Parliamentary Friendship Group for Better Cities – Keynote address

Introduction

Good evening ladies and gentlemen. It's great to be here in Canberra this evening to once again address the Parliamentary Friendship Group for Better Cities. I would like to thank Michael Apps from the Bus Industry Confederation and Ian Dobbs from UITP for the very kind invitation to speak here tonight.

Infrastructure Australia has certainly been busy since I last addressed this group in November 2015, and I'm pleased to say, we've been working hard to deliver against our mandate to guide nationally-significant infrastructure investment and reform.

Close to 18 months ago, we launched the Australian Infrastructure Plan, which is our national reform agenda. It features 78 recommendations on the reforms and investments we need to ensure all Australians have access to world-class infrastructure.

Alongside the Plan, we released a revised version of our Infrastructure Priority List. Just a few months ago, we released an updated Priority List, identifying 100 nationally-significant infrastructure investments Australia needs over the next 15 years to boost our quality of life and our economy.

The Priority List now includes 18 projects, reflecting the high level of activity over the past 18 months.

We continue to make the case for the key recommendations in the Plan through our infrastructure Reform Series—which is a series of more detailed advisory papers intended to help chart a pathway to reform. We've now released two papers in the series—Capturing Value and Improving Public Transport.

This evening I'll be speaking about the latter report in greater detail, as we believe there is an unrivalled opportunity to learn from experience in public transport franchising both here and abroad to deliver better services for users and better value for taxpayers.

I also want to talk about the importance of long-term, integrated land use planning and how our assessment process supports this. I'll also discuss the need for additional investment to make better use of existing infrastructure, and how data is changing the way we measure the performance of Australia's infrastructure.

But first—a word about the growth challenges facing Australia's cities and regions.

Growth challenges facing our cities and regions

Infrastructure has been fundamental to our national economic success. It has helped underpin our high standard of living and enabled our cities to thrive.

But with our population expected to grow to more than 30 million by 2031, we need to embark on the next era of infrastructure delivery and reform.

Most of our population growth will be in Australia's four largest cities, with Sydney, Melbourne, Brisbane and Perth increasing in population by close to 50 per cent.

The smaller capital cities—Adelaide, Canberra, Hobart and Darwin are also projected to grow in total by a quarter.

And the number of people living in Australia's regional areas is projected to grow, from around 5.6 million in 2011 to 6.8 million in 2031 – an increase of around 22 per cent.

Australia's largest cities should plan for and deliver integrated, ‘turn up and go’ public transport services—similar to those in cities like New York, Singapore, London and Berlin.

At the same time, we need to focus our future infrastructure investment on supporting access to and growth in our regions and continue to develop business cases for projects that offer the most return nation-wide.

Improving long-term planning and project selection

Of course, meeting our future growth challenges and improving infrastructure decision-making and delivery in Australia begins with getting the long-term planning and project selection right.

This is a central theme of the 15-year Australian Infrastructure Plan, and something that really underpins every aspect of Infrastructure Australia's ongoing reform agenda.

Long-term planning must remain a priority so that governments can better prepare for changes in infrastructure demand, identify emerging issues and construct the right projects at the right time, for the right price.

Importantly, long-term infrastructure planning must go hand in hand with a robust process for selecting projects that deliver the best outcomes for the community—and this is where Infrastructure Australia comes in.

Our rigorous assessment framework supports evidence-based decision making and investment in projects that will deliver the best outcomes for the community.

From time to time, there is commentary on the time it takes to assess particular business cases, but we make no apology about the rigour of our process. These are complex projects, underpinned by complex business cases and it is appropriate that they are well planned and well considered by our independent board.

Undeniably, as a nation, we are in a better place with project planning and selection than we were a decade ago. But we still need to see improvement in the quality of business cases developed for major infrastructure projects.

By that I mean developing business cases that clearly articulate a potential projects' strategic alignment—which is necessary to ensure that the appropriate problems and solutions are being identified and considered for Commonwealth funding.

We also need to see proponents establish a clear evidence base for projects. This means developing business cases that are supported by appropriate demand modelling, that properly calculate the costs and benefits and show evidence of a thorough options analysis.

Transparency and evidenced-based analysis ultimately enables Infrastructure Australia to undertake our own sensitivity analysis.

Our assessment process enables governments, industry and the community to better understand a project's potential costs and benefits, and have confidence in its ability to meet an identified infrastructure needs.

Better use of existing infrastructure

Meeting our future growth challenges is not just about building new infrastructure, it's also about extracting greater value from the infrastructure we already have by investing in technology and reforming service delivery.

That's why one of the other key themes in the Australian Infrastructure Plan and indeed the Infrastructure Priority List is that we need to ensure that existing infrastructure is used more efficiently— in short, making better use of what we already have.

For example, on urban roads ITS is already being used to collect, store and analyse data on traffic counts, travel times, congestion, incidents and faults through sensors at intersections to enable better management of traffic flows.

In the Plan, we propose greater investment in these types of technologies as part of a broader program of network optimisation targeting the pinch points on our infrastructure networks.

But we also need to find a way to give structure to this collection of data so we can use it to drive better outcomes for users on our roads and other infrastructure assets.

Measuring infrastructure performance

This brings me to the development of a framework to routinely measure the performance of Australia's infrastructure.

This was another key recommendation in the Plan, and involves measuring infrastructure outcomes with a particular focus on the users' experience.

For example, when a road maintenance or construction project is completed, an outcome measure would focus on the impact on the user, such as congestion levels or travel time.

Currently Infrastructure Australia is providing input into the Federal Government's Data Collection and Dissemination Plan, an important initiative that has come out of our recommendation in the Australian Infrastructure Plan.

My hope is that it will provide the systematic collection, standardisation and reporting of data that will allow us to better understand the performance of infrastructure networks and outcomes of specific projects.

Robust, well-regulated market structures

Clearly, an important part of getting better use from what we already have is ensuring that our infrastructure services are delivered as efficiently as possible.

Beyond utilising data and new technologies to drive these kinds of improvements, the Australian Infrastructure Plan also recommended using the best, proven operating models available to deliver services.

This is the key to efficient and responsive services—in short, better value for Australian taxpayers and better outcomes for users.

With public transport, there is a clear opportunity to introduce the competitive piece at the front end by exposing the delivery of services to competitive processes.

This brings me to franchising and the most recent paper in our infrastructure Reform Series, Improving Public Transport: Customer Focused Franchising, which we released just a few weeks ago.

This paper provides further evidence of how franchising more of Australia'spublicly run transport services, along with any additions to networks, can deliver better outcomes for commuters and better value for taxpayers.

Building on our recommendation in the Australian Infrastructure Plan, we commissioned PwC to conduct modelling on the potential benefits of franchising public transport services traditionally operated by state, territory and some local governments across the country.

The modelling found that nationally, franchising could deliver up to $15.5 billion in taxpayer savings by 2040.

The Victorian experience

Of course, public transport franchising is not new to Australia. Victoria was the first Australian state to introduce franchising of major public transport, and provides useful lessons for Australian governments particularly in regards to creating the right conditions for franchisees to respond to incentives.

While it has not been without its challenges, the evidence shows that franchising Melbourne's tram and heavy rail services has delivered better services for commuters and better value for taxpayers.

Customer satisfaction with Melbourne's tram and train services is at a 15-year high. Performance targets for private operators have driven clear improvements in punctuality with, for example, on-time running for Melbourne Metro improving by 7.1 percentage points since 2009.

But as I said, there are lessons to be learned from the experience both in Melbourne and abroad. This includes ensuring that operators are properly incentivised to continually improve service quality, and that risks are properly defined and appropriately assigned.

It's also important that governments periodically re-franchise to ensure that competitive pressures are maintained, and choose an appropriate contract length that suits the local context and the type of service being franchised.

There are, of course, trade-offs. Longer contracts can allow franchisees time to mature and deepen their skill base and can encourage investment. But shorter contracts can increase competitive pressure and ensure incentives remain up-to-date. There are also hybrid approaches, which can see performance metrics earn a right to negotiate extensions.

In the United Kingdom the recent Brown Review recommended contracts between seven and ten years. Ultimately appropriate lengths will vary depending on local context and service to be delivered.

How do we make reform happen?

We know then that there's a strong case for franchising Australia's public transport services, and we know broadly how it should be approached to deliver the best outcomes for the community. The question then becomes; how do we make reform happen?

This is where the idea of Customer Focused Franchising comes in. As everyone in the room would well understand, franchising is distinct from the sale of infrastructure assets.

Franchised public transport is delivered in a tightly-regulated environment with clear performance targets, and contracts are regularly reviewed to ensure competition delivers the best result for the commuters and taxpayers.

However, communicating this to the community will undoubtedly be a key challenge if we are to make reform a reality. And even if the benefits in the form of taxpayer savings and more efficient service delivery were well understood, we know from previous reform attempts that the prospect of ‘government savings’ is rarely enough to convince a weary commuter.

Fortunately, Australia's recent reform history also provides useful insights into how to create a fertile environment for the introduction of complex change, like franchising.

In particular, Australian governments should draw lessons from the Asset Recycling model, where the proceeds from public asset sales are reinvested back into productive infrastructure.

With Customer Focused Franchising, we're proposing to build on the principles behind the Asset Recycling approach.

More specifically, the billions of taxpayers' dollars that could be saved via franchising should be reinvested back into the public transport system to deliver new trains and buses, station upgrades or additional capacity and services on our networks.

Franchising could deliver up to $15.5 billion in taxpayer savings by 2040, money which could be directed to some of the transformational, city-shaping proposals currently on the Infrastructure Priority List—or deliver the investments to optimise networks I outlined earlier.

Concluding remarks

While public transport is the responsibility of state and territory governments, there is an important role for the Federal Government to play in encouraging these governments to embark upon public transport reform under the Customer Focused Franchising model.

In the Australian Infrastructure Plan, we proposed Infrastructure Reform Incentives, where the Australian Government would use its funding powers to drive the implementation of reforms to the infrastructure at the jurisdiction level.

There is no doubt that implementing public transport franchising will be complex. But Australia is in a unique position to learn from past experiences and deliver successful reform.

It won't be easy, but the reward is better services for all Australians and significant productivity gains right across the economy.

For that reason, the Australian Government must look seriously at the incentives it can put in place to encourage the states and territories to embark on these politically complex, but nationally significant reforms.

Thank you.