was right all along when it said the tunnel would not cost taxpayers a cent.

But he still has to think of a way to reduce traffic in the CBD.

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A DOWNHILL RUN

Oct 1998 Government proposes a cross-city tunnel.

Jul 1999 First environmental impact study starts.

Sep 2000 RTA calls for tenders.

Feb 2002 CrossCity Motorway consortium selected.

May 2002 Supplementary environmental study starts.

Dec 2002 Contract signed.

Aug 2005 Tunnel opens; surface road closures start.

Jun 2006 Government reverses 13 road closures.

Dec 2006 CCM calls in receiver.

Apr 2007 Receiver announces sale.

Jun 2007 ABN Amro named new buyer.

Aug 2007 New contract expected to be signed.