Investment in infrastructure to place constraints on rail projects: ANZ report

With several states rolling out record transport infrastructure programs at the same time, reports of capacity constraints are on the rise.

Allens international commercial law firm reported in a 2019 survey that infrastructure leaders in Australia are 77 per cent more concerned with the risks facing the sector than they were five years ago.

Over 43 per cent of respondents said their top concern is being unable to deliver the immediate project pipeline.

The Allens survey stated that this is contributing to two major issues: an acute skills shortage that’s reaching crisis point, and escalating material costs that are putting unsustainable pressure on company performance.

They survey also reported that tunnels and rail are considered to be the highest risk projects, particularly in Sydney and Melbourne. 

Constraints are predicted to continue to spread, with the Cross River Rail in Brisbane and Stage 2 of Canberra Light Rail both expected to commence shortly.

ANZ Research’s Australian Major Projects report said rail construction is expected to be lower this year.

“Capacity constraints will only worsen with several more multi-billion-dollar projects set to commence over the medium-term,” ANZ researchers said.

“The Victorian Government has almost doubled the funding for level crossing removals, while there is significant upside risk to the $20bn estimate for Sydney Metro West.”

The Australian Major Projects report predicts public investment will detract from economic growth during the year, however small-scale projects or maintenance works will stimulate the economy during the short-term.

ANZ Research does not expect governments, at either the federal or state level, to commit to bringing forward major infrastructure projects or significant additional infrastructure spending in the near term.

Catherine Birch, ANZ Senior Economist said there are timing lags between the completion of rail and road projects and the substantive phase of new ones.

“Debt is cheap and will likely stay cheap for a long time but asset recycling offers a means to fund projects while limiting increases to government debt,” she said.

“NSW Premier Gladys Berejiklian has flagged the possibility of selling the remaining half of WestConnex to help fund projects including Sydney Metro West.”

Currently costed at $A20 billion, The Sydney Metro City & Southwest is the largest new public project that will drive high activity within the sector and is not expected to be operational until 2030.

“Ultimately, without effective policy action, capacity constraints pose a material risk to both public and private delivery of necessary infrastructure,” ANZ researchers said.