The head of Australia's competition and consumer authority has said that infrastructure investment in Australia needs to become more efficient given its essential role in fostering productivity.
In a speech delivered to the International Symposium on Infrastructure held in Wollongong at the start of the week, Rod Sims, chairman of the Australian Competition and Consumer Commission, said greater emphasis must be placed upon improving the efficiency of infrastructure investment via regulatory means.
According to Sims, Australia has failed to allocate capital to infrastructure projects with the greatest amount of efficiency in recent years.
“We need to make the right investment decisions, with the highest cost benefit ratios,” he said. “In Australia we do not always do this, to our cost.”
Sims emphasized the role that proper regulation plays in raising the efficiency of infrastructure investment and thus the productivity of the country as a whole.
“We need efficient investment, made according to appropriate regulatory rules and standards,” he said.
One cause of inefficiency which Sims highlighted was setting the capacity of infrastructure networks to meet periods of peak usage which only occur infrequently, when it would instead be preferable to alter patterns of usage.
“It is often best to try to dampen peak demand and spread usage to non peak times so that more services are provided for a given expenditure,” he said.
In the area of road transportation, Sims would prefer a shift in emphasis from big ticket projects to smaller ones which are better targeted and enjoy higher cost benefit ratios.
The ACCC head pointed to regulatory changes which could raise infrastructure efficiency, including setting user charges for roads on the basis of future build and spend programs – as is already done for rail and energy – and introducing congestion charges which would mean payments for the use of roads on the basis of the time period as well as the route selected.
Sims pointed to electricity as another area which suffers from major inefficiencies, pointing to the unnecessary nature of much of the $42 billion in network infrastructure investment made from 2006 to 2011 as a result of poor regulation.
According to Sims, the National Electricity Rules developed in 2006 limited the Australian Energy Regulator’s (AER) ability to refuse excessive investment as a result of an undue eagerness to bolster supply levels without proper consideration of efficiency.
While the AER has since submitted a Rule Change proposal to the Australian Energy Market Commission to remedy this issue, Sims says there are still a number of other regulatory reforms which could serve to further improve efficiency in the sector, including benchmarking, privatization of all electricity network business in the National Electricity Market, and raising network reliability standards.