Better transparency in decision making and closer cooperation between federal, state and local governments were some of the key themes addressed at a recent industry lunch.
The lunch was organised by the Committee for the Economic Development of Australia (CEDA) and held at the Sofitel on Collins in Melbourne CBD.
The theme was Australia’s economic growth agenda: infrastructure funding and financing with panel speakers being Productivity Commission chair Peter Harris AO, IFM Investors chief executive Brett Himbury, CEDA national chairman Paul McClintock and Infrastructure Victoria chief executive Michel Masson.
Allens partner and head of sector Emma Warren acted as moderator.
Beginning the discussion, Ms Warren talked of the significance of infrastructure.
“Obviously infrastructure is very important to our economic growth.
“The fact that infrastructure is important to our economic growth is something I think we can all agree on for attracting overseas investment, jobs and growth,” she said.
“But it seems to me the debate today is about how we best use infrastructure to create economic growth.
“The question now is not whether to invest in infrastructure but how best to invest in it and how best to fund it.”
Project selection
Peter Harris began by responding to a question from Ms Warren on whether there had been sufficient improvement in the selection and governance of projects since a Productivity Commission report identified this as an issue back in 2014.
“No I couldn’t say that,” Mr Harris said.
“I think there has been quite a lot of earnest talk and some nice publications which say the right things but in terms of actual implementation, it is quite hit and miss as to whether or not the planning and selection of projects is being conducted wisely.
“I think what we have now is still inconsistent behaviour between the Commonwealth and the states on infrastructure investment.”
Mr Harris said there had been some improvement in tender contracting in simplifying processes.
“We’ve still got an obsession with fully-financed bids rather than testing whether the market or the public sector is better or capable of with a particular project financing it,” he said.
“Every state now has a policy on unsolicited bids, but the implementation of those policies is still somewhat ‘hit and miss’.”
Mr Harris criticised the lack of transparency and proper process and took aim at the political process itself, describing the pressure on politicians to make immediate announcements.
“I made a speech last year where I talked about the ‘terror of press releases’.
“It is so important (for politicians) to get something out there in the public arena to say ‘we’re a progressive government’, we’re investing in X’.
“They’re under pressure to do that, put out the press release, put a notional figure against it and once that figure is exceeded there is a ‘budget blow-out’ – over and over again it happens.”
He noted that design work was inherently slow.
“The design work takes a hell of a long time. So there’s this appearance that you’ve made an announcement yet nothing happens for 18 months – it looks like it’s been delayed or there’s incompetence.
“Every time there’s an announcement first and then proceeding to do the planning, you just add to the burden overall on politicians.”
Private sector perspective
IFM Investors chief executive Brett Himbury admitted to some frustration in terms of where and how the private sector could invest.
“From a private sector perspective it’s frankly a bit frustrating.
“There is some progress as has been acknowledged in some parts of the country but all up as a nation we need growth,” he said.
“We have a desire and we have capacity and capital to invest more in the growth of this nation.
“Our challenge is that there have been limited opportunities for us to do that.”
Mr Himbury said there was an understanding of the value of private sector entities together with superannuation funds and fund managers investing in infrastructure to drive growth.
At the same time, communities had to be persuaded of the benefits.
“We also recognise there’s a need to get communities and the political hearts and minds behind this,” he said, noting case studies where communities had benefited as well as investors.
He said some progress had been made but “an enormous amount more” had to be done.
“There is more capital than opportunities and we’d like to see that continue,” he said.
Infrastructure Victoria chief executive Michel Masson talked about an “exciting time” with the creation of IV as an independent statutory authority.
He described how IV is working on a 30-year infrastructure strategy for the whole of Victoria, not just Melbourne, touching on everything from transport, to health, education, tourism and the environment.
“We started by focusing on identifying the problems we are going to focus on, recognising there are lots of engineering solutions out there today looking desperately for a problem to solve in order to justify their existence and requests for funding,” Mr Masson said.
“We are now right in the second stage of the consultation with the release of our options paper.
“Now that we know what infrastructure challenges we are going to focus on, we are looking at a whole host of ideas on how we are going to solve those challenges for the next 30 years.
“In doing so, we are very keen to focus on demand management, how do we optimise the existing assets?”
Mr Masson said it was essential to answer the question of how to maximise what already existed, before developing new projects.
“This optimisation of existing assets has got two areas of focus; one, technology. You can’t seriously look at the next 30 years without looking at the benefit of the internet or big data,” he said.
“Driverless cars are the elephant in the room.
“We also think that in looking at the next 30 years, how do we make the most of existing assets, we have to look at asset management?”
Mr Masson said it was one thing to estimate how many schools were required in the next thirty years, it was equally important to examine the way existing assets were maintained in order to deliver a better service.
“Let’s remember, infrastructure is nothing more than the fundamental way to deliver a service.”
Mr Masson said the infrastructure plan would have a consultation phase to be finalised in July with a draft strategy to be released in September.
This would be followed by a further phase of consultation with the community, the private sector and local government before a finalised report would be table in parliament at year’s end.
Once this strategy is tabled in parliament, the government is to have 12 months to respond with a five-year response plan.
“If we do our work correctly, one can assume that our strategy will be a significant input into the next budget exercise,” Mr Masson explained.
The plan is expected to be refreshed every three years.
“Why? Because, we don’t know what will happen in the next 10 or 20 years,” he said.
“But just because we don’t have a crystal ball, doesn’t mean we shouldn’t start planning for the future and providing you (business) and the community with a long term plan with short, medium and long-term recommendations on not just shovel-ready projects but existing assets.”
Mr Masson talked about the need for transparency and openness, so everyone could understand what was occurring.
Transparency
Paul McClintock took up the theme of transparency, noting the release of CEDA’s own report on infrastructure trends and growth.
That report is entitled Australia’s economic future, an agenda for growth.
Mr McClintock said the CEDA report is all about transparency, rigour and ensuring clear, cost-effective studies upon which to make decisions, as well as funding innovative.
“At the moment a number of things are not happening which make it difficult to get a lot of projects funded through the private sector,” he said.
“The report not only talks about the case for building up a particular investment, but also how it is rolled out and implemented.
“In that, the report reminds everybody that there are significant challenges in roles that the federal government, state government and local governments are all playing in this space.”
He talked of the role of local government in many states being at “sub-optimal level”.
“That’s a political judgement I suppose (that) is being debated even in the federal election rather bizarrely.
“One of the other things we are urging is that we really need not only the ability to develop our business cases but also the ability to actually fund them.
“We are in a rather strange point at the moment in this process and are building up plans.”
This article originally appeared in the June 23, 2016 print edition of Rail Express affiliate publication Lloyd’s List Australia.