Investing in Australian infrastructure

IPA Australia-Canada Infrastructure Symposium

20 February 2017, Sydney

Good afternoon ladies and gentlemen, it’s a great pleasure to be here at the Australia-Canada Infrastructure Symposium. Firstly, I would like to acknowledge the Ministers and welcome our distinguished guests to Sydney.

Also to extend my thanks to Mark Romoff, President and Chief Executive of the Canadian Council for Public-Private Partnerships and Brendan Lyon, Chief Executive of Infrastructure Partnerships Australia, for the kind introduction and invitation to speak today.

As Mark mentioned, I am Chief Executive of Infrastructure Australia – which is a Federal statutory body established to provide independent research and advice on the projects and reforms Australia needs to fill today’s infrastructure gaps and meet the challenges of the future.

Since our establishment in 2008, our primary focus has been on supporting better infrastructure decision-making and delivery in Australia. We do this by strategically auditing Australia's nationally-significant infrastructure, and developing 15-year rolling Infrastructure Plans that specify national and state level priorities.

Part of our role is to support greater certainty in infrastructure investment by helping Australian governments make informed, evidence-based decisions to invest in projects that will best meet our future infrastructure needs.

We do this by defining our national infrastructure priorities and conducting rigorous assessments of the business cases developed for major projects to determine whether they present the best use of our infrastructure funding – at which point they are added as a High Priority or Priority Project to what we call the Infrastructure Priority List.

The List is the point of reference of nationally-significant infrastructure investments Australia needs over the next 15 years. It was developed in close consultation with all levels of Australian government, so it represents a consensus view on the investments that will most benefit our growing cities and regions.

This afternoon I want to begin by discussing the importance of the List in driving better infrastructure outcomes in Australia, and how we achieved consensus with all levels of government on both the investments and reforms we need over the next 15 years.

I will also talk about the work we do in promoting the development of evidence-based infrastructure proposals and discuss some of the key projects and reforms we believe should be progressed as a matter of priority. But first, I would like to briefly explain how we developed the Infrastructure Priority List.

Growth in Australian capital cities

In 2015, we conducted the Australian Infrastructure Audit, which examined the drivers of future infrastructure demand in Australia, including population and economic growth, and for the first time provided a comprehensive top-down assessment of existing and future infrastructure needs and gaps to 2031.

The audit shone a light on Australia’s future infrastructure challenges, including our significant population growth. Australia’s population will grow to more than 30 million people by 2031, with the population of Australia’s four largest cities – Sydney, Melbourne, Brisbane and Perth – increasing by close to 50 per cent.

The smaller capital cities – Adelaide, Canberra, Hobart and Darwin are also projected to grow in total by 26 per cent. 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.

Asia’s growing middle class

Another important factor for our infrastructure planning is growth in Asia. By 2031, Asia will account for around two-thirds of the world’s middle class population – creating significant opportunity for Australian exports and services. Our proximity to the region, combined with our reputation for high quality products and services will be drivers of economic growth for Australia.

Overall this is great news for the Australian economy – it provides larger domestic and overseas markets for our goods and services and we need to Plan to meet the changing infrastructure demands.

We need greater investment in integrated public transport networks, which is why we strongly advocate for Australian governments to invest in more high-capacity, high-frequency public transport services across all modes.

Our Infrastructure Priority List proposes world class mass transit metro systems in Sydney, Melbourne and Brisbane. Once delivered, these projects will change the shape of their respective cities and ensure that Australia’s major centres of commerce are better equipped to support our future growth.

Developing the Infrastructure Priority List

The Infrastructure Audit forms the primary evidence base for the Priority List. The top-down insights of the Audit allowed Infrastructure Australia to work with all state and territory governments and the private sector, to develop appropriate solutions to the challenges we face.

Ultimately under our constitution, state and territory governments will take the lead on the development and delivery of projects. Infrastructure Australia, as an independent advisor to all governments and the private sector, is well-placed to provide objective guidance to the states and territories, as well as other proponents, on the investments required to support national growth and prosperity, and maintain our enviable Quality of life. 

Importantly, by adopting this collaborative approach, we are acknowledging the important role Australian governments at all levels, as well as industry and the community, play in progressing transformative infrastructure projects.

In our view, this collaboration will be fundamental in successfully responding to the future infrastructure challenges facing our cities and regions. However, another strength of this collaborative approach is that it helps create investment certainty around major infrastructure investments.

For investors, knowing that all levels of Australian government are in agreement about the relative importance of a particular infrastructure project or the need to develop a solution to an identified problem, can be an enormous benefit.  

Australia’s political leaders regularly consult the Infrastructure Priority List as the source of informed analysis on our most pressing infrastructure needs, and to determine which projects should be prioritised for state and federal funding.

This is primarily because we have been able to establish a consistent, transparent process around how projects are assessed and Australia’s key infrastructure priorities are determined – which gives the Priority List credibility as the source of advice on potential infrastructure investment. 

Long-term strategic infrastructure planning

One of the great advantages of the List is that is a living document – it is regularly updated as we assess and receive new business cases. In fact, we will be releasing a major update to the List very soon.

Adding a project to the List means that Infrastructure Australia’s independent Board has positively assessed a full business case for the project, that is nationally significant, has strategic merit and that we are confident that it will have economic, environmental and social benefits.

Of course, not all prospective infrastructure investments are at the same stage of development. The Priority List also includes initiatives, which are proposals that have been identified to potentially address a nationally-significant problem, but require further development and rigorous assessment to determine if they are the most appropriate solution. 

By including initiatives alongside more advanced projects which have a fully developed business case, we are supporting a culture of long-term, integrated land use and infrastructure planning and a more sophisticated approach to business case development.

We are also encouraging decision-makers to think strategically about opportunities to preserve infrastructure corridors and importantly, how potential solutions fit within broader networks and systems. Another important focus is investment in asset optimisation.

These are just some of the ways in which we work with proponents to improve the quality of business cases submitted to Infrastructure Australia.

Improving the quality of business cases

As an organisation, we are appreciative of the strong relationships we have developed with project proponents and the work we have collectively done to lift the standard of business cases developed for major projects in Australia.

We actively support high quality business case development and decision making – and through our assessment framework sees us offering early guidance on everything from problem identification, to option and business case development, project funding, delivery and operation.

For example, we require project proponents to show that they have undertaken detailed options analysis, where a full range of innovative, deliverable solutions are developed, including asset optimisation) and the preferred option is selected through a structured assessment process.

Our assessment framework also promotes early consideration of potential funding options, and that business cases outline the appropriate governance and processes that will be in place to manage risk in delivering the project.

In the past 12 months in particular, we have seen a significant improvement in the quality of work submitted to us. The Infrastructure Priority List includes 15 evidence-based, and fully-costed infrastructure projects that governments, business and the community can have confidence in – but there is still room for improvement.

In particular, we want to see deeper investment in strategic plans and feasibility studies. Furthermore, once infrastructure is built, we want post-completion reviews to be routinely conducted and published, so that both decision-makers and the infrastructure sector can continually learn from past projects. For our part, we will continue to strengthen our guidelines and assessment framework to support better project selection and delivery across the country, and that includes improving the way we measure a project’s economic, social and environmental benefits so that we ultimately get better outcomes for infrastructure users.

Major projects – Western Sydney Airport

One of the major projects on the Infrastructure Priority List is the Western Sydney Airport. As Australia’s primary aviation gateway, Sydney accounts for around 40% of international services, 43% of domestic services, and 45% of international air freight.

However, demand for Sydney’s airport services will grow significantly in coming years, with passenger numbers expected to reach 76 million per year by 2030 and increasing to 165 million by 2060.

Kingsford Smith Airport alone would not be able to service this growth. This makes a second Sydney airport essential.

Scheduled to begin operating in the mid-2020s, Western Sydney Airport is anticipated to initially service up to 5 million passengers per year in addition to freight traffic. The project is expected to be a significant driver of economic growth and jobs in Western Sydney – which is already one of Australia’s fastest growing economies.

Like the majority of projects on the Priority List, this project has received a huge amount of support from all levels of government, the local community and industry who truly recognise the airport and its surrounding developments as a once-in-a-generation opportunity to support growth and jobs in Western Sydney.

Reforming Australia’s infrastructure markets

We recognise that when it comes to planning to meet Australia’s future infrastructure needs, supporting investment in new and existing infrastructure is only one piece of the puzzle. As a nation, we also need to embrace reforms recommended in the Australian Infrastructure Plan, the landmark national reform agenda I mentioned earlier.

That’s why we are also advising Australian governments on the need for wide-ranging reforms to improve the delivery, operation and regulation of Australia's infrastructure networks.

This includes diversifying the source of available infrastructure funding to deliver the projects we need and encouraging greater private sector financing – which of course brings both commercial rigor and a powerful incentive for efficient delivery.

Working towards delivering our infrastructure services through well-structured, well-regulated markets must also be a reform priority for Australian governments as it is delivers the best outcomes for users and taxpayers.

Our strong, reliable regulatory structures also provide assurance to investors that their assets are insulated from many of the economic and political forces that characterise many other markets around the world.

In Energy and Telecommunications, we need to refine the market. That means transferring remaining legacy publicly owned businesses to private ownership and removing unnecessary retail price regulation – that is, letting the market work.

In Water a combination of market completion and market creation is required, in particular establishing genuinely independent economic regulation and ultimately transferring metropolitan water utilities to private ownership

In Transport, the challenge is more about creating effective markets across road and rail, freight and passenger networks. While competition and private investment in transport has grown substantially since the turn of the century, the challenge for governments is to establish whole-of-network pricing and regulatory systems that will deliver greater opportunities for investment, while supporting improvements in network efficiency and service quality for users.

In particular, we need to move to a more sustainable model of charging for road use. Here, we have seen significant progress in recent months with the Federal Government adopting our recommendation to conduct an independent inquiry into the potential benefits of a user-pays approach to paying for our roads where the revenue raised from road users is put back into funding transport infrastructure.

Next steps for Infrastructure Australia

These are just some of the reform opportunities canvassed in the 78 recommendations contained in the Australian Infrastructure Plan.

The Australian Government has endorsed the Plan as the nation’s long-term infrastructure reform agenda, and it is now up to Infrastructure Australia to continue to provide robust, independent advice to all levels of government on how these reforms should be progressed.

Our role in creating a positive environment for infrastructure investment in Australia has been a combination of leading reform and improving project selection through our rigorous assessment framework for nationally-significant infrastructure.

Evidence-based business case development and a commitment to long-term planning will ultimately improve infrastructure decision-making and delivery in Australia.

Through the Infrastructure Priority List we have been able to achieve this, as well as a consensus on our national infrastructure priorities – which will ultimately support greater investment and the delivery of effective, efficient infrastructure services for all Australians.

 Thank you.