Re-establishing Australia’s Global Infrastructure Leadership

Sydharbour

To read my report released February 2016 with NSW Transport Minister Andrew Constance and Federal Minister Paul Fletcher, please follow the link see report

A Successful Infrastructure Australia should spell its demise*

*Opinion piece published Australian Financial Review, 19 February 2016

Infrastructure Australia (IA) is under new management, with a grand plan and reform agenda that at first blush seems sensible enough.

However, there are early signs of an identity crisis in IA as it wrestles with the need for more market efficiency in infrastructure and how it will evolve from its purpose of anointing projects through an administrative selection process that can produce ‘hit or miss’ result.

The end game may necessitate IA to plan for its own redundancy in no more than 15 years as this would be evidence of its success with markets and would come with the gratitude of the nation.

IA’s call for even more funding is to be expected, but Australia can be too trigger-happy when it comes to spending up big on infrastructure. For example, in the past decade more than half a trillion dollars has been invested in infrastructure, double the previous decade.

Despite this, escalating congestion, higher emissions, greater service costs, lower service quality and lost business and investment opportunities persist in both cities and regional Australia.

It appears Australia has a problem translating big spending on asset building into meaningful benefits that lift competitiveness and improve the lives of its people.

Part of the diagnosis is that too much emphasis is on rushing the engineering blue prints for ‘shovel ready projects’ without proper consideration to setting objectives to measure future success. Compounding the situation further is an absence of problem identification the project is seeking to fix.

Governments must choose their infrastructure well, if it is to live up to the rhetoric of boosting productivity and living standards. The trouble is choosing projects is not easy, in fact it’s very difficult.

Australia’s experience suggests that the best way to deal with this is for the Turnbull government to finish the reform agenda started in the 1980s, and then do some more.

Many sectors in infrastructure have been reformed through corporatisation and privatisation. The big successes like airports and telecommunications has transformed these sectors for the better. We have seen excellent investment in facilities and customer service. Brisbane airport currently looks more like Dubai with its massive new runway excavations is a case in point, and other airports are decongesting and debottlenecking to ensure good customer experiences.

But other sectors like roads and public transport remain largely untouched by reform. As a result an undisciplined investment process has seen taxpayer dollars failing to fix poor service levels, and tardiness with introducing capital saving new technologies. In contrast, telecommunications has had a far more stable investment pathway and has been quick to introduce new technology. Customers have been the winner as they have benefited from markets and competition.

A good first step for new infrastructure minister Darren Chester is to step into the customer shoes and be their champion.

Customers want services, not assets. All governments need to adapt by enabling markets to deliver these services where possible.  It is better that infrastructure is provided through businesses to customers, not politicians lobbying voters.

When markets are not possible, then governments must seek to procure service outcomes. This will invite a broader participation in the market, not just those that want to build assets. It should seek to give greater emphasis to using existing infrastructure better, stimulate innovation and reward risk taking.

These issues are the focus of the University of Sydney’s Better Infrastructure Initiative report ‘Re-establishing Australia Global Infrastructure Leadership’ released on Monday.

Necessity is the mother of invention. But it has been difficult for Australians to bring their genius to the fore in resolving our infrastructure challenges when the system is awash with money without clear purpose and procurement processes inflexible to new ideas

Australia has an infrastructure services deficit, but piling more money into it does not seem to be delivering the outcomes required. Minister Chester and IA can change that by first acknowledging services matter more than asset building, and allowing the discipline of markets and customers to guide the spending.

END

 

Road Reform: Australia’s Last Frontier*

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The Federal government’s willingness to debate the Harper Review recommendation to introduce cost reflective road pricing is an opportunity to move a difficult issue forward; provided it recognises the root and extent of the problem its seeks to fix.

The roads sector has had a carte blanche operational model for the best part of two centuries, where political will has prevailed without discipline of balance sheet management, commitment to service standards and rate of return on assets.

As a result Australia has spent over $210 billion in the past ten years on roads but slower and less reliable travel time persists across the nation. Clearly there is a problem in translating road spending into practical and meaningful outcomes for the community.

Australia has form in cleaning up these problem areas. The roads sector could learn from energy and telecommunications where corporatisation helped make decisions more transparent, linking user charges with building, maintenance and capital raisings. Together this has improved a project selection process that is more centred on customers.

Now is the time to do the same for roads.

While many argue that traffic hyper congestion is a concern, its causes are only partly related to transport problems, like insufficient road space.

Australia has ignored the transport and land use connection for over a century, and to continue along this path is foolhardy.

A fundamental principle that must shape this road pricing debate is ‘efficient infrastructure relies on efficient land use’. Australia is in the midst of a moment of truth, where scarcity of land in cities is preventing the building of cost effective roads. This too is an opportunity for positive change.

For decades, cheaper land on city fringes has served as a safety valve providing respite in pleasant settings for families escaping the artificially exorbitant price of real estate closer to jobs and amenities in and near CBDs.

The combined effect of bad regulation, and policy dementia has resulted in a capital substitution process that is extraordinary in scale and reach. To make fringe suburbs liveable, accessing jobs and services has been made possible through multiple car ownership. Economists call this process capital substitution, in this case buying cars instead of more proximate and expensive land.

To be frank, this capital substitution has worked well enough since the 1930s where cars and public transport together have managed to keep people connected and productive.

But the last decade has seen hyper congestion take hold of our key cities. Cars that are relied upon to commute are using roads that are slower and less reliable. Major roads in Sydney have a peak hour of 13 hours a day, and Sydney has an average speed in the peak of around 40km/h and Melbourne slightly faster. But our smaller cities rate poorly with London being some 30 per cent faster for an equivalent trip in the peak.

Minister Fletcher responding to the Harper Review road pricing recommendation late last year is absolutely right in saying that any change must be transparent and deliver clear community benefit. But the transparency needed is not just microscopic clarity to proposals, but evidence of whole of government deliberation of the problem, and to un-mercilessly break down institutional silos across Federal and state boundaries that are feeding the problem in the first place.

Sparsely populated suburbs that lock in car ownership without proper choice to alternative housing types are a fundamental problem. Along with other mega trends like increasing casual employment are feeding multiple peaks in traffic volumes in the day and very complex travel patterns. High transaction costs for buying and selling property is preventing people moving closer to jobs, necessitating longer commute time. There are clear reasons why our roads are so intensely relied upon.

To launch a discussion on pricing reforms is important but there is much more to this solution. We all understand the proposition of drive less, and pay less but this is not a voluntary choice for many, when so much of our lives have been dictated by an immobile building stock.

Cost reflective pricing may well have its place, but lets avoid treating the symptoms and get to a root cause of our traffic woes by first introducing corporatisation principles to public road agencies and at same time fixing an archaic land use planning regime.

*A version of this artice featured in the Australian Financial Review, Jan. 5, 2016