Australia Needs a Real Transport Infrastructure Plan

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Monday, March 21st, 2016
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Market theory and most economists would argue that markets are the best mechanism at our disposal for delivering effective, efficient and high-quality infrastructure services.

Markets operate best when they are at their most competitive. Effective competition means there are many buyers and many sellers with little or no individual influence over market settings.

Yet this is not the situation in Australia’s transport infrastructure sector.

Our infrastructure sectors have been dominated by vertically integrated public monopolies, reporting directly to Ministers through government departments. Funding and market reform of the transport sector represents the most significant infrastructure challenge for Australia’s governments. In the case of road networks, the Australian Infrastructure Audit and the Australia Infrastructure Plan indicate that:

  • There is a shortage of funding available to meet current and future needs
  • Access and usage charges bear a very limited relationship to actual use and costs of the road network
  • For public transport, the gap between what users pay and the cost of provision is even more acute, where around 20 to 25 per cent of the cost of public transport provision is typically collected from users, the balanced paid by taxpayers
  • Public transport operators in Australia typically recover a small fraction of costs from users, with taxpayers contributing the difference, one exception reportedly being the Gold Coast Rail
  • The introduction of direct heavy vehicle charging within five years, and direct user charging for all vehicles within 10 years, alongside the removal of existing taxes and charges, should be a priority for Australia’s governments to provide greater fairness and equity in how we pay for roads
  • Finding ways to integrate new technology into transport infrastructure delivery will deliver more reliable and affordable infrastructure that supports new opportunities across the country
  • The development and implementation of National Governance Principles will improve the quality and transparency of infrastructure decision making, through articulating best practice planning and project decision making processes for infrastructure
  • The development of a national Infrastructure Performance Measurement Framework to enable the Australian infrastructure sector to identify which infrastructure projects, practices and reforms work well and why
  • Greater use of capital recycling, where governments divest suitable public infrastructure assets and use the released capital and balance sheet capacity to invest in new productive infrastructure. Capital recycling is equated as privatisation, and not necessarily supported, by the community
  • More effective use of public borrowing that differentiates between ‘good debt’ for infrastructure investment and ‘bad debt’ to meet unsustainable operating expenses is needed
  • Accessing funding from a broader range of infrastructure beneficiaries through value capture is also a good option. Public sector borrowing to support infrastructure investment presents a potentially more equitable approach for distributing the costs of infrastructure across both current and future taxpayers

With the right incentive and regulatory structures, infrastructure markets have the potential to deliver a better deal for customers via efficient and responsive services. Efficient and effective public transport (bus, rail, ferry, but not taxi) is also crucial to our productivity and quality of life. Shifting people from cars to public or active transport, or freight from trucks to trains, can reduce emissions, improve air quality, and lift the broader efficiencies of road and rail networks. Infrastructure Australia argues that where public transport has been franchised through a competitive process, consumers have benefitted from increased investment and higher quality services. IA also argues that all public transport operators in Australia should be routinely and periodically exposed to a competitive process to ensure that users are provided with the best possible service at the most efficient price.

These statements imply that publicly owned enterprises should be privatised. The political fallout of this policy position has had mixed results for state governments in recent decades. Privatisation of public assets will require a far more refined conversation to be had with the Australian public and the various models available to help ensure quality service, continual maintenance and upgrade of the assets, and management of the costs to consumers.

Public private partnerships (PPPs) provide the opportunity for infrastructure assets to remain in public ownership but be built using private funds and then leased for a contracted period to allow a return on capital. Australia’s massive superannuation funds are a possible source of funds and should be encouraged to partner with government in PPPs in the building of major infrastructure projects to drive economic growth and provide superannuation funds with secure investment opportunities.

Interestingly, the AIP makes minimal comment on the use of PPPs in the CAPEX aspects of infrastructure delivery. It could be interpreted from the AIP that Infrastructure Australia is hostile to PPPs as it states that the “default role of government in infrastructure delivery should not be to fund, own and operate services and networks. Instead, the role of government should be to set the right conditions – good planning, regulatory and market structures – to ensure the efficient delivery and use of infrastructure. … funding infrastructure … should be restricted to those circumstances where there is real and unresolvable market failure.”

The National Competition Policy reforms of the 1990s saw:

  • The corporatisation of public businesses across all levels of government
  • The removal of artificial advantages for public entities operating in commercial markets (such as lower effective tax rates or protected markets), though it could be argued that the lack of GST impost on government agencies does have a distortion affect to the real cost of developing and managing infrastructure
  • The development of robust and independent economic regulation
  • The introduction of contestable supply through market deregulation and privatisation, shared services delivery and the outsourcing of government services to the private sector (concurrent to workforce reductions in many government agencies)

A key outcome of the reform process was to expose contestable elements of supply to market pressures. Genuine natural monopoly elements (such as road and rail) were subjected to independent economic regulation, even where those businesses remained in public ownership. Regulatory maturity has now developed to better align the public interest with financial incentives, arguably without requiring public ownership. Infrastructure Australia states that Australia’s economic and population growth aspirations will require further infrastructure market reform through:

  • Market completion – where the principles of the NCP reforms remain undelivered for both CAPEX and/or OPEX of transport infrastructure
  • Market refinement – where well-functioning markets face disruptive challenges from existing and new entrants into these sectors
  • Market creation – where the opportunity exists to deliver efficient infrastructure services free from the (perceived) conflict of simultaneous ownership, operation and regulation

The AIP considers the impact and real opportunities for collaborations between natural monopoly government providers with the disruptor operators such as Uber, GoGet, Lyft and others to develop existing infrastructure monitoring and reporting systems that will assist in identifying real-time assessment of individual vehicle movements to allow for true “time and location fees” and/or “distance charging” applications. Such opportunities can also feed into the business cases for funding and financing of road infrastructure upgrades, maintenance or replacements, beyond the existing tolling of users of urban motorway networks.

The mandate of the Australian Competition and Consumer Commission (ACCC) is to protect consumer rights, business rights and obligations, perform industry regulation and price monitoring, and prevent illegal anti-competitive behaviour. The organisation has standing to take action in the Federal Court of Australia to enforce its provision.

With the broad monitoring and intervention powers retained by the ACCC (and other appropriate regulatory bodies) expanded to oversight of road and transport infrastructure, as it current does for electricity and telecommunications, PPP and other models of transport infrastructure funding, development and operation could be considered. This would allow some level of public ownership in new, expanded and updated infrastructure, and the independent monitoring of the community service obligations (CSOs) principles that underpin Australia’s traditional infrastructure services delivery.

The AIP includes an Infrastructure Priority List with three dominant problem categories addressed: Urban Congestion, National Connectivity, and Corridor Preservation. A number of region-focused issues are included in the list (e.g. Northern Adelaide Plains water infrastructure development).

Combining high precision maps and real-time data from vehicles and city/road network infrastructure is the basis for location-based services, new assistance systems, fully automated driving in the future, and facilitating new opportunities for notifying operators of maintenance needs of roads and faulty operations of associated infrastructure such as signs and signalling.

Infrastructure Australia and the state-based infrastructure advisory bodies such as Infrastructure NSW, Infrastructure Tasmania, Building Queensland and Infrastructure Victoria need to take the lead role in objective systems-wide analysis of infrastructure proposals within their own jurisdictions.

Major projects require significant studies to be completed by large groups of technical professionals. The AIP correctly states that developing and retaining skills, and facilitating innovation across the infrastructure sector, should also be a focus. Australia is blessed with some of the brightest minds in the world when it comes to economics, data management and analysis, algorithm development, software as a service implementation, and actuarial mathematics. Through the effective use of this high-value knowledge resource, government agencies, infrastructure consultancies and infrastructure providers have the capacity to separately model:

  • A variety of monetary and fiscal levers to more accurately reflect time and place utilisation of transport infrastructure
  • The social, economic and environmental costs and benefits of individual projects as a standalone project and within the context of cost and benefit to the wider community. For example, will the building of a smaller scale project that meets the same needs of the community (such as Cross City Rail using a bridge instead of a tunnel) provide more valuable funds to regional communities to help make transport infrastructure more resilient to major weather events?

True integration of the road and rail infrastructure markets does not occur. This does not mean there is a one-size-fits-all approach for disparate forms of infrastructure or infrastructure proposed at different locations and geographies within a jurisdiction.

Understanding the current value of an infrastructure asset and the net present value of that asset that may result from infrastructure enhancement programs need to be factored into the business case for each piece of infrastructure. The most appropriate funding and financing models need to be considered for each of the Build, Own, and Operate aspects of individual projects and their respective value to the economic, social and environmental well-being of the state and/or nation.

An integrated approach to addressing the transport system as a singular ecosystem within Australia Infrastructure Plan would have made the AIP a more compelling document.

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