Is Australia’s Next Big Boom in Infrastructure?

Tuesday, March 15th, 2016
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With our four biggest cities alone needing to cater for an additional 5.9 million people between now and 2031, severe fiscal constraints on the part of federal and state governments, identified weaknesses in regulatory frameworks and the lack of any clear overall strategy, the 15-year national infrastructure plan delivered by Infrastructure Australia in February was long overdue.

Before looking at how it will impact individual sectors, however, it is useful to look briefly at some of the ways in which the plan – if fully implemented – will affect the ways in which infrastructure is managed and delivered to address pressing challenges.

In order to help boost sluggish productivity growth, IA recommends that the federal government provide incentives in the form of additional infrastructure funding for states and local government according to the delivery of infrastructure reform outcomes. It also recommends that governments seek to improve services and innovation through adopting greater levels of privatisation and by becoming an arm’s length regulator – potentially subjecting private sector operators to service level agreements.

Funding mechanisms would be improved by sourcing more capital from private sector sources and consolidating multiple infrastructure funding programs into a singular national fund.

Finally, a significant focus would revolve around getting more value from existing infrastructure by, for instance, making greater use of traffic signal phasing, integrated corridor management, traffic incident management and real time traffic information systems.

Beyond productivity, there is the need to cater for growing levels of population and address issues related to congestion. As well as promoting livable, high density development within established areas, IA wants governments to encourage the growth of regional cities and smaller capitals such as Newcastle, Wollongong, Adelaide and Hobart. Local councils would also be consolidated and every city would have a long term land use plan.

In terms of connectivity, legacy infrastructure would be upgraded in capital cities and more funding would be allocated toward addressing gaps in access to passenger transport on the outskirts of major metropolitan areas. A national strategy for freight supply would also be developed and governments would work to remove first and last mile constraints on the national freight network.

In regional areas, meanwhile, states and territories would deliver long-term regional infrastructure plans, federal funding would be prioritised toward areas of rapid population growth (such as Rockhampton and Cairns), barriers to entry to mobile network providers would be removed, greater effort would go into looking at new water resource developments in priority catchment areas and state governments would audit the capacity constraints of local councils to identify areas of highest risk in terms of providing safe drinking water.

Then, there are the current fiscal constraints in terms of limited public funding. As well as looking at greater levels of privatisation, the Australian government would initiate a public inquiry into the possibility of road user charges, while value capture opportunities would be considered in all future public infrastructure investments.

Finally, in order to foster greater levels of competition, governments would exit public ownership of assets such as energy companies and water utilities, while gas and electricity markets would move toward full retail charging. Federal and state governments would develop a national water reform plan to drive market reforms across the metropolitan and regional water sectors, and public transport services would be exposed to contestable supply through franchising. NBN Co, as well, would be privatised.

So where will the opportunities lie?  The report does not give forecasts or hard dollar values on the amount of investment needed in each sector, but some insights can be gained from looking at a priority list of 92 priority projects which accompanied the report.

Accounting for no fewer than 39 of the 92 aforementioned priority projects listed – including the only two projects marked ‘high priority’ (Perth Freight Link and the widening of the Tullamarine Freeway in Melbourne), it is perhaps unsurprising that roads present one of the biggest areas of opportunity. All up, New South Wales/ACT will be the big winner here with 14 projects listed, including various projects relating to upgrades of the Pacific Highway, the Newell Highway, the Outer Sydney Orbital road and rail, the M4 motorway upgrade and of course WestConnex. There are also a decent range of projects also listed across Victoria, Queensland, Western Australia and South Australia.

Roads are also the most interesting area where it comes to sector reforms. As mentioned above, IA wants the government to move toward replacing existing fuel excise and registration charges with a user charging system as well as to direct greater levels of attention to making better use of the existing network through directing more funding toward technology.

With 39 projects listed, rail will be an equally big ticket sector. Again, New South Wales the standout winner with 16 projects, including a range of rail freight upgrades such as the Western CBD to Parramatta Upgrade, the Sydney Metro high frequency rail connection from Chatswood to Bankstown via Sydney CBD and a range of longer term projects for which corridors are being preserved.

Meanwhile, Victoria will get some benefit from eight projects associated with level crossing removals and the Melton Rail Line. Queensland has six listed, including the Cross River Rail project, a dedicated freight rail connection to the Port of Brisbane, and stage 2 of the Gold Coast Light Rail.

In other sectors, there are a small range of water and sewerage projects as well as port projects listed. Significant projects in the former category include water infrastructure development around the lower Fitzroy River, irrigation schemes in Tasmania and infrastructure and sewerage upgrades in Darwin and Tasmania. Port projects listed include container terminal upgrades in Melbourne and Perth as well as a mineral port development in regional SA and upgrades to the Gladstone Port land and sea access.

Water is also another interesting area of potential reform. In some areas of regional Australia, water does not meet drinking standards and IA would like state and territory governments to audit the ability of local councils to ensure they have the capacity to deliver water which is up to scratch. The federal government, meanwhile, would commit to conducting more research with regard to potential new water resource development.

In order to address current weaknesses in the regulatory regime, the federal government would define a pathway to transfer state-owned metropolitan water utility businesses to private ownership and would look at creating nationally consistent water regulation. The government would build on the National Water Initiative and develop a National Water Reform Plan to drive market based reforms across the sector.

While there are fewer big ticket spending items in terms of electricity, gas and telecommunications, the plan does foresee some important reforms in this area. Under the plan, for example, governments would privatise their remaining electricity assets, while more flexible tariffs would be introduced and the electricity and gas markets moved to full market deregulation as soon as possible. As mentioned above, the plan says NBN Co should be privatised.

Australia now has the foundation of a comprehensive infrastructure plan.

How much of it indeed actually happens now depends upon the willingness of decision makers to adopt some or all of the recommended changes.

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