Future Building 2020 by Infrastructure Partnerships Australia

futurebuilding The Australian Infrastructure Review

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LIVING INFRASTRUCTURE 69 ASSETS UNDER MANAGEMENT $42 BILLION PROJECT CAPITALISATION DELIVERING ON THE PROMISE OF PUBLIC INFRASTRUCTURE

CASEY HOSPITAL EXPANSION

VICTORIAN COMPREHENSIVE CANCER CENTRE

GOLD COAST LIGHT RAIL

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Contents

futurebuilding The Australian Infrastructure Review

Contents 2 Chairman’s foreword | Sir Rod Eddington AO, Chairman, Infrastructure Partnerships Australia

3 Sponsors 4 Shemara Wikramanayake, Managing Director and Chief Executive Officer, Macquarie Group

10 Scott Charlton, Chief Executive Officer,

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48 Infrastructure investment | panel discussion 53 David Thodey AO, Chair, NSW Review of Federal Financial Relations

57 The future of airports | panel discussion 65 The Hon. Michael McCormack MP, Deputy Prime Minister and Minister for Infrastructure, Transport, and Regional Development

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18 Resetting construction | panel discussion 28 Tim Pallas MP, Treasurer of Victoria 34 Decarbonisation pre-panel address | The Hon. Matt Kean MP, Minister for Energy and Environment, New South Wales

36 Decarbonisation | panel discussion 42 Luke Yeaman, Deputy Secretary, Macroeconomic Group, Federal Treasury

Managing Editor: Brendan Pearce Future Building is published by: Executive Media Pty Ltd ABN 30 007 224 204 430 William Street Melbourne VIC 3000

Tel: +613 9274 4200 E: media@executivemedia.com.au W: www.executivemedia.com.au Advertising: Peter Anderson peter.anderson@executivemedia.com.au Tel: +613 9274 4200 Business Development Manager: David Haratsis Tel: +61 3 9274 4214 E: david.haratsis@executivemedia.com.au Cover image: Shutterstock All other stock images courtesy of iStock.com

70 Shane Fitzsimmons AFSM, Commissioner, Resilience NSW

74 The Hon. Catherine King MP, Shadow Minister for Infrastructure, Transport and Regional Development

77 Sir Danny Alexander, Vice President and Corporate Secretary, Asian Infrastructure Investment Bank

David Speers, Australian political journalist

DISCLAIMER: The editor, publisher, printer and their staff and agents are not responsible for the accuracy or correctness of the text of contributions contained in this publication, or for the consequences of any use made of the products and information referred to in this publication. The editor, publisher, printer and their staff and agents expressly disclaim all liability of whatsoever nature for any consequences arising from any errors or omissions contained within this publication, whether caused to a purchaser of this publication or otherwise. The views expressed in the articles and other material published herein do not necessarily reflect the views of the editor and publisher or their staff or agents. The responsibility for the accuracy of information is that of the individual contributors, and neither the publisher nor editors can accept responsibility for the accuracy of information that is supplied by others. It is impossible for the publisher and editors to ensure that the advertisements and other material herein comply with the Competition and Consumer Act 2010 (Cth). Readers should make their own inquiries in making any decisions, and, where necessary, seek professional advice. © 2020 Executive Media Pty Ltd. All rights reserved. Reproduction in whole or part without written permission is strictly prohibited.

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Foreword

Chairman’s Foreword It is my pleasure to present the 2020 edition of Future Building, Infrastructure Partnerships Australia’s annual journal of insights from Partnerships, Australia’s most prestigious gathering of infrastructure leaders. This year has been like no other. We have endured a period of immense upheaval after a devasting drought and bushfire season, followed by the acute economic and health impacts of a global pandemic. This period of upheaval has brought many challenges to the way we live and work, but also presents a critical opportunity to rethink our approach to infrastructure. This year, over a two-part program, Partnerships focused on the Reset from COVID-19 and the opportunities to build back better through reform and resilience. The conference explored the vital role of infrastructure investment in the economic recovery, with addresses from the Deputy Prime Minister Michael McCormack, Shadow Minister for Infrastructure, Transport and Regional Development Catherine King, and Victorian Treasurer Tim Pallas. With travel demand patterns having rapidly changed, Transurban CEO Scott Charlton presented his thoughts on the future of urban mobility, while the CEOs of Australia’s and New Zealand’s four biggest airports – Geoff Culbert, Lyell Strambi, Adrian Littlewood, and Gert-Jan de Graaff – explored what’s next for the future of our airports and the return to the skies. Shemara Wikramanayake, Managing Director and CEO of Macquarie Group, shared her perspective on how major preCOVID trends like urbanisation, digitisation, and decarbonisation will be impacted by the crisis, and how we can leverage private capital and expertise to support jobs and accelerate investment. Luke Yeaman, Deputy Secretary of the Federal Treasury’s Macroeconomic Group, provided an update on the economic outlook for Australia, and called on the infrastructure sector to support early planning and skills development to allow investment decisions to be made with speed and confidence. A panel of private-sector investors discussed the outlook for infrastructure investment over the forward horizon and explored the shift in investor preferences towards social infrastructure, distributed energy resources, and digital infrastructure assets alongside the heightened focus on environmental, social and corporate governance (ESG). David Thodey AO, Chair of the NSW Federal Financial Relations Review, discussed the imperative for governments

to lock-in reforms to inefficient taxes, including the need to modernise the current road funding system. Sector leaders Marco Assorati, Simon Draper, Nicole Green and Corey Hannett unpacked what is required to reset contracting as we move beyond a turbulent period in construction. Following an address from NSW Energy and Environment Minister Matt Kean, a panel comprising Drew Clarke AO, Elizabeth O’Leary, Michel Masson and Ivan Varughese considered Australia’s journey towards decarbonisation across transport, agriculture, and energy. The Vice President and Corporate Secretary of the Asian Infrastructure Investment Bank (AIIB), Sir Danny Alexander, outlined the immediate financial support the AIIB and other multilateral development banks are providing to low and middle-income economies in the Asia Pacific region to aid their recovery efforts from the crisis. Respected political journalist David Speers also provided his reflections on the extraordinary events that have unfolded in 2020, and Resilience NSW Commissioner Shane Fitzsimmons AFSM shared his experience of managing the 2019–20 bushfire season, providing his views on the cultural shift that is required to engender a resilience mindset. Partnerships is always a great platform for the expression of new and thought-provoking ideas, and this year was no different. I hope the insights shared within this journal provide a fresh perspective as we reset our approach to infrastructure in this new COVID era.

Sir Rod Eddington AO Chairman Infrastructure Partnerships Australia

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Sponsors

2020 SPONSORS GOLD SPONSOR

SILVER SPONSORS

BRONZE SPONSORS

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Shemara Wikramanayake

Shemara Wikramanayake, Managing Director and Chief Executive Officer, Macquarie Group Key points:

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Private investment can play a key role in supporting governments’ stimulus efforts through innovation, financing capacity and human resources.

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Despite the short-term health crisis of COVID-19, medium-term structural trends, such as decarbonisation and growing investment in renewables, will continue, while other trends like growth in internet traffic and decentralisation are likely to drive new investment.

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What constitutes resilient infrastructure has expanded beyond managing the risks of climate change to include aspects like health resilience and the capacity to repurpose existing infrastructure to meet changing needs in times of emergency.

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Shemara Wikramanayake

Adrian Dwyer (AD): Thanks very much for sitting down with me again. I thought it would be a good opportunity to think about what has happened in the last 12 months, and cast forward to what that means for the coming 12 months and beyond for the infrastructure sector. I think there have been some fairly profound changes over that time, but when I look back at our discussion from last year, some of the themes we spoke about – things like digitisation, renewables and decarbonisation, among others – seem quite robust to the world we are in now. Do you think those trends that were present pre-COVID will persist post-COVID and, if not, what will change? Shemara Wikramanayake (SW): Well, first of all, I wanted to acknowledge that a lot has changed since we spoke a year ago. But it is important to recognise that what has changed is as a result of a short-term health crisis, not because of a mediumterm underlying structural change to the world economy. So, I think that means a few things for the trends going forward. I think that, first of all, as you say, those medium-term structural trends will continue – things like decarbonisation and the need for investment in renewable energy, and the infrastructure to support that. The second thing is that some of the structural themes have actually accelerated. Internet traffic here in Australia grew one and a half times between December 2019 and June 2020. More infrastructure is required to support that – such as data centres. We have advised on and invested in the AirTrunk hyperscale data centre. Another area is supply chains, with more people now working from home, but also shopping from home and learning from home. So, there will be a need for investment in logistics infrastructure. A third trend is that new areas have developed from our experience in this pandemic. Resilient infrastructure has expanded beyond climate change resilience to include aspects like health resilience. For example, in Israel, they have a car park now that can be converted within 72 hours to a 2000-bed hospital. We have been transitioning carparks into COVID testing centres. The fourth trend coming out of this is that we are questioning urbanisation – how much will that trend continue, or will people want to move to smaller urban areas? If that does happen, there will be a need for new infrastructure to support those areas. In the bigger cities, after a long period of transport investment, we may be able to divert funding to areas like education, health and housing. Population growth in Australia is now forecast to be just 0.9 per cent, given lower immigration, meaning there will be less demand for those urban centres. AD: There is a strong theme there of digitisation having been accelerated by the pandemic, particularly in areas like telehealth. Do you think we will see a rebalancing away from the use of physical infrastructure towards more digital infrastructure, or is this a fundamental shift?

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opulation growth in P Australia is now forecast to be just 0.9 per cent, given lower immigration, meaning that there will be less demand for those urban centres

SW: I think we will need a lot more support in terms of digital infrastructure. The volumes of data that people will need to access are growing by a lot, so we will have to invest in that. But we will still need physical infrastructure. People will still use transport infrastructure. They will need physical hospitals. They will need education centres, both in terms of online access and physical spaces to meet. I guess we will need to see over the medium term how these trends play out – it is still early stages, but I think we will still need investment across the spectrum, digital and physical. AD: The Reserve Bank has called on state governments to ramp up their investment in infrastructure – particularly in high-velocity, quick-to-market projects – over the next couple of years. What additional investments do you think governments should be looking at in the post-COVID world, as opposed to in this immediate response phase? SW: I think we first should acknowledge that governments have done a great job in their immediate response, because they have kept projects going so that jobs can keep being delivered. They have done a great job in terms of keeping construction going, including on the Martin Place Metro development, where we have 2500 people on site working safely and social distancing. AD: We have to give credit to governments, having been able to keep construction open during a global pandemic. SW: It is amazing, and the cases of COVID transmission on construction sites are just not happening because we are operating so safely on site. So, that is an important short-term response. The other important short-term response from governments is in keeping projects going. At the Federal Government level, that is Inland Rail, Marinus Link, the Olympic Dam extension, and road and rail projects for iron ore in Western Australia. At the state level, they are accelerating planning. In addition to the $185 billion of projects they had already committed to, there is another $15.8 billion of new projects going ahead. The immediate response has been very good in terms of keeping the economy going in this pandemic.

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Shemara Wikramanayake

I think as we come out of this, there is going to be even more need for the Government to bring capital to infrastructure projects, to keep driving jobs and stimulating the economy. Governments are going to emerge from this with much greater fiscal debt at all levels, so they are going to need more privatesector money coming in for things like the ongoing transition to renewables. In 2012, renewables were providing around 10 per cent of our capacity. By 2019, it was 22 per cent. Now, at times, we are relying on 50 per cent renewables. This sort of transition is going to need further support. There are other areas where the Government is focusing additional spending, such as defence, health and digital. In defence, over the next 10 years, the Government plans to spend around $270 billion. There is a lot of scope for the private sector to come and help by providing the supporting infrastructure. In health, $2.4 billion has been spent in this pandemic, but this has shown that we have the capacity to deliver more digital and physical infrastructure. I think governments appreciate that as we emerge from this pandemic, health is going to be an area they will need to focus on. AD: What opportunities do you see for private expertise and private capital to support some delivery in those areas of defence, health and others that you mentioned? SW: All of the things that the private sector has been able to bring through PPP models will continue. The first, obviously, is funding and capital, which can support governments all over the world as they come out of this pandemic with a huge level of fiscal debt. We had a big monetary response to the global financial crisis. This time, we have needed a fiscal response with equivalent measures of JobKeeper and JobSeeker all around the world. Governments will need private capital to help fund public projects. But the private sector can also bring skills in terms of managing construction, operations and project

management, and driving outcomes, like the creation of jobs, and doing that on a scalable basis. Also, public resources – not just financial, but human resources – are going to be more stretched in dealing with the pandemic. So, private headcount could be a useful resource that can be brought in. Greater innovation is also one of the potential outcomes for governments from the private sector, by getting them to come and pitch ideas. For example, the Martin Place Metro was an unsolicited proposal from us to the Government. It is going to be important, then, to ensure that there is transparency so the private sector can be held accountable for delivering on what the Government needs, and hence reinforcing in the community the value of having the private sector come in and work as a partner with the Government to deliver these important public projects. AD: If we cast forward 18 months to state and Federal Government balance sheets that will have borrowed heavily to support the economy through this crisis, that means constrained balance sheets, and perhaps fiscal positions with lower revenue. What are the sorts of roles you see privatesector capital and the expertise that comes with it being able to fill for governments that they cannot do themselves? SW: In addition to the new projects, there is the asset recycling programme, in which Australia has been a leader. The Government could look at moving assets off its balance sheet, and there are many more still left on the public balance sheets in energy. There are also housing and defence assets that will be conducive to the sort of assets that the private sector savings and pension funds want to access, which are defensive, capitalprotected, yielding assets. But in terms of new projects, there is investment across the whole spectrum. If people move to smaller urban areas, there will be transport investment needed there. Public transport probably needs greater investment now as we come out of this pandemic and reconfigure what we offer. And then all forms of social infrastructure will come to the fore, including a lot more hospitals, schools and housing, as well as areas like defence. AD: So, you see those enduring trends we spoke about earlier around digitisation, the move to telehealth, renewables and decarbonisation as sweet spots for private capital to help governments deliver? SW: Definitely. There are areas where the private sector has been building a lot of expertise and pushing innovation. Government typically sets the framework, then the private sector steps in and invests. All the structural global trends, such as mounting private sector savings, ageing populations that need to fund their retirement and so need capital protected yielding investments, and the public sector purse being constrained, are areas where the private sector skill set can be brought together with the public sector to drive community outcomes. Also,

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Shemara Wikramanayake

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e should make our W infrastructure and our communities more resilient to potential future pandemics through improvements to the health system or investing in resilience

urbanisation, decarbonisation, more online telehealth and the need for investment – all of those things come together to drive the need for private investment in public infrastructure. AD: Now, as you know, the themes of this year’s Partnerships conference are reform and resilience. One refrain that we have heard a lot this year is that we should never waste a crisis. What are the opportunities for reform and for resilience? How can we draw on the lessons of COVID-19 to make our infrastructure more resilient to future pandemics, climate change and other volatile events? SW: I said at the beginning that this is a short-term, healthdriven issue, but you should never waste a crisis. We should make our infrastructure and our communities more resilient to

potential future pandemics through improvements to the health system or investing in resilience. The need to ensure resilience to climate change is going to continue and grow. Over the last few years, one of the ways we have done this is by putting powerlines underground in cold places like Finland. And here in Australia, we are clearing trees in a very targeted way around powerlines to make them more resilient without clearing excess forestry. Precision agriculture is helping to reduce chemicals on our farms. We are also putting in place measures to manage rising sea levels, including in the United States, where we have lifted the Goethals Bridge a bit higher, and built flood defences at our Long Beach container terminal. We have set up geo-hazard warnings for our assets in the Philippines. As investors in infrastructure, I think we are going to have to accept these sorts of things, and we need to be thinking about making our assets much more resilient to a whole range of exposures, be they health pandemics or climatic change. Geopolitical issues are another factor we are going to have to take into account. That may mean more domestic sourcing of inputs through supply chains. There are a whole lot of exogenous factors to which we need to make our infrastructure more resilient. Each crisis gives us an opportunity to learn about new areas of resilience. AD: I think that is a great thing to finish on – how we can use this crisis for positive change, and look at reform and resilience, to emerge with a much stronger infrastructure sector and hopefully a stronger economy. Shemara, thank you very much for taking the time to have a chat with me today.

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companyfocus

National engineering registration scheme the way forward for safer future building By Dawson Wilkie, Chair, The Board of Professional Engineers of Queensland

2020 marks 90 years since the creation of Queensland’s nation-leading registration scheme for engineers, referred to as the registered professional engineer of Queensland (RPEQ) scheme, which is what the New South Wales and Victorian governments base their respective schemes on. The RPEQ scheme was established under the Professional Engineers Act 2002, and is designed to protect the public and set engineering standards. In Queensland, not just anyone can be an engineer – they must first demonstrate that they are qualified and competent to practise engineering, and then register as an RPEQ. The scheme provides public safeguards, and ensures that engineering products and services are carried out to a certain standard. RPEQ is a legally protected title (unlike the title of engineer) so that the public and industry can easily distinguish qualified and competent professional engineers from the ‘pretend-gineers’. Engineers are going to be critical in the post-COVID-19 economic recovery, and governments of all stripes are investing heavily in infrastructure and construction projects. Engineering standards must not be compromised during this time of unprecedented investment. The Board of Professional Engineers of Queensland (BPEQ) manages the RPEQ scheme, and is also responsible

for ensuring compliance with the legislation. This is achieved by: 1. registering engineers to practise 2. disciplining RPEQs for unsatisfactory professional conduct in the carrying out of an engineering service 3. prosecuting non-engineers for carrying out an engineering service. The Act was recently amended to widen BPEQ’s compliance powers. From 1 March 2021, BPEQ will be able to enter and search places, seize evidence, and require the production of a broader range of potential evidence and conduct compliance audits, which will allow BPEQ to proactively investigate and determine compliance with the Act. While other states are only now understanding the critical role of engineers in the building process and turning their attention to setting professional standards, Queensland is continuing to lead the way with common sense and proportionate amendments to protect the public and uphold standards.

‘Queensland is continuing to lead the way with common sense and proportionate amendments’ 18

Dawson Wilkie

Rather than a piecemeal state-bystate and territory-by-territory approach, there should be agreed standards and coordination between the states and territories to create a national engineering registration scheme. The RPEQ system provides the template, and will result in safer and better-quality building in Australia. ♦ Dawson Wilkie is BPEQ’s chair and regional representative. BPEQ is Queensland’s engineering regulator. BPEQ is an independent statutory body, has administered the Professional Engineers Act and the RPEQ system since 1930. For more information on BPEQ, the RPEQ system or the Professional Engineers Act, visit www.bpeq.qld.gov.au.

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Scott Charlton

Scott Charlton, Chief Executive Officer, Transurban Key points: •

The pandemic has accelerated many trends in the transport sector, with the rapid uptake of remote working, telehealth, and ecommerce likely to have lasting impacts.

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Governments need to pave the way for trends like autonomous and electric vehicle uptake by reducing regulatory barriers.

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Governments also have an opportunity to undertake ambitious reforms like implementing road user charging for electric vehicles to ensure the long-term funding model for our roads is equitable and sustainable.

I am really pleased to be here with Infrastructure Partnerships Australia, and I am pleased that we can come together, albeit virtually. I am looking forward to being able to talk to everyone again face to face at events like this, hopefully in the not-too-distant future. And despite all of these challenges, congratulations to Infrastructure Partnerships Australia for continuing to stage what is always one of the most important events on our sector’s calendar.

This year, obviously it is more important than ever to have a forum like this, to hear and discuss the ideas, opportunities, and challenges our sector is facing. It is stating the obvious to say that this year has tested us in ways we could not have imagined just over six months ago. The tragic loss of life, the upheaval in our daily lives and the economic impact have been immense. I can honestly say that prior to COVID-19, we actually did have pandemic risk as one of our key risk areas, but we never

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Scott Charlton

imagined it would play out like this has so far. I was part of the SARS environment when I was in Hong Kong. I do not discount for one moment the degree of challenges we are facing, but I have always been an optimist, and I am still extremely positive about the future.

also pushed back their deployment plans for AVs from 2020 to beyond 2022 now.

We have faced crises before, and if you look back over history, each time we have emerged stronger. The current crisis has spurred new and creative ways of thinking and doing things, and has really accelerated some of the long-term trends that we have seen and talked about for quite some time. Crises like this help to bring them forward.

Less than a year ago, a Silicon Valley robotics company called Nuro appeared to be years away from widespread adoption of driverless delivery vehicles. Now, these vehicles – or, as the company calls them, ‘street-legal delivery robots’ – are an everyday sight in Houston, Texas, delivering groceries to thousands of customers, avoiding human contact and reducing the spread of infection. Customers can open a vehicle’s door just by flashing a thumbs up sign, and retrieve their groceries.

So, our children are now doing lessons via Zoom, doctor appointments are done over the phone, and our favourite restaurant meals are now being delivered by Uber. There’s even a nightly live stream of penguins coming ashore at Phillip Island in Victoria. Evidently, the penguins can avoid the curfew and somehow have gotten around the ring of steel, so hopefully as we see regional Victoria opening up, we will see more opportunity for tourism to continue down there, as well. But the crisis has also embedded quite a few new buzzwords – of course, we have all heard the word ‘unprecedented’ thrown around a lot. I usually try to avoid these buzzwords. But ‘reimagined’ is one that has been frequently used lately, and it is probably appropriate to the challenges and opportunities in front of us. Crises often lead to greater cooperation and they force people who might not normally work together to connect – and connect quickly. And with that cooperation, wisdom and diversity of the crowd come ideas and innovation. We also see trends being fast-forwarded – some that have inched along for years see overnight progress now. We all know about working from home. Around 65 per cent of city workers in Melbourne, pre-COVID, worked from home at least one day a week. But within a matter of days, the CBD emptied out and everyone has been competing for bandwidth in their homes for almost six months now. We have seen huge advances in technologies and innovation in recent years that are changing the way we live, work and get around. I am confident that we are going to see many of these accelerations, particularly in transport. COVID-19 is quickly turning the future into the present. For example, take autonomous vehicle (AV) technology, which we all believe will revolutionise transportation as we know it, and offer enormous benefits in terms of safety and efficiency. The automotive sector has been hit hard by the pandemic, and there are estimates that the OEMs and suppliers will produce something like 7.5 million fewer vehicles this year. And over the short to medium term, the automakers have been forced to scale back their R&D activities to focus on core business or testing. A number have

But the disruption has also accelerated the use of AV technology in other ways. And, importantly, regulations are being fast-tracked to allow for this implementation.

In California, Nuro’s vehicles are also delivering medical supplies to temporary COVID-19 hospitals, while in Florida, another high-tech company has partnered with the local transportation authority and is using autonomous vehicles to collect COVID-19 tests from drive-through testing locations. We have been watching China, where the policies and infrastructure are rapidly being put in place to support automated vehicles. Self-driving testing zones are now being expanded to pave the way for fleets of robotaxis. In June, DiDi launched a robotaxi service in Shanghai in a designated open traffic area that covers local business districts and downtown hotels. It is now targeting one million vehicles on this platform within a decade. Outside of Beijing, there is a 100-kilometre motorway expected to open next year, and its two inside lanes will now be dedicated just to autonomous vehicles. Now, of course, a number of regulatory hurdles will have to be addressed before AV technology can be deployed at scale. As I have spoken about before, there are more than 700 pieces of Australian legislation and regulation that would need to be catered for to enable the transition. But because of the crisis globally, some rapid progress has been made to pave the way for these technologies. Nuro received an exemption from the National Highway Traffic Safety Administration to operate its robot vehicles on public roadways. This was the first exemption to the rules that require vehicles to have a driver who can take control. And while there are good reasons for regulations, especially when safety is a primary issue, we need to maintain this momentum that a crisis can present so we can realise the terrific benefits that AVs and other technologies will offer. The push to get these delivery vehicles, such as those in the United States, is tied to another major trend that has been accelerated at phenomenal rates, and that is ecommerce and online shopping. In July this year, we commissioned a survey of 4500 people in locations where we operate – Sydney, Melbourne, Brisbane, Washington DC and Montreal. We really wanted the data, and to understand people’s views and

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EXPECTED DECLINE IN PUBLIC TRANSPORT USAGE: SURVEY INDUSTRY REPORT: URBAN MOBILITY TRENDS FROM COVID-19 TRAIN / SUBWAY

PARTNERSHIPS 2020: THE RESET

BUS

Figure 1

behaviours around transport and lifestyle choices, and how they expect to work and travel once the risk of COVID-19 has diminished. And when it came to online shopping, 48 per cent said they were doing more during the pandemic, and half of those expected to continue shopping that way. Obviously, this reflects a lot of recent data around ecommerce, and it appears that older people, including myself, have joined this younger demographic in setting the trend. Online sales ratios have nearly tripled globally over the past five years, even pre-pandemic. And in the last week of July, when most of the retail stores were still open in Melbourne, online shopping in Australia was up more than 160 per cent compared to the previous year. In the United States, UPS was delivering more than 21 million packages a day in June, which is 25 per cent more than the average daily volume just the previous year. Before the pandemic, in January this year the World Economic Forum (WEF) predicted that demand for last-mile delivery would soar nearly 80 per cent globally in the next decade. The number of delivery vehicles in the top 100 cities would increase by 36 per cent to keep up with this demand. The WEF warned that without immediate interventions, congestion would rise by 21 per cent, meaning that the average commute time would increase by around 11 minutes in all of these cities, purely based on the last-mile deliveries. On top of this, data shows that car use could return even stronger when the pandemic subsides. Public transportation use has dropped substantially during the tightest of the restrictions.

Our survey showed that about 25 per cent of respondents expected to decrease their public transport use postpandemic, mostly due to concerns around health and safety (see Figure 1). And that will diminish over time as we become more comfortable with the health environment. Respondents said they would return to all other modes of transport very quickly. Monash University reported a very similar finding in a recent survey, with nine per cent of the state’s public transport commuters switching to car trips post-pandemic. Despite some claims that the office is dead, we also found that while the trend of working from home will continue, most people – around 86 per cent in our survey – expect to return to a workplace for most of their work (see Figure 2). There are various different reasons for this, and if you get a chance to read our report on our website, I think you will find the different geographies interesting, as well as the reasons for [some people] wanting to return to their workplaces. Based on these findings, as the CEO of Transurban, you might think that I would have every reason to feel positive. And for us, the answer is both yes and no. Sure, we believe our roads will continue to provide valuable transport options in the future. But as we have said before, the last thing that we need is a congested network. We build roads, not car parks. No-one wins when a city is stuck in gridlock. This is a chance to look for opportunities. This is a time when we need to work together to ensure that we have a good mix of rail, road and active transport options to keep everyone moving. I am really pleased that a lot of the states are looking

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Scott Charlton

MOST EXPECT TO RETURN TO THE WORKPLACE: SURVEY INDUSTRY REPORT: URBAN MOBILITY TRENDS FROM COVID-19 DOES THE OFFICE HAVE A FUTURE?

PARTNERSHIPS 2020: THE RESET

Figure 2

at infrastructure as part of the economic recovery. And even though people might have moved away from public transport at the moment, it is still going to play a major role going forward. So, it is good to see the investment continuing to be made there. We need to continue to investigate the options that spread this load to avoid congestion. This includes tough issues such as price signalling, or broader policy changes such as staggered work and our school hours, which have previously been floated as solutions to help with some of the congestion. We also want to make sure that we do not lose the gains we have made already, like removing freight curfews, which has allowed trucks to access distribution centres and move goods around the networks much more efficiently in suburban areas. Traffic congestion has had a major impact on freight productivity. It will be important to preserve these efficiency gains without compromising the amenity of neighbouring communities. This is also an opportunity to fast-track technologies to create more convenience and choice for consumers, and to meet their expectations around public health. For example, the real-time capacity in trip planning that is available on Transport for NSW apps to help people decide when and whether to travel is a fantastic initiative. It helps to encourage physical distancing on public transport. A similar app is being planned for Victoria using heat map analysis, and it will send alerts to commuters about overcrowded transport services. And while we have seen drops in ridesharing, carpooling and car sharing in the short term, other initiatives like car subscription services offering longer-term use have seen a

greater take-up. And, given that there may be a reluctance to carpool with strangers, community members might be happy to share a ride with colleagues or neighbours. Ridesharing apps could reflect this. I expect we will see some really interesting solutions and innovations in this space in the very short term. One positive trend to observe in the sector is the increasing number of people who want to cycle. Our survey showed an increase of up to 27 per cent in cycling in most cities. The popup cycle paths appearing in Sydney, linking cycling routes with employment hubs, are an excellent example, as are our plans to widen footpaths to create more space for pedestrians. Most of our road projects include cycle paths, and sometimes we joke about it, saying they are just big cycle lanes with roads attached to them, given the public attention. But we are really pleased that we are being able to contribute to active transport. This is part of a very important urban design to help meet community expectations around having travel choices. And many of the new mobility service apps are already incorporating multimodal transport options, including bike parking and end-of-trip facilities into the offerings. One of the other major trends in the transportation sector that we have been talking about for a long time is zero emission vehicles (ZEVs), which will have a substantial impact on reducing greenhouse gas emissions and addressing climate change. Pre-pandemic, big delivery companies like UPS, FedEx and Amazon had already started transitioning to electric vehicles. But this is another trend that actually appears to be accelerating. The range of ZEVs is expanding significantly,

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Scott Charlton

meaning that the economics continue to improve for electric vehicles, particularly around inner-city areas, compared to diesel or petrol vehicles. These companies are now stepping up the transition to electric vehicles as their preferred business model – not only to address climate change, but also to offset the growing costs caused by this surge of deliveries that we are continuing to see. The need for charging infrastructure is also being addressed. In late July, General Motors announced plans to triple the size of its public fast-charging network in the United States. Transition efforts are not confined just to large delivery companies; Uber recently announced an almost $1-billion programme to help shift its drivers to electric vehicles by 2025, while AGL here has launched a subscription service for electric vehicles. Now, we know Australia has been relatively slow in its uptake of ZEVs, mostly due to cost and anxiety over range. We are a long way behind many other economies. At last count, around a dozen countries had set targets to phase out fossil fuel powered vehicles, with some actually banning sales of these vehicles within a decade. Any discussion about increasing number of ZEVs must also factor in the impact on funding streams. As we all know, fuel excise is not a sustainable and fair funding mechanism as cars become more fuel efficient and ZEVs become widespread. I know that a couple of states are looking to address this and begin to transition the funding model in their budgets going forward. Governments are facing mounting debt – much more than we could have imagined – as they contend with the economic and social challenges that the pandemic has presented. This will hopefully be a trigger to assess what really is a sustainable transport funding model for the country going forward. We all know that reforming this model eventually is not a choice, but a necessity. The key issue is how we realise

the most efficient policy settings to ensure that the system supports our transport requirements. It should not be driven by political compromise. Recently, I have heard many claims about what will and will not change as a result of the pandemic: how the office is dead, and how bricks-and-mortar retail is finished – all these extreme points of view. But the only thing that I know from my age and history is that, like all crises, it will pass – even though we are not out of it yet. Sadly, there will be many other impacts to our communities and upheavals in our lives for years to come, but it is important to learn how to best operate in these circumstances – to doubt where we need to, but to look for the opportunities to meet the needs of our stakeholders. Again, rather than speculate, we should look to the data and the trends we were already seeing prior to COVID-19 to inform our thinking about how to respond over the long term. The crisis has sharpened the focus on these trends, and has created an environment to rethink how we go about things and realise future benefits. So, while we are living in unconventional times, and conventional thinking may not give us the greatest outcome, we should not return to business as usual. There is an opportunity to retain what we have achieved through the crisis so far, accelerate these trends, and hopefully reimagine the future. So, thank you, and I am happy to answer a few questions. Adrian Dwyer: Scott, thank you very much. I did have a question loaded up about electric vehicles and how it might be the right moment to transition to road user charging for electric vehicles, but you already answered that in the latter part of your address. So thank you very much for your address today. It is certainly clear that governments need to seize this opportunity to reshape travel demand and lock in positive changes from this pandemic.

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The Future of Australian Heavy Freight and High Speed Trains

506570 AARTC

Headquartered at the University of Wollongong, ITTC Rail is the first rail ARC Training Centre. It represents a unique integration of rail track infrastructure expertise, developing a skilled professional workforce through a series of R&D and training programs carried out in partnership with participants from all sectors of the rail industry. ITTC Rail research will transform Australia’s rail construction and maintenance technologies through specialist training of industry-focused researchers and providing solutions to deliver safe, reliable and cost-effective rail networks that immensely benefit the nation’s transportation, mining and agriculture sectors.

railresearch.org.au

Australian Research Council

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Laying down future tracks The University of Wollongong is leading the way in research and training that provides solutions to deliver increased rail speed, and more efficient freight services nationally and internationally.

The Australian rail transport network is the sixth largest in the world. This poses significant challenges in the fields of engineering and advanced manufacturing to design, construct and maintain efficient infrastructure. The maintenance of existing railways, along with the development of heavy-haul networks with increased speed and axle loads, can benefit the national economy by increasing productivity. Australia’s rail industry will also require more skilled technologists to meet the needs of the rail sector during this transformation.

Advanced knowledge and practice skills

The Australian Research Council (ARC) Industrial Transformation Training Centre for Advanced Technologies in Rail Track Infrastructure (ITTC Rail) is the first rail training centre to be funded by the ARC. ITTC Rail is a rail engineering pioneer in Australia. It represents a unique integration

of railway infrastructure expertise to develop a skilled professional workforce through a series of research and development, and training programs carried out in partnership with participants from all sectors of the rail industry. ITTC Rail research will transform Australia’s rail construction and maintenance technologies through specialist training of industry-focused researchers. It is providing solutions to deliver safe, reliable and cost-effective rail networks that will immensely benefit the nation’s transportation, mining and agriculture sectors. ITTC Rail is a collaboration among the University of Wollongong (UOW), University of Technology Sydney, Swinburne University of Technology, Queensland University of Technology, Curtin University, University of Sydney, University of Newcastle, University of Queensland and Western Sydney University, together with partner organisations, including the Australasian Centre for Rail Innovation, Metro Trains

Melbourne, Bridgestone Corporation, SMEC Holdings, Innovative Technology Beijing, China Railway Eryuan Engineering Group, Ecoflex, GeoFrontiers, Polyfabrics Australia, NuRock, and Elasto-Plastic Concrete. The centre’s key aims include: ► Creating innovative engineering solutions and products to provide solutions to major railway challenges that can enhance railway performance and extend infrastructure longevity. ► Developing a skilled professional workforce through a series of research and development, and training programs carried out in partnership with participants from all sectors of the rail industry. This will address the future technological requirements of the industry by rejuvenating higher-degree training.

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►

► ►

Advancing fabrication techniques and more resilient product development. The greatest challenge in cost-effective and long-lasting rail infrastructure is track degradation. Developing and implementing strategies to commercialise manufacturing, engineering and design innovations to help grow construction and manufacturing businesses servicing the rail industry. Assisting in reforming technical standards and regulations. Improving global competitiveness, and position Australia as a global research and development leader in rail engineering.

Creating a unified network

One of the aims of ITTC Rail is the creation of a unified network across rail industry, academia and public/private bodies. The consortium of research providers includes nine universities spanning four states, along with national and international partner organisations. ITTC Rail already has wellestablished relations with overseas research and development sectors of the rail and pavement industry, track component suppliers, and many academic institutions involved in rail research. ITTC Rail is already attracting international interest, such as Japan’s Bridgestone Corporation, which is interested in the centre’s work on using recycled rubber materials. Three Chinese universities – Beijing Jiaotong University, University of Shanghai for Science and Technology, and the Harbin Institute of Technology – are interested in collaborating with ITTC Rail. Indian railways are also interested in the centre’s work to improve railway efficiency. The Institute of Metro and Rail Technology (IHMRT) Hyderbad, India, approached UOW in 2016 regarding possible collaboration in rail industry training and sponsored research. In September 2019, UOW signed a memorandum of understanding to establish a mutually beneficial collaboration with the Dedicated Freight Corridor Corporation

‘One of the aims of ITTC Rail is the creation of a unified network across rail industry, academia and public/ private bodies’ of India Limited (DFCCIL), paving the way for a wide range of research, teaching and consultation activities. The partnership recognises the key role that UOW experts will play in supporting India’s rail freight expansion. These links have established the centre as an internationally renowned research training centre and a prominent source of high-calibre PhD graduates.

Training, innovation and impact

ITTC Rail is a unique national centre for doctoral and postdoctoral training innovation – its research outcomes are focused on rail industry transformation. The industry partners of ITTC Rail have experienced staff to guide PhD students, especially during their oneyear placement in industry. Advanced postgraduate courses and professional development workshops will be developed at participating universities. Industry-driven collaborative research at ITTC Rail will enhance track infrastructure expertise, embrace new technologies throughout the integrated supply chain, and help to construct tracks for increased safety, stability and longevity. Interacting with the Advanced Manufacturing Growth Centre, ITTC Rail offers a one-stop shop for the training of young innovators. The training centre’s four integrated research programs are: ► Track dynamics, advanced simulation and design innovation. This includes mitigating destabilising forces via mud hole and mud pumping alleviation, improving the life span of critical track components, digital designs for safer level crossings, and design software for higher axle loads and speeds. ► Materials selection and construction processes.

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This includes improved steel and concrete components, smart sleepers and novel manufacturing processes adopting 3D printing. Sustainable rail infrastructure using recycled and nontraditional materials. This includes vibration mitigation and damage control through recycled tyre products, and innovative subculture stabilisation methods. Health monitoring, safety and reliability. This includes realtime track monitoring, digital simulation of track components, field data analysis and performance validation.

Proven track record

Among recent projects, researchers have been examining the factors that cause mud pumping on rail lines. Mud pumping occurs particularly in areas where the ground is waterlogged. It causes millions of dollars of damage to Australia’s rail network every year, and increases the risk of derailment. A pending international patent includes the use of recycled rubber tyres infilled with waste materials as a ‘shock absorbing’ layer for minimising the degradation of track components. Research-driven innovations that have been used to improve industry practices include the development of a landfill comprising recycled materials for reclamation work at Port Kembla, one of the busiest commercial harbours in New South Wales. Prefabricated vertical drains have also been developed to improve railway stability, in addition to design software for railways. These new developments have already been put to practice and tested in real-life conditions in Bulli, Sandgate, Singleton and Ballina. ♦

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Resetting construction – panel discussion

Resetting construction Panellists: ► ► ► ►

Nicole Green, Partner, Infrastructure Industry Leader and Co-National Government Leader, MinterEllison Simon Draper, Chief Executive Officer, Infrastructure NSW Marco Assorati, Executive Director, Asia Pacific, Webuild Corey Hannett, Director-General, Major Transport Infrastructure Authority, Victoria

Moderator: ► Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

Key points:

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There is capacity in both the public and private sectors to deliver the expanding construction pipeline. This will require governments to provide transparency around pipeline planning.

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The sector needs greater transparency and collaboration between the public and private sectors to resolve risk allocation issues.

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While the COVID-19 pandemic has illustrated the sector’s ability to adapt in a crisis, it has also demonstrated the need to embed resilience into key processes.

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Adrian Dwyer (AD): The civil construction sector has shown some pretty remarkable resilience in managing the impact of the pandemic across the major project worksites. But, of course, the sector was not without its challenges before COVID-19 hit. I wonder if you could take the opportunity to describe the state of the sector at the moment, before and during the pandemic. Corey?

Marco Assorati (MA): First of all, I agree with what Corey just said. I think there were two keys in this pandemic to keeping the industry going. The first was our capacity to adapt very quickly to the new situation, through a very disciplined approach. The second was the decision of the governments to identify construction as an essential service. So, this has for sure helped the sector.

Corey Hannett (CH): I think, first of all, if I look at the past six months, it must be said the industry has done a fantastic job of being able to change the way it has had to work, and do it safely and carefully in a way that did not harm the workforce or the community. But actually, I think primarily right around Australia, we have been able to keep the industry going. So that’s a big tick, though obviously we are only as good as what we are today, and tomorrow is a new day, so we are looking for more improvements and lessons learnt across the sector. But I am confident the companies actually have the systems, the people and the culture to keep doing that.

In terms of challenges, I think that pre-COVID-19 and postCOVID-19, we have the same challenges. I would say these are: a skills shortage, high pressure on the supply chain, the risk approach, and antagonism in contracts. Post-COVID-19, we have the same situation, but amplified by restrictions. This makes the challenges more geographically limited. If there was a skills shortage before, now we have the same skills shortage, but in single states or in single countries. This makes things more difficult than before.

I have been involved in the industry for 27 years, and the thing that concerns me the most, if you talk about pre- and postCOVID-19, is the number of companies that do not exist today, that were here 20 years ago, or 10 years ago, or five years ago. If you look at the current acquisition ACCIONA did with buying Lendlease Engineering, and you look at the fact that in Australia, there are only really a couple of tier-one companies, you might say there are three now. We have been all around the world, talking to lots of different companies, but the reality is that you cannot see a lot of international companies on the projects, other than when international companies own the Australian tier-ones and some of the tier-twos. I think there is very good evidence that we have not had the greatest 20 years of success, because companies just do not exist. An explanation of success is whether companies make money, and what is a bit tricky for us is that some companies are on the ASX, some are not, some are private, and some are international, and it is a bit difficult to see just who is making money and who is not. The reality is, if our construction partners do not make money, they do not succeed – they cannot exist. So, I think the challenge going forward is going to be how we make it an equitable future where companies succeed. And companies losing money all the time cannot operate that way. So, my biggest concern is when companies end up not succeeding and so forth, it does not help. What we want is a thriving industry where companies grow. What we do not need is a thriving industry where companies fail. So, I think I would put it out there that I am very worried about the state of industry. AD: Marco, your reflections on the state of the sector in Australia, and perhaps a global perspective, as well, from the parent company?

On the other side is an opportunity, I think, to invest more locally, to shorten the supply chain, and to make the business, the economy, stimulated around the project itself. So, it is an opportunity for investment in it. AD: Thanks, Marco. Simon, in those initial weeks of the pandemic, talk us through the work that you did at Infrastructure NSW, along with the work of colleagues in the sector and around the country, to defend against the closure of sites and prove that construction, in particular, could operate in a COVID-safe way. Simon Draper (SD): It was a totally novel experience, I guess. None of us had prepared for it at all, and I think 23 March was the day when everyone realised how serious this was getting. Things were changing daily, and there was a great sense of foreboding and pessimism. But I think one of the main ingredients to keeping things going, first of all, was very quickly getting a consensus that we were going to continue. That was up in the air for quite a long time, certainly in New South Wales. And I know in other states, having spoken with Corey and others around the country, there was a consensus developing very quickly that, actually, construction should continue. At that time, we made the decision to update and publish our new pipeline, just to send the message to the industry that it was actually going to keep going. We had to do a lot of work communicating the public health orders; although they were published online, people were not reading them in detail. We had to point out to people, ‘Actually, you can keep going,’ and do a lot of educating. We did have to dispel a lot of pessimism. There was a lot of expectation that things would shut down. And I think, to be fair to those in the industry, we had to reassure them they were not going to get wedged between the restrictions that were coming in, and their contractual obligations they were already signed up to. That was a very understandable concern that they had, and we had to make

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sure we reassured them that we would deal with any issue that came up, and that we would respond to that and work those through. I think, largely, that is what has happened.

MA: First of all, it was very important to understand if we could continue, and the application of a very robust discipline around our health and safety in projects has demonstrated

The other main thing was developing systems and practices that provided confidence, firstly to the public, because the media and the public are always on the lookout for non-compliances happening, but also to our health officials and the police – the police out there trying to enforce the restrictions. We had to win their confidence that construction was quite capable of operating in a way that was consistent with the public health orders. I think the industry should be proud, because we did that very well.

that, yes, we can go on. We can keep projects going. As I

AD: Thanks, Simon. That would be echoed across the sector. Marco, when you look back, what actions do you think were important in terms of securing the market’s confidence that the forward pipeline would be delivered? This is, of course, a two-sided equation: it is the Government wanting to continue with construction, but also the sector being willing, able and prepared to continue investing.

moment, we need to see more awards and more contracts

said, the governments have identified construction projects as an essential service, and this has given confidence that this industry can move on. I guess that, as Simon was saying, the announcement of a pipeline has helped. I think what we are missing is more contracts awarded in this period. In the first eight months of the year, we had seen the spend on infrastructure dropping compared with the same eight months last year. So, I think to create more confidence in this being started, apart from the ongoing projects. We need more good news. AD: I think that brings us to another point, Marco, which I will come straight back to you on. There has been a lot of talk around infrastructure stimulus, around the Government pulling that fiscal lever to grow the economy out of COVID-19. But, of

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course, 12 months ago, there was a big theme around capacity in industry, and capacity to deliver on the existing pipeline. Now we are talking about adding to that pipeline. A simple question, but a complicated answer: can the sector deliver on an expanded pipeline? MA: Well, to invest, companies need to have a visible and consistent pipeline in front. The risk here is that some of the delayed procurements could overlap altogether, and this may worsen the situation in terms of capacity, no doubt. So, to create the right confidence, there should be more visibility about the planning of these projects so they do not happen all at the same time, or so we at least have enough time to prepare for all the projects at the same time. AD: Nicole, of course it is not just the construction sector’s capacity to deliver on that expanding pipeline; there are all different parts of the sector that feed into capacity to deliver projects. Do you get the sense there is enough capacity in the other parts of the sector, legal and elsewhere, to be able to deliver on an expanded pipeline going forward? Nicole Green (NG): Certainly, legal always has the capacity, and lawyers will always do whatever is required. I think what we have seen out of COVID-19 is the ability for various designers and others to work remotely, which means even if we cannot get the skills into Australia, there is the ability to leave those skills offshore. I think there is a huge desire, and certainly the capacity, from the consultancy point of view, to meet the need. AD: Simon, the other side of the equation on delivering the expanded pipeline is the public sector’s capacity to roll out that pipeline. There would be a degree of fatigue, perhaps, in the public sector over the last few months from having to run to keep up. Are we well placed to be able to roll out an expanded infrastructure pipeline? SD: Yes, but I think you can absolutely see the fatigue of those who are directly involved in the health campaign, from the Premier through to the Health Minister and the officials involved in that, and people in central government, but they just kept going. I think people in the infrastructure and construction part of government are quite invigorated by the fact that they have been able to keep going. It is probably worth thinking about it in three categories. Firstly, there are the very large, complex engineering construction projects. They are like big ships: they take a long time to get going, they kick into the market, and, Marco’s right, there are a lot of them that are coming to market, and we are very conscious of the timing of when they come to market and how they overlap. Then there are smaller, civil-type works, and finally there is the building market. I think the different parts of the market can accelerate at different rates, and that is also true within government. We had to win their confidence that construction

was quite capable of operating in a way that was consistent with the public health orders. I think the industry should be proud, because we did that very well. Probably one of the biggest constraints – and we always forget about this – is that all projects in government end up, ultimately, with a group of secretaries and ministers having to make decisions. So, there is a limit, but I do not think we have hit anywhere near that limit yet, particularly when it comes to things that are more on the building side, rather than large engineering construction projects, which have very long lead times. AD: Corey, as Simon said, the parts of the public sector that are ready to deliver are invigorated and exhilarated. Are you invigorated and exhilarated about the challenge ahead? CH: Well, we have been doing some surveys within the teams. In March, we had to go and send 2500 people home. I suppose we were worried, then, whether this would work, and it did; it has worked fine. In general, the feedback has been fantastic. I think people are actually starting to realise that there are different ways they can work. I suppose the programme that I am responsible for is pretty diverse. We do lots of different things and different types of projects. We do big and small – over $80 billion worth of projects, and about 100 jobs, and the opportunity is there for people to go on to work on different projects, as well. So, we are finding that people are very keen to go and work in different things, whether it is an airport rail link, future level crossings, suburban rail loop, or North East Link’s procurement. Just within those four things, there is a fair amount of money and opportunity. So yes, I am not remotely worried about whether people think opportunity is there – it is definitely there. And are they invigorated? Absolutely. I think people would like to be back in the office, like all of us, but that is outside our control right now. AD: Nicole, no doubt your practice has been pretty busy with clients resetting contracts over the past few months. Perhaps you could give us some insights as to how that has played out and how you see it playing out over the coming few months? NG: Thank you, Adrian. I think it is worth looking at those projects in three categories: projects that were already in delivery when the pandemic hit, projects that were about to be awarded, and then future projects. In terms of that first category, I think it was really to show what an amazing industry we are in, because I think the first response from everybody was, ‘How do we actually keep sites open? How do we work together? How do we make this keep going?’ I think the collaboration around just keeping the industry moving was terrific. There was also some fantastic leadership from certain government departments, where they issued amendments to contracts, to give contractors various types of relief for an event that no-one had anticipated. And I think that speaks to Marco’s point that we really need to make sure we have a market

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that survives, and Corey’s point that we need contractors to make a profit so we can have them in the future to deliver the infrastructure we need.

spent a lot of time over the last couple of years, and this really comes down to risk allocation in contracts, and then the culture of administration, as Tony’s referring to.

That is not to say it was all roses. There is certainly a lot of work that we are doing, and that other lawyers are doing, to look at the various contractual rights that parties have. Whether it is looking at force majeure relief or extensions of time and delay costs, or whether there has been a change in law as a result of the various government measures that are being taken. I think that, as we look to the future, insolvency is going to be something that becomes an issue, particularly as the moratoria come off early next year. So, that is the projects in delivery, and we are starting to see people look for cash more. So, whether it is adjudications or disputes, I think that it is starting to rise.

I think there has been a significant shift, and I think that has been forced by two things: one, by contractors looking at projects and saying, ‘Actually, I know you paid us to take these risks in the past, but these risks are just getting too big for us to take, and we cannot take them on.’ The second is, on the client’s side, a realisation that no matter how much we pay, some of those risks are going to end up back with us anyway. So, that has forced a much more engaged approach to preprocurement engagement with contractors, changing the way things are packaged, and changing the forms of procurement that are ultimately used.

The second category is the projects about to be awarded. I was certainly working on one where the contractor basically said, ‘We are not signing anything. That is a fixed-price, fixedtime contract,’ and we have to restructure that project. Any project that was about to be awarded, we suddenly had to deal with, ‘What sort of relief is going to be granted for an event like a pandemic, and other events that I think people had not foreseen?’

I actually think we are seeing that more on the pipelines of things that are coming through the market now. Marco referred to the fact that not many contracts have been awarded recently; the ones that are now being awarded, and the ones that I can see in front of us in New South Wales over the next year or two, I have been right through them with our agencies. And I actually think there is quite a good story to tell. I acknowledge that that is part of the consequence of the industry pushing back to some degree and saying, ‘Actually, we just cannot do it this way anymore, with the projects of this scale’. There are projects where they are quite happy to operate that way.

Lastly, looking at future projects, certainly I think before the pandemic hit, there was already a lot of conversation in the industry about the risk reset that needed to happen. I think COVID-19 has accelerated that, so in order to make sure we have a viable market, we will need to re-look at how risks are allocated, and I can guarantee that no contract will be awarded without pandemics being very clearly addressed in black and white. AD: Thanks, Nicole. I am going to go to some questions from our audience. The first one is from Tony Shepherd. Now, this is more of a statement from Tony. Tony said, ‘We have forced out all Australian-owned tier-one contractors over the last 20 years, and foreign replacements are losing money. The delivery of more than $200 billion worth of pipeline is at risk. Although there are some notable exceptions, the problem is with the principal; that is, the Government. Change is required in government contract administration, which seems to be based on a “gotcha” philosophy, unreasonable risk allocation, and the failure to proactively work with and assist the contractor to make the project a success.’ Simon, I am going to throw that curve ball to you first. To what extent do you agree with what Tony said, and what things would you change? SD: Well, I hate disagreeing with Tony. I work with him a lot. I do not disagree with that. There is a history there, and there are enough people from both the client side, and contractor and professional side, who have said the same things. I think that there is a bit of a consensus that things that have happened in the past are not sustainable into the future. We have certainly

I think there is quite a strong realisation on the Government side that it is not only in the detailed contract administration, but also even in the way that we put projects out into the public realm. Over the course of the next week or so, we will be publishing a guide in New South Wales on how we release information about projects to market. I think the way we have administered things, even from the top in announcing projects, puts a lot of pressure on project teams and on contractors. I think in the New South Wales Government, and I am sure in others, there is a strong realisation that we need to be more measured in how early we go out and pin down the costs and delivery time frames for projects, and give ourselves the time to work through the difficulties on projects and the risks before we lock people into them. So, it is a longwinded answer to Tony’s observation, but I think what I am saying is his observations may be true of recent history, but I think I am much more optimistic about the future. AD: Thanks, Simon. Corey, I have the sense you are itching to say whether or not you agree with Tony Shepherd. CH: I think it lines up with what I said earlier, that history has proven that what has happened, has happened. At the end of the day, a client who is responsible for facilitating a contract, or a team that is on a project, is ultimately accountable for what they put to industry. Equally, we do need industry to also be really clear with us if it cannot accept what is being put to it; it has to tell us that, because no-one wants a situation in years

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to come where we get into a place where a company has viabilities affected by the fact that they accepted something that actually cannot be delivered. If I just look at the history in the past 20 years, we spend a year or so developing up a tender, we give a contractor three or four months to price it, we get it back, we run a race, we force two companies off a cliff, and we choose the cheapest, and off we go – what could possibly go wrong? And we have these hard-edged risk profiles. We do not warrant the information we give the contractors, because we want them to warrant it themselves, but we actually do not get them in on the front end. There is a joint review being done by treasuries in New South Wales and Victoria on procurement. There is another review happening with myself and Victoria’s Treasury, as well, on procurement. These jobs are so big now that we have got to learn lessons from the past and actually apply them to the future, and that is exactly where we are at. So, the way of doing business, what we have done in the past, we have got to fix it. And that is incumbent on government, clients, advisers, construction companies, financiers – the whole lot of us. That is how I would see it. So, yeah, I agree with Tony. AD: I might just come to Nicole on the point of what has been done in the past, what is happening now, and what is needed in the future. And maybe your views, Nicole, on where that pendulum needs to sit in terms of the risk allocation and going from, probably, an over-transfer of risk in the past, and where it needs to sit in the future? NG: That is a really good point, Adrian. I think we have been almost too far to one side with the risk being put purely onto the contracting market. I think the work that Corey mentioned that is being done now really may need to make sure that we come to a really good central view, or central point, so that this is what takes us forward for the next 20 years. My concern is if we just go way too far the other way, the minute that market starts drying up, we will just end up going right back the other way. I think this is the opportune time to really find that middle ground. That is not to say that there are not projects where it is completely logical to use an alliance; for example, a cost-plus effectively is a pain-share gain-share, and that is a project where there are a lot of unknowns. If there are a lot of unknowns, that is a good point to use that, but that does not mean to say we will now suddenly start using alliances for everything. I think we need to get the risk profile right. It is the perfect time. And we need all parts of the industry – the consultants, the contractors, and government – to work together to find what that is. AD: Thanks, Nicole. I have a question from Le Tilahun at McKinsey and Company about the flow of projects to market. Le says, ‘The visibility of the pipeline is there, but the challenge is actually flowing those through to the market, and a tapering off of project awards in 2020’. Our figures from the Australia–

“

I think there is quite a strong realisation on the Government side that it is not only in the detailed contract administration, but also even in the way that we put projects out into the public realm

New Zealand Infrastructure Pipeline show that in the last three quarters, there have been around $8 billion worth of major projects announced in the Australian market, versus around $28 billion worth of major projects in the preceding four quarters. So, that is a substantial fall-off over the last three quarters. Marco, is that what you are seeing in the market? Is the flow of projects that are actually being awarded slowing down? MA: Yes, definitively. I see that tender processes are being protracted, and with awards, wet ink on contracts is not happening, or is happening at a very slow rate compared with last year. So this, in a way, undermines the confidence that things are going to happen. We see that there is a lot in terms of procurement, and, especially in the last couple of months, new projects have been put on the market, but we would like to see more works being executed. We want to see dust. AD: Simon, and then maybe perhaps Corey, is that just a quirk of timing in the way the contracts have fallen? Or are you seeing that there has been a more difficult process to get contracts awarded over the last few months? SD: Yes, I think there have been things that have gone to market and contracts that have not been awarded, because there has been ebb and flow between the market and Government about how to award that contract. In a way, the time it takes to engage with the market before we actually dive in and start putting contracts and risk allocations into the market, I think pushes things out a bit. The other thing is that – and a few people have already made this point – the projects are so big, now; they are so lumpy. So, I think we will see more of this – dry spells followed by these very large packages coming to market. Marco’s right; I think we are very conscious that we do not put all those into the market at once. But I think the change in lumpiness and scale of the projects might mean that there is a bit more volatility as things come to market. I know Corey does, too, but we have some really big projects that are going to be coming through,

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Resetting construction – panel discussion

and big packages over the course of the next year or two. They do take a lot of work to get to market, and I am pleased that the time has been spent by those project teams to engage with contractors about how they should be taken to the market before they just dive in and do it. But that means there is a bit more lumpiness in the way it comes out. AD: Corey, give us a bit of confidence in the forward pipeline. CH: Absolutely. Obviously in Victoria, we have got significant shutdowns right now, but they have not really affected the construction industry. So, I want to say that of course there are revised work processes and compliance requirements we have to abide by. The reality is going to be, though, that we have got to adjust ourselves to make sure we can procure and award jobs.

planning consents has gone really well. So, I think we want to keep more of that. I think the second thing is the realisation that the infrastructure programme is something that needs to be nurtured. It cannot be taken for granted, because it was under threat. We have taken it for granted a little bit, and I think we just need to make sure that we keep that going. I think that is the tone of what a few people have been talking about this morning – that we need this to be sustainable. We need to look after it, and not take it for granted. The third thing is, we talk about resilience a lot, but

Major Road Projects Victoria is often going with its panel arrangement, North East Link’s tender; it is in full flight, and we are rapidly analysing that. We are going to have to cope with what we do with COVID-19. We can’t not award the tender. That’s not going to happen. And level crossings, we have been able to facilitate their moving forward with these issues in mind because of the nature of the contract form, and I think the crux of this matter, the best way to deal with it, is that we must have transparency in what we are doing. So, if we can see what is going on, what the effect will be, and it is understood how the risks will be managed, and both the government and the deliverer can agree to a solution to that, that is the way to work our way out of this.

a great lesson in this for me is that we have now had an

AD: Thanks, Corey. Now, one last question, and I am going to ask it to all of our panellists. We have heard a refrain – we heard it in the video with Shemara Wikramanayake earlier on – about never wasting a crisis. In a few short words, how would each of you like to see us use this crisis as an opportunity for change in the construction sector?

us – not just the past six months, but also before that. We

MA: Well, I would use a couple of words. One is, ‘simplify,’ and I mean simplify contracts. Let’s use tools that can help parties, or the artists. ‘Localise,’ because the pandemic is helping concentrate the business in areas, rather than globally. This requires trust and collaboration, but it is really about the tools that we must create to get there, to have this collaboration. When I see the complicated contracts that we normally use to deliver these mega, or non-mega, projects, they are all but simple. Instead, we need something very clear and easy to use, and this for sure will drive the best behaviour. AD: Simon, your agenda for change? SD: There are probably three things. One – ‘productivity’. Again, when you cannot move people around easily, it’s the application of more digital methods, whether it is in the bidding processes, commissioning processes or design processes. I think that has gone very well. That is one of the reasons people feel so invigorated; they have been able to keep going with

things and have adapted. Even community consultation for

experience of a crisis. We have managed it. It will not be the last one. We know we can do it again. I think a lot of it has come down to the institutions that we have, the industry organisations and the culture that we have, and as much as we like to beat ourselves up, I think we have actually done quite well. I think we just also need to nurture those institutions and culture. AD: Corey, what needs to change? CH: I think we have proved in the last six months that we can collaborate incredibly well together in a crisis. We have to facilitate, going forward, the lessons learnt behind need to create an environment of a positive culture where we do work together. We have got to stop this combative arrangement where we end up in situations where it is not in the interest of solving problems, because that does not protect parties. We have to get through all that and do these reviews the way that we plan to, and learn from our lessons in the past, and improve the future. But also, I think, grab the collaboration that we have got right now and really drive it in a positive way, because there is a lot of good stuff going on across the sector, and if we can amplify that, I think we have got a fantastic future. AD: And, Nicole, the final word to you? NG: Two things: reset and resilience. So, reset, I think, is what we have all been speaking about: getting those risk structures right, getting a pipeline reading, all of that. And resilience is twofold: resilience in terms of the type of infrastructure we are doing. Shemara spoke to that in her video – that infrastructure now needs to be a lot more flexible in its use, but also in terms of sustainability. I think it is a great opportunity to start actually putting the requirements for sustainable infrastructure into our scopes.

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INFRASTRUCTURE

ACCELERATED

Put your projects on the fast track with RPS

rpsgroup.com/infrastructure-accelerated

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RPS enabling faster infrastructure delivery A groundbreaking approach can accelerate the journey to ‘shovel ready’ for projects during and after COVID-19. Leading infrastructure adviser RPS is helping governments fast-track major projects through innovation in funding, procurement, planning and collaboration. Meegan Sullivan, Executive Director of RPS’s advisory division, says that new thinking during COVID-19 can quicken project delivery, and maximise commercial and social returns. ‘Infrastructure has a critical role in Australia’s economic recovery,’ says Sullivan. ‘Streamlined government processes will bring more projects to market faster, boost economic activity, create jobs, and provide lasting benefits for communities.’ Sullivan says that strategic change in project delivery – across federal, state and local governments – must be part of government plans to increase infrastructure investment during COVID-19. ‘Greater infrastructure spending on its own is not enough,’ says Sullivan. ‘Through planning innovation, governments can achieve “quick wins” that bring smaller projects to market within six months. They can also make interventions that accelerate larger, more complex projects to “shovel ready” status within 12–18 months. Every day of project delay is a cost. ‘This is not about cutting corners. It is about constantly doing things smarter in infrastructure delivery. Much progress has been made, but there is still too much unnecessary “reprosecution” of project business cases; too much sequential rather than parallel planning; not enough private sector collaboration early in projects; and too many inconsistencies in infrastructure regulations and practices across jurisdictions,’ Sullivan adds.

COVID-19 is a catalyst for change, says Sullivan. ‘If we want more projects creating jobs this year and next, infrastructure stakeholders must work together to deliver a step change in planning, approval and delivery. We must condense years of incremental infrastructure change into months. Not just because of COVID-19, but because it makes good economic and productivity sense.’ RPS’s advisory team has developed four recommendations to help governments fast-track infrastructure. The firm believes that these changes could halve the time needed for planning and procurement for some projects. The approach is working. RPS’s advisory practice has attracted several new government clients since forming in August 2019, and is achieving strong project outcomes.

Four recommendations

RPS’s first recommendation calls for a national stimulus funding approach that packages smaller projects into broader ones that can start within six months. The goals: to prioritise funding packages, accelerate funding through standardisation, package funding to attract industry, and select the most appropriate government side agencies for project management. ‘National co-ordination of short-term infrastructure funding could allow jobs to be created now, when they are needed most,’ says Sullivan. ‘The approach is timely, targeted and scalable.’ RPS’s work with the NSW Department of Planning, Industry, and Environment (DPIE) on its Planning System Acceleration Program shows the potential. RPS successfully supported DPIE in developing a

Meegan Sullivan

structured methodology for accelerated infrastructure activity. The second recommendation is for governments to fast-track project delivery through rapid procurement and earlier onboarding of industry partners. Private sector expertise is brought onboard near project initiation, allowing project development and planning activities to be undertaken in parallel with procurement, reducing the time to achieve shovel-ready status. Integrated client-provider teams are formed, risks are managed via relationships rather than traditional transactional exchanges, and appropriate governance and assurance requirements are implemented. RPS has deep experience in partnerships. It has designed and led some of Australia’s highest-profile partnering models, including the Pacific Highway Upgrade and Western Sydney Airport. Recently, RPS supported WaterNSW in attracting industry expertise to meet its organisation goals and large-scale works program, and to comply with changes in New South Wales planning legislation to support

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fast-tracked project delivery through a delivery-partner model. ‘Our work with WaterNSW shows what can be achieved through strong processes to engage industry partners earlier in the project life cycle,’ says Sullivan. The third recommendation is to streamline project planning and development. This involves new processes to select projects for fasttracking; reviewing existing project development and assessment frameworks; and earlier engagement to shape project requirements and support. RPS’s methodology took elements of Queensland’s Project Assessment Framework, and applied them to project development and evaluation. This approach is accelerating infrastructure investment in Queensland by reducing the need to address each individual element of the state’s assurance requirements in consultation with key government stakeholders. Sullivan says that this recommendation could significantly reduce the effort required to produce infrastructure outputs. ‘Projectapproval processes often suffer from too much duplication and overlap. Removing approval bottlenecks, while ensuring appropriate quality-assurance

processes are met, will vastly speed up project delivery.’ The fourth recommendation is to develop a national market engagement and procurement framework, which is the most complex. RPS believes that harmonisation of best practice engagement and procurement could halve the time needed for some of these processes. ‘A national framework could help governments generate greater valuefor-money and service outcomes, while fast-tracking project procurement,’ says Sullivan. RPS believes governments could implement the first recommendation (national funding approach) within six months; the second recommendation (earlier private sector collaboration) within 12 months; and the third and fourth recommendations (planning and development streamlining, and national market engagement and procurement framework) within 18 months.

Pioneering approach

RPS is well placed to advise Australian governments on infrastructure. The firm is one of the world’s great advisers with around 5000 consultants working across 125 countries and six continents.

Operating in Australia since 2003, RPS has advised on many of the country’s largest projects: Brisbane’s Cross River Rail; Sydney’s Metro, Parramatta Light Rail, WestConnex and Western Sydney Airport; and Melbourne’s Metro Tunnel Project, Level Crossing Removal Program and Airport Rail Link. The new RPS advisory practice incorporates the firm’s acquisitions of Corview, Straight Talk, Everything Infrastructure Group and Manidis Roberts. Sullivan says that the quality of RPS employees and the firm’s full independence are other strengths. ‘Many RPS employees are ex-government. They understand the public sector’s infrastructure approach and needs, and can be a bridge to the private sector.’ Passion for infrastructure is another hallmark. ‘RPS is immensely proud that its advice contributes to the development and delivery of projects that serve communities for decades. RPS’s challenge, during COVID-19 and beyond, is to support government efforts to amplify infrastructure as an economic lever through innovation.’ ♦ To learn more about RPS, visit www.rpsgroup.com.

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Tim Pallas MP

Tim Pallas MP, Treasurer of Victoria Key points: •

Infrastructure investment had underpinned Victoria’s success leading into the pandemic and will be central to its recovery.

•

The Victorian Government wants to reassure industry of its commitment to delivering projects using public-private partnerships.

•

The Victorian Government is pursuing opportunities to improve all parts of the procurement process, from project inception to delivery.

Tim Pallas MP (TP): Thanks very much, Adrian, for the opportunity to speak today. I would like to acknowledge the traditional owners of the land on which we are individually meeting and pay my respect to their elders past and present. I would like to thank Infrastructure Partnerships Australia for the invitation, and for your ongoing and continuing support of the pursuit of excellence in infrastructure. I would also, of course, like to thank Sir Rod for his kind introduction. He has been a solid supporter of all things infrastructure in this country, and probably does not get enough recognition for all the hard work he does. 2020 has not been the year that any of us wanted. We find ourselves in one of the most challenging times in the last century, from both a health and an economic perspective. As a government, we are doing everything we can to navigate our

way out of the current circumstances towards COVID normal. As we head into that new normal, there are opportunities for economic reform and redesign that lie within this massive disruption. We know that the upswing will come at the end of this, and we are working hard to position ourselves well for that. Let’s talk about Victoria’s economy and what is ahead. Victoria ended 2020 in a suitably strong economic position, the envy of the nation on key fiscal metrics and the leading economy in the nation for eight consecutive quarters. Like all jurisdictions around the world, coronavirus has hit our economy hard. This once-in-a-century pandemic has ravaged countries right around the globe. Governments everywhere have been forced to make difficult decisions, as they weigh up choices that are literally life and death.

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Tim Pallas MP

Since the Andrews Labor Government was elected, we have spent every day fighting for workers and fighting for jobs. Our infrastructure pipeline leads a nation and has supported the creation of more than 115,000 jobs for Victorians. More than half a million jobs have been created since we took office in 2014, so to find ourselves asking people not to go to work goes right against the grain. But to do otherwise would see this deadly virus run rampant and is simply one of those things that we must act to avoid. The worldwide recession, closure of national borders and vital restrictions to save lives have impacted employment, trade and economic activity. Both the IMF and the OECD are predicting a damaging recession right across the globe this calendar year, with world output declining by up to 7.6 per cent. Australia recently entered a recession, ending over two decades of continuous economic growth. The Victorian unemployment rate climbed to 7.5 per cent in June, and our most recent modelling, of course, indicates that it might peak at an estimated 11 per cent in the September quarter, coinciding with stage four restrictions in Melbourne and stage three across the rest of Victoria. These estimates do not factor in the latest road map settings, and we will have more to say in due course about the economic implications of the road map. It is yet another reminder of the steep economic cost of not getting on top of this wicked virus. The Victorian Government has now invested more than $12.5 billion into the fight against coronavirus. This includes more than $6 billion of direct economic support for businesses, industries and workers doing it tough. The economic settings make for grim reading, but we know that our billions of dollars in support are making a difference.

is not just key to protecting lives, it is also key to getting the economy on a sustained recovery. Chris Richardson, from Deloitte Access Economics, said recently that success against the virus means success with the economy. And he is right. He has noted that countries with lower coronavirus deaths have generally fared better economically than those with higher deaths. On the best available public health advice, we have adopted a staged approach to easing economic and social restrictions, as we exit the current stage four lockdown. Reverting to and from lockdowns would only inflict further damage to our economy. We have come too far, and we have worked too hard. Through this staged approach, we are working towards a COVID-normal Christmas, based on an ongoing reduction in case transmissions. With clear and articulated case targets, we have trigger points for review that give Victorians more insight into how we are tracking. The staged approach represents a balance between opening up the economy and ensuring that we do not escalate community transmission. Stage three and four restrictions have significantly impacted the construction sector and its ability to continue working on the state’s infrastructure programme. During stage four, the delivery of state-critical construction projects continued with comprehensive COVID-19 safe plans. For other projects, activities have reduced or been suspended, but for the most part, have stayed somewhat active under a pilot-light setting.

Independent modelling from Deloitte Access Economics has found that Victorian Government investment decisions are helping the economy, having protected more than 81,000 full-time equivalent jobs. Our most recent announcement came last weekend: a $3-billion package of support, including cash grants, tax relief and cashflow support designed to help businesses survive. Our $6 billion in business support is the equivalent of around 25 per cent of Victoria’s annual tax revenue, or 17 per cent of our own source revenue. Reduced revenues and the Government’s record investment in measures to support Victorians through the crisis means that the Victorian budget is now likely to return an operating deficit of $7.5 billion in 2019–20.

The Victorian Government has created a framework to respond to coronavirus impacts across its infrastructure programme. Employers, workers, contractors and unions have worked together to keep workplaces safe and projects moving on critical construction projects. It has been a great collaborative achievement, especially given the cost and timeline risks of demobilisation of large projects. This maintains direct economic activity while supporting demand throughout infrastructure supply chains. Departments and agencies are able to respond flexibly, providing tailored help according to individual projects and contractual arrangements. Extensions of time can be agreed upon for delays caused by coronavirus, helping constructors adapt work practices while staying on track. Departments and delivery agencies can also fasttrack payment arrangements to reduce the impact on project cash flows. This response will benefit constructors, but also subcontractors, suppliers and project consultants as project payments flow.

I announced in July that up to $2.6 billion was spent out of an additional $10 billion treasury advance that had been approved for the 2019–20 financial year. Despite these numbers, we have been very clear as a government that we need to engage closely with business and the community to provide the support they need. Getting the virus under control

The Government continues to collaborate with industry partners to help individual projects maintain jobs and boost the economy. The Government’s overriding priority for the next six to 12 months is targeted timely economic stimulus that creates jobs. Infrastructure has been the cornerstone of our success to date and will be central to our recovery. Our immense

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Tim Pallas MP

$107-billion Big Build – the biggest project pipeline in the nation – has anchored this state’s success with mega projects like the North East Link, the West Gate Tunnel Project, the Metro Tunnel and Airport Rail Link.

billion. When it comes to our recovery, we will not let good ideas or projects sit languishing in red tape. We will get them going.

Our Building Works package is investing $2.7 billion in local infrastructure projects, upgrades and maintenance programmes. By the end of September 2020, a total of 98 initiatives from this package will have started procurement. This represents $2.48 billion, or 97 per cent of the total package. During the pandemic, the Victorian Government has remained fully committed to our infrastructure pipeline. We know this investment drives economic activity and jobs. We have also adapted to changing circumstances and our strategy has been to maintain construction sector activity and the pipeline, mobilise immediate quick-start projects through stimulus, and reform with new approaches to investment.

The Victorian Department of Treasury and Finance (DTF) and the New South Wales Treasury are undertaking a joint review of their major infrastructure procurement processes. These two reviews span all sectors and will consider opportunities to improve all parts of the process, from project inception to delivery. It is an important opportunity to share experiences, leverage best practice, and enhance policy alignment across the two jurisdictions. The DTF is also undertaking a joint review with the Major Transport Infrastructure Authority. These reviews will help us deliver our infrastructure programme, increase capability and ensure value for money. They will be overseen by an expert panel of Australian infrastructure experts, giving recommendations for reform. My department will engage extensively with key stakeholders throughout both reviews.

These projects include road upgrades, new schools, community housing and repairs of bushfire-damaged areas. Our infrastructure investment after COVID-19 will focus on productivity and job creation, addressing social disadvantage and expected changes in behaviour. Meanwhile, our Building Victoria’s Recovery Taskforce is making sure that permits continue at a steady pace. Since March, new and amended planning permits have been issued with a development value of more than $7

With the onset of coronavirus, we were faced with a tough challenge in how we could get more construction companies to be involved quickly in the delivery of shovel-ready projects. We know the construction sector will play a major role in driving Victoria’s immediate economic stimulus. That is why we have made the difficult decision to restructure and pilot a new procurement approach for the Suburban Roads Upgrade project. The $2.2-billion Suburban Roads Upgrade will deliver 12

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“

ictoria has dug deep, V and each and every Victorian has made a considerable investment in assuring our success. We pulled together to get through it

arterial road upgrades through a programme-based approach. Companies will be pre-qualified, with work awarded based on a range of factors, including experience, performance and capacity. This will support large, medium and small companies to participate in these projects, creating more jobs and capacity in the construction sector. Over the past 20 years, Victoria has invested more than $30 billion in 32 contracted public-private partnership (PPP) projects right across the economy. I want to reassure our market and industry partners that we will continue to use PPPs in our mission to stimulate the Victorian economy, with specific project characteristics, meaning that our value-for-money outcome can be achieved. We have also delivered the Victorian Major Projects Pipeline, a new online portal developed by the Office of Projects Victoria, to help the construction sector find more opportunities to be part of major project delivery across Victoria. Until now, there was no one-stop shop for industry to view a snapshot of major projects on the horizon. The pipeline is primarily targeted at the construction industry and highlights around 70 major projects, each with an estimated value of $100 million and above. Projects can be viewed by estimated value, region, project type and relevant delivery agency in an open invitation to the construction sector to get involved. Complex infrastructure delivery requires elite talent. To help build and nurture the talent needed to deliver our wide range of projects, we established the Victorian Major Projects Leadership Academy in 2019. We have now expanded the programme to be the Australian Major Projects Leadership Academy. The programme is delivered by the University of Oxford’s Saïd Business School and Ernst & Young. It is arguably the most prestigious programme of its type in the country, providing high-quality training to our major project leaders. Today, I am pleased to announce that nominations for the 2021 intake will open on Monday for eligible senior public sector departments and agency staff working in major project delivery.

We have never had a challenge like this pandemic in our lifetimes. It is a relief to see some light at the end of the tunnel as the numbers fall. Victoria has dug deep, and each and every Victorian has made a considerable investment in assuring our success. We pulled together to get through it. And that resilience will help us on the economic front. All Victorians should be encouraged by the safe, steady and sustainable steps that regional Victoria has been able to take this week, that will see us all the way to a COVID normal. The big job of rebuilding our economy begins. And with it, the enormous opportunity to create dynamic and energising change. My thanks to Infrastructure Partnerships Australia for your ongoing support and collaboration. In our upcoming budget, we will say more about our blueprint for a renewed Victoria. Thank you very much. Adrian Dwyer (AD): Well, thank you very much, Treasurer. We have a couple of minutes to ask you some questions from our audience. I just want to focus for a moment on the forward opportunities that always come through disruption and crises. One thing that strikes me, that we have heard about a few times over this conference, is the shortening of supply chains. Given that Victoria is Australia’s manufacturing centre, and there are opportunities with industry in Victoria to maybe look at capitalising on shortened supply chains, do you think there is a potential push to place Victoria at the centre of the construction and infrastructure supply chain for the country? TP: I would say that Victoria and Melbourne have been the headquarters of our logistics industry and the centre of our supply chain activity. That has become increasingly apparent as restrictions have hit and therefore impacted upon the rest of the nation. I think it is true that what this pandemic event has taught us is those supply chains need to be critically and carefully managed in the interest of not just Victorians, but of all Australians. There is an enormous responsibility that attaches to us. We are looking at supply chain security in terms of the product that is being held. What are the key things that we need to manufacture in this country? But we are also looking at more efficient means by which supply can occur. We also note there has been an enormous move towards digitised access and digitised commerce. Increasingly, we are going to have to think about how that integrates into the supply chain provision. Victorians have robustly adopted the idea of digital commerce, and that is a clear demonstration that the world we have at the moment, or the world that we entered into in this pandemic event, will be considerably different on the other side. Supply chains will have to be more assured – they will have to be secure and they will have to, from a manufacturing point of view, be capable of assuring Australians that they can get the products they need as efficiently as they possibly can. AD: Thank you, Treasurer. I am sure I speak on behalf of all attendees when I wish our Victorian colleagues every success on the road out of this crisis.

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Delivering on major transport builds The Federal Government, along with state governments across Australia, is currently investing in the country’s largest transport infrastructure program. From 2019–20, the Australian Government has invested $100 billion and investment in Victoria continues, with $57 billion of transport projects already in progress across the state. Coleman Rail – a Victorian company and ACCIONA subsidiary – is playing a significant role in the infrastructure revolution. Established in 2002, Coleman Rail has grown to maintain a strong presence throughout Australia, supporting and supplying the country’s rail infrastructure with offices in Melbourne, Sydney, Brisbane, Adelaide and Perth. The company is rapidly establishing itself as a reliable contractor that can deliver large, high-profile and complex infrastructure projects on time and within budget. Almost three years into one of Victoria’s flagship infrastructure builds (the Level Crossing Removal Project on the Frankston line), Coleman Rail – along with Southern Program Alliance (SPA) partners – delivered three new train stations, constructed a new road bridge and two rail bridges, removed seven level crossings, and completed stage one of a new train stabling facility. In addition to the transport infrastructure, SPA has provided community facilities, including new pedestrian and bike paths, new commuter parking, open space, a playground, and a basketball court. Coleman Rail Executive General Manager Sean Bonham attributes the ability to deliver to the company’s broad range of expertise, which covers major infrastructure projects, minor work, and maintenance, including upgrades to capital city transport systems, such as Melbourne’s tram network. ‘Our expertise covers construction, upgrades and maintenance, complemented by our in-house capacity to undertake civil, mechanical, utilities, services relocation and building works.

Level Crossing Removal works at Cheltenham

Many of our projects are delivered within live operating environments and constrained sites. Our highly skilled and experienced resources include a large permanent direct labour workforce, as well as experts in engineering, commercial, construction, safety and environmental management,’ says Bonham. More recently Coleman Rail was awarded another state-sponsored infrastructure project: the new Bayswater Station Project in Perth and named preferred contractor for the upgrade to Victoria’s regional Shepparton rail line northeast of Melbourne. The new $253-million Bayswater Station project includes the construction of a new station building, surrounding precinct works, and new platforms and rail infrastructure to support the Forrestfield–Airport Link and the

future connection with the Morley– Ellenbrook Line. The Shepparton Line Upgrade (SLU) is part of the Victorian Government’s $2-billion regional rail revival project. Coleman Rail is experienced in this sector, having been part of the Alliance delivering the near-completed Ballarat Line Upgrade. The SLU project included upgrades to signalling, communications, level crossings and pedestrian crossings, platform extensions at three stations, a new Shepparton stabling facility, and the extension of a crossing loop. As governments Australiawide focus on strategies to reduce congestion, connect regions, and improve passenger and freight movements, Coleman Rail has positioned itself as a rail contractor that is ready to deliver. ♦

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COLEMAN RAIL

EXPERTS IN RAIL INFRASTRUCTURE

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Decarbonisation – pre-panel address

Decarbonisation pre-panel address Key points: •

The New South Wales Government intends to leverage the state’s competitive advantage in renewables as part of its infrastructure-led recovery effort.

•

There are significant opportunities for the private sector to invest in generation and transmission infrastructure.

•

The New South Wales Government is working to ensure that projects in Renewable Energy Zones have social licences, along with streamlining processes for investors and fast-tracking priority transmission projects.

Speaker: ► The Hon. Matt Kean MP, Minister for Energy and Environment, New South Wales I would like to thank Infrastructure Partnerships Australia for the invitation to address this forum. New South Wales was an infrastructure economy leading into the COVID-19 pandemic, and the Government is determined that we will have an infrastructure-led recovery coming out of it. Reliable, cheap and abundant energy has been New South Wales’s competitive advantage for generations, and it will continue to be our competitive advantage in the recovery. What has changed is that rather than using carbon-intensive resources, we are shifting to the renewable resources that our state has in abundance. This change is being driven by economics and science. The cheapest way of producing electricity is not coal, gas or nuclear. It is wind and solar backed up by pumped hydro and batteries, and batteries are coming down the cost curve dramatically. With pumped hydro, the major cost is capital by nature. Once you have actually built the infrastructure, the marginal cost to produce the electricity is close to zero. Now the science tells us the climate is changing and that carbon emissions are the cause, and there is a need to reduce them to net zero in order to live without the damage. Science and economics point us in exactly the same direction. With interest rates at record lows – likely to remain so for the foreseeable future – now is the time to invest in the infrastructure that will power New South Wales’s future. The clear advice from the Reserve Bank of Australia is for governments to do everything we can to create jobs and stimulate the economy as we emerge from the shadow of COVID-19.

We are accelerating the clean energy transition to ensure that New South Wales captures the jobs and growth that we will need to power our economic recovery. Now, there are significant opportunities for the private sector to invest in both the generation and transmission infrastructure that’s needed. On the generation side, we have been able to take advantage of the hard work and detail put into our state’s electricity strategy and Net Zero Plan. Our Renewable Energy Zones (REZ) are the modern-day equivalent of coal-fired power stations, and we have had a massive vote of confidence from investors in the creation of Australia’s first REZ in the Central West and Orana region. Our industry registration of interest process received 27,000 megawatts of proposals, worth $38 billion of private capital. That is nine times the amount needed. In June, I announced that in order to speed up the development of the zone, the Government will invest more than $40 million.

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Overall, this will parlay into more than $4.4 billion worth of investment coming into the Central West, creating 450 jobs in the region. The Government is working with TransGrid to undertake a feasibility scoping study for the REZ, and that is supported by $5 million from the Australian Renewable Energy Agency. A second REZ in the New England region has the potential to produce as much energy as all of the state’s coalfired power stations combined.

the generation mix. We are fast-tracking the delivery of four priority transmission projects identified in the New South Wales Government’s 2019 Transmission Infrastructure Strategy, and the Australian Energy Market Operator’s (AEMO) Integrated System Plan. The first two of these projects – upgrades to the state’s existing interconnectors with Victoria and New South Wales – will help guarantee reliable power supplies after the Liddell Power Station closes in April 2023.

The phenomenal level of investor demand in the CentralWest Orana REZ has led us to bring forward our plans for the development of the New England zone, with a further $79 million worth of investment. We have repurposed the Energy Corporation of New South Wales in code to coordinate the construction and operation of the zones so that we can streamline processes for investors, and ensure that the infrastructure is going where it is accepted by the community.

There are two other priority projects: the interconnector with South Australia, and Humelink, which will unlock the capacity of Snowy 2.0. We have worked with TransGrid and AEMO to bring forward early planning and feasibility works on these projects so we can accelerate delivery, create jobs and build capacity at the same time. Our joint underwriting of the $102 million with the Commonwealth has brought forward TransGrid’s delivery of the Queensland-NSW Interconnector upgrade by more than a year.

The Energy Corporation’s job would be to make sure that the infrastructure has a social license before the first sod is turned. We are also creating a special access right regime to connect into the zones, giving projects greater certainty over grid access, insulating them from congestion risk, and enabling them to better predict revenue. New South Wales has extraordinary levels of renewable resources, but they are in different parts of our state from our traditional energy resources. Transmission infrastructure is going to be crucial to our energy transformation. We know we have to ensure that transmission investment keeps up with the rapid changes in

In my first major speech as the Minister for Energy, I said I wanted New South Wales to be the easiest jurisdiction in the OECD in which to build infrastructure. What that looks like is making sure that we are investing in the projects that we need to move through the planning system quickly. The Government is investing to get the groundwork done. We are getting the regulatory regimes right, and we are slashing red tape, and we are not finished yet. I invite your businesses to join with us as we make sure New South Wales is the leading destination for investment in renewable energy, as we transition to a future powered by clean, green energy.

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Decarbonisation Key points: •

Decarbonisation has shifted from a peripheral consideration for the infrastructure sector to a central concern.

•

Growing sectoral convergence means the energy sector will ultimately underpin the decarbonisation of other infrastructure sectors such as transport, where it is a key input.

•

Digital infrastructure and new technologies should be harnessed across all sectors to accelerate decarbonisation.

Panellists: ► Drew Clarke AO, Non-Executive Independent Chairman, AEMO Board of Directors ► Elizabeth O’Leary, Head of Agriculture, Macquarie Group ► Michel Masson, Chief Executive Officer, Infrastructure Victoria

Moderator: ► Ivan Varughese, Head of Green Investment Group, Asia Pacific, Macquarie Capital

Ivan Varughese (IV): Decarbonisation and our response to climate change presents both one of the largest challenges and one of the largest opportunities of our lifetime. As we have just heard from Minister Kean, a lot is being done from a Government perspective in terms of willingness to invest, and the creation of new jobs and economic growth. We heard from our infrastructure investors earlier about the opportunities to invest in transport from a decarbonisation perspective, as well. What is clear is that when we look at where emissions come from, energy is obviously well known, but the other sectors that contribute to it – both transport and agriculture

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“

I n thinking about decarbonisation towards the net zero goal, the number one sector on the top of the list is the electricity sector

– also need to be addressed if we are going to achieve our goals of net zero by 2050. Starting with Drew, emissions policy continues to occupy its fair share of column inches, particularly in relation to the energy sector. Just this morning, we saw Scott Morrison, our Prime Minister, announce that he would expand the ARENA and CEFC mandates to invest in new technologies to also drive down emissions. Drew, from your perspective, what do positive and coordinated energy decarbonisation efforts look like across industry and government? Drew Clarke AO (DC): In thinking about decarbonisation towards the net zero goal, the number one sector on the top of the list is the electricity sector. There are three reasons for that. First, it is in itself the single largest source of greenhouse gas emissions. Second, it is the key to decarbonising both the transport sector and the heavy industry and manufacturing sector. And third, it is also the key to building new export industries, such as green hydrogen. So, we have to deal with electricity. Now, AEMO’s Integrated System Plan (ISP), released in July this year, gives us a 20-year roadmap for the National Electricity Market, which is eastern Australia. And there is a similar exercise underway in the west. The ISP is an engineering and economics analysis. It looks at multiple scenarios over a 20-year time frame to identify least-regret pathways for system development. But there are a number of characteristics that stand out in all plausible scenarios. Out to 2040, we are going to see somewhere between a doubling and a tripling of distributed energy resources – rooftop solar PV being the biggest example of that. We are going to need 26 gigawatts of new wind and solar to replace the twothirds of the coal-fired fleet that we expect to retire by that period. We are going to need between six and 19 gigawatts of dispatchable generation, which will require a huge new investment in generation, but it is generation whose fuel is essentially the weather. This is generation that the operator can rely on to come in when needed. That could be pumped hydro, batteries or other

technologies. And we are going to need major investment in the transmission system, interconnection and Renewable Energy Zones, as you just heard Minister Kean talking about. There are numerous projects in that transmission investment pipeline that are committed, actionable and under assessment. These are needed both to manage the risks around security and reliability, and to create the opportunities for efficient investment. They have got a net market benefit all up of around $11 billion. Now, successfully rolling out this programme will mean that by the mid 2030s, we can have periods where up to 80 per cent of generation will be renewable. Gas is going to play a critical role in this. It has a critical role in meeting peak demand and firming renewables during those coal exits. They will have a lower volume at a much higher value in the system. So, the electricity sector’s transition towards net zero emissions is well underway. IV: Michel, moving on to transport: decarbonisation has proven difficult as populations and economic activity has grown. And electrification of the vehicle fleet is one route, but that presents its own challenges, and clearly government efforts alone will not move the needle substantially. How do you see governments tackling transport emissions, and what are some of the ways in which industry can partner with government to accelerate decarbonisation? Michel Masson (MM): Transport is the third largest source of emissions in Australia, so if we are serious about reaching the zero emissions goal by 2050, clearly more needs to be done in that field. But the thesis I will put forward to you today is that there is no silver bullet that will get us there. We clearly need to harness the convergence of transport policies and energy policies, and really look at decarbonisation in an integrated way. I have three propositions to get us there. The first one is reduced demand by avoiding trips where possible. The second one is improved energy efficiency, and the third one is to shift to lower-emission transport modes. Let me start with the reduction of demand by avoiding trips. I may surprise you, because land use and transport planning integration might not be the first thing in mind when considering decarbonisation, and yet it will play a critical role. Compact cities – the concept of the 15-minute neighbourhood, which Paris has embraced, and Melbourne is looking at – will help in reducing travel. To embed zero emissions in the way we plan for cities and regions will be very important. COVID-19 has demonstrated behavioural changes such as more working from home, and the digital penetration across all areas of life should be harnessed to limit the amount of unproductive travel. I will ask this audience – do you really need to be on that plane to Sydney for that onehour meeting? Or is there a better way of doing it? New mobility models should also be embraced.

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On-demand services will play a big role in making sure that we have not got empty buses guzzling around our suburbs. But it is about improving energy efficiency, also. The Australian road vehicle fleet is sadly one of the most energy- and emissionsintensive in the world – 45 per cent higher than in Europe. The push for lower vehicle emissions targets should definitely be encouraged further. It would be remiss to not mention the pricing signals that can incentivise behavioural choices to encourage more efficient use of transport systems. And it is not by chance that Infrastructure Victoria has been very active in looking at profound reforms like road pricing, public transport fares and parking, but also demand management in the energy system. And it is about shifting to lower-emission transport modes. I would argue that governments should seize the COVID-19 opportunity and invest in active transport infrastructure to make sure that cycling and walking are embraced. I would argue that the cycling revolution is here and should not be wasted. But of course, electrification is key to decarbonising the transport system, and government can and should play a big role in triggering that electric revolution. It has got scale, meaning developing zero-emissions fleet strategies for government and vehicle fleets should be the first port of call. At the end of the day, they make up 52 per cent of the annual vehicle sales in Australia, and serve as an important source of the second-hand market.

And finally, it is about employing, of course, zero-emissions fuel sources. And I will finish off with an anecdote: when I was CEO of Yarra Trams, we noticed that if you combine the trams and the train network, that makes it the second-biggest electricity user in the state of Victoria. So, we started engaging in conversations with the renewable energy industry to see what it would take for them to build additional renewable energy capacity to power the tram and the train network through power purchase agreements. Now, that would have made Melbourne the only city in the world with fully carbon-neutral public transport – not a bad ambition to have. And the extra cost at the time running different scenarios was going to be an additional $25 million for the Victorian Government, which clearly is a drop in the budget and can easily be absorbed by a few cents more on the ticketing. So, it did not go where I wanted it to go but that is the sort of ambition and vision that I call for more of, because it will get us to the decarbonisation goals we all aspire to. IV: Liz, another sector that has proven hard to abate is agriculture, and yet it is obviously one of the larger contributors, as well. It seems there are emerging technologies that appear to be unlocking opportunities for decarbonisation. What are some of the trends you are seeing that are driving emissions reductions in agriculture?

Mandating zero-emission vehicles in public transport in the future should also be considered. And again, I am especially thinking of the potential of electric buses. At the end of the day, it is about creating the environment where electric vehicles can be taken up. And there are some obvious steps the Government can take. There are heaps of recommendations, and the advice we provided to the Victorian Government is available on our website, but I would like to highlight the following few: ► enabling further investment in transmission networks (which Drew rightly pointed to) ► reviewing regulatory barriers to enable distributors to address the highly-localised impact of electric vehicle take-up ► allowing electricity providers to set demand management strategies or develop design standards to govern the design and placement of electric vehicle charging infrastructure in public areas.

Elizabeth O’Leary (EO): Well, we are all focused on 2050 as some magical date, and focused on Paris. The other undeniable fact as we head towards 2050 is that the world needs to be able to produce somewhere between 25 per cent and 70 per cent more food than it produces today. When we look at agriculture in the context of Australia, we contribute to about 13 per cent of Australia’s emissions profile. One argument might be to simply produce less.

There is no doubt that freight is also going to play a very important role in that decarbonisation.

It is important to think about agriculture as a set of about 85,000 small businesspeople across Australia. So, it is highly fragmented, with varying production systems and varying appetites for change. But change is coming, and really one of the biggest changes I have experienced in our business, which operates across almost three million hectares of farmland across Australia producing food and fibre for the domestic

Shifting from road to rail will be key, as will electrifying rail. Only 10 per cent of the network is currently electrified. Hydrogen has a real future for freight vehicles and trucks, and research and development should be boosted in this area. And I was already mentioning the digital acceleration in logistics. There is

no doubt that the white vans that deliver our Amazon parcels should be a priority in being electrified.

While that might help us on the emissions pathway, it certainly will not help us feed the world and participate in important export markets. So, you are right, the sector is focused on how to identify emerging practices and technologies that enable us to reduce our inputs and our emissions profile through our inputs (i.e., producing more for less). But the other area of significant focus more recently in the sector is how we can leverage the inherent capacity of soil and vegetation to capture carbon.

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and export markets, is really the introduction of precision technology and tools that help us acknowledge that we deal with a lot of variabilities. Our soil is variable and our climate is variable. Historically, we have had relatively blunt broad-acre instruments that have helped us with broad-scale application. Now we are dealing with very finite decisions, particularly about inputs and the timing of inputs. What does that look like practically? Practically, on the farm, it looks like satellite-driven data, live into machinery cabins telling us when and when not to apply important inputs, such as fertiliser or chemicals.

of energy and hydrogen, in particular. And the other important nut we have to crack is methane and nitrous oxide emissions in livestock production. I think many of us have looked pretty optimistically at innovations coming out of our own CSIRO. With cows eating seaweed shown to reduce methane by over 80 per cent, the innovation is there, and it is gradually being adopted in a highly fragmented sector. But we do have some real challenges around speed of uptake and getting the economic signals right from the consumer around their propensity to pay for producers to produce more for less, with a softer footprint.

And this goes right down to some very neat technology and robotics that we are using today on the farm, where we have got infrared cameras seeking out individual weeds and pests in a crop, for example. We are only applying the requisite chemical to that pest or that weed that is required, versus the world I grew up in where we just sprayed everything. And we have got datasets now on some applications where it is reducing our chemical usage by up to 90 per cent.

IV: As we have approached emissions reduction or decarbonisation in a very sector-by-sector manner to date, often the approach has been lowest cost. When, in fact, as we think about convergence between different forms of infrastructure, energy is a huge input across the board. How do we actually coordinate government and industry to work together and achieve decarbonisation across the infrastructure sector as a whole?

So, what that has meant for us in our cropping portfolio, which we have been working with the CSIRO to baseline, is effectively over the last couple of years, we have reduced inputs by around six per cent and we have improved our emissions intensity. So, that is emissions per tonne of wheat produced by 15 per cent, relative to the benchmark. These are meaningful gains, but they are incremental gains.

DC: The orthodox view now is that the future is clean and electric. The fact that this forms such a central part of a net-zero emissions economy means the electricity system will play an even greater role in the economy, and will have to serve many more sectors than it currently does. I talked earlier about steel and concrete and why it is that that needs to happen – and the PV cells, turbines, batteries, hydro schemes and so on.

There are two really critical inputs that agriculture needs to address over the coming decades, as we move towards our aspiration of net zero. The first is fertilizers – a convergence

But the other thing is market design, and the whole policy and regulatory framework in which that system operates. It is essential that we have a fit-for-purpose market design and

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regulatory framework to serve this converged model. And that is going to need both industry and government input. It is absolutely a joint effort. So, the big initiative in this area at present is from the Energy Security Board (ESB), which comprises the principal roles of the operator, the regulator and the rule maker, working together under Dr Kerry Schott to undertake the big task of redesigning the National Electricity Market. Now, the ESB just this month put out a consultation paper on that work, and it identifies seven work streams. Let me just quickly run down the headings to give you a sense of the scope of this initiative. Resource adequacy – how do we make sure we have got the right generation at the time that we need it? Thermal retirements – how do we get orderly retirement of coal rather than random and disruptive? System services – we now need markets to create all of the things that we used to free ride with big synchronous generators. How do we deal with scheduling and ahead requirements? How do we create well-functioning two-sided markets? How do we value flexibility as a capability in the system, and how do we integrate distributed resources? And how do we get transmission access and investment signals right?

The third element, I would say, is innovation. The Victorian Government has got a clear role to play in inviting more innovation in the way we tender for work to the private sector. And what I mean by that is, to be more driven toward outcomes instead of being prescriptive on how to do things and really invite the private sector to come up with innovative solutions to reach the decarbonisation outcomes that we want. So, through leadership, collaboration and innovation, and that link between government and the private sector through procurement, I think that will contribute to getting us there. IV: Liz, you touched on precision farming and how the agriculture sector is addressing decarbonisation through new technology. How is agriculture collaborating with other forms of infrastructure in terms of this point of convergence?

I know that is a huge issue for new investors in wind and solar at the moment – getting those grid connections happening quickly and efficiently. The ESB has outlined a progressive implementation plan from next year to 2025 for this work. But successful convergence and coupling really needs industry and government to lean into this task of market design, because no one party can get this right. It has to be a joint effort.

EO: Often agriculture is seen as being out there physically and therefore the intersection is not as obvious. I would challenge everyone to rethink that. The farm of the future will see a world where our access to information and data (and being able to make split-second decisions based on that data) will rely on our digital infrastructure on the farm as much as we rely on a good tractor or harvester today.

IV: Michel, when you talked about fleet electrification, is it really transport or is it in clean energy? And how do you bring these together to drive the highest value?

The need for the agricultural sector to work with the infrastructure sector around what our digital infrastructure looks like, not only in cities and highly populated areas, but also in remote and rural communities, is really important. Not just from a social welfare perspective, but to think about it not necessarily through the lens of ‘is this new tower and 5G warranted based on population?’ – because the answer will probably be ‘no’ – but, ‘is it warranted on the basis of GDP contribution from progressive businesses in these communities?’

MM: I think there are three aspects – leadership, collaboration and innovation – that are relevant here. The first thing I would say is that if we are to truly progress decarbonisation and to really have that integrated approach, it calls for strong leadership at the very top. And that means that decarbonisation should not be just the environmental portfolio’s responsibility. It should be at the front and centre of discussions around the Cabinet table. For instance, when Victoria’s rail plan comes to be analysed, the question is: how is this rail plan contributing to decarbonisation and us hitting a zero emissions target? That is the strong leadership drive that will get us there. The second thing is about collaboration and how we achieve a multidisciplinary approach between the various departments and agencies. As far as the Victorian context is concerned, I take great comfort in seeing the profound cultural change that I have witnessed in Victoria in the restructuring of the Victorian public sector around missions to fight off the COVID-19 crisis.

This involved eight missions gathering multidisciplinary experts from different departments and agencies around very specific outcomes, including economic recovery and restoration of public services, or post-crisis reform opportunities. Do not underestimate the importance of that cultural change within the Victorian public sector in bringing that integrated approach around desired outcomes. So, that bodes well for the future when it comes to such a big societal issue as decarbonisation.

I think there is a dialogue to be had there and an ongoing dialogue to be had. The other point of convergence is the convergence between energy and agriculture. We are hearing a lot about hydrogen. It is an exciting roadmap if we can get it right, and get the right investment and the right momentum. The obvious intersection there is the intersection with fertiliser, and carbon dioxide emissions from fertiliser production and usage on farms (Scope 1 to 3). For an Australian grain farmer, it comprises about 40 per cent of their emissions. So, if we can get green hydrogen, and green ammonia, then we can get a green fertiliser industry in this country. The big ‘gotcha’ there is this fragmented demand

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side: how do we solve that when the investment community has an absolute desire for a de-risked investment strategy? I think it is a great area of convergence, and a great area for two sectors to come together to try and solve the de-risking objective we all have.

reinvent ourselves as an individual, as an organisation, as a state, but also as a nation. When I think about what that big bold vision in the decarbonisation arena is, I think I am entirely with [Australia’s Chief Scientist] Alan Finkel and his vision of exporting sunshine.

IV: A final question from me. Are we being bold or courageous enough in the decisions we are making today to achieve net zero by 2050?

I think that it cuts across so many areas. It would bring benefits to exports, trade and manufacturing, and is one way of gathering the goodwill of different businesses and sectors around one national vision – and getting us there in true Australian spirit.

EO: We can reduce inputs and we can manage emissions with new technology, but the other big opportunity is the inherent capability of our soil and our vegetation to capture carbon. And that is an area where the Emissions Reduction Fund has dipped its toe in the water in terms of the Australian landscape. But it might surprise people today to learn that, for the vast bulk of Australian farmers, it is not economically viable to take nonarable, non-farming land and plant native vegetation. We do not have the marketplace and the right economic signals long term for a farmer to take that next step. So, my big, bold dream would be to find solutions for our inputs and our emissions, but find a way where we develop a marketplace where every tonne of carbon captured on a farm in non-arable land is worth as much per tonne as every tonne of wheat that we produce. MM: It would be a real shame if we were exiting this pandemic crisis without dramatically reviewing our ambitions and our vision for Australia as a whole. I see this as an opportunity to

DC: Well, you can always be bolder, Ivan. About 20 years working in energy policy has taught me a few things. The two essential pre-conditions for a successful energy transition would be social license and the technology that can be rolled out. I am a patient realist around social license, but I am very optimistic around technology. Building on the points that Liz and Michel have already made about where technology is already having a big impact, there is a very exciting curve in front of us. I am very excited about what the low-emissions Technology Investment Roadmap can bring, and I have been pleased to work with a number of industry colleagues, and with Alan Finkel, in advising the Commonwealth on it. We saw some announcements today about funding, but I am sure we will soon see the actual road map. A new policy model for public sector support in hydrogen technologies, storage and sequestration could really accelerate the curve, reduce the costs, and improve the investment attractiveness of it.

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Luke Yeaman

Luke Yeaman, Deputy Secretary, Macroeconomic Group, Federal Treasury Key points: •

The diverse nature of Australia’s economy, strong fiscal capacity and substantial programme of infrastructure investment places Australia in a good position to navigate its way out of the COVID-19 crisis.

•

For the foreseeable future, governments will seek to use infrastructure investment to help boost confidence, lift economic activity and productivity, and drive down unemployment.

•

The infrastructure sector will need to identify productivity-enhancing projects and support early planning and skills development to allow investment decisions to be made with speed and confidence.

I would like to give you a brief snapshot of how we in the Federal Treasury are thinking about the Australian economy, both now and over the next few years, as we hope to move into the recovery mode after this crisis. I would also like to talk about the very important role that we see infrastructure playing in this recovery, as it will be a critical part of the story. The Federal Budget will be handed down in a few weeks’ time, and it will provide much more detail on both the outlook and the plan for recovery, but let me give you a quick highlevel view today. First, let me say a few things about the scale of this crisis. Prior to the pandemic, the Australian economy was fundamentally in good shape. Of course, there are always challenges and we had our share. Our growth was steady, unemployment was low, inflation was contained and our fiscal position was very strong by international standards. Our economy had also shown itself to be incredibly resilient over a long period of time. We were in our 28th year of consecutive economic growth, which is an outstanding record internationally,

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Chart 2: Fall in real GDP, COVID-19 recession vs previous recessions 0

8 Per cent

COVID-19 (December 2019 to t he June 2020 quart er)*

Fal l in Real GDP

1990s r ecession (December 1990 to t he June 1991 quart er)

1980s r ecession (Sept em ber 1981 t o t he June 1983 quar ter) Per cent

Note: The COVID-19 related restrictions were only introduced towards the end of the March quarter 2020, and the March quarter also included the economic effects of the bushfires

Figure 1

and we had successfully weathered a number of major shocks – the global financial crisis being the most recent and significant example. But the COVID-19 pandemic is on a scale that we have not seen before – at least not in most of our lifetimes. I want to speak in detail about the health measures and restrictions that were put in place to protect lives and take pressure off our health system. These were necessary steps and, overall, when we compare our outcomes with those of other countries around the world, I think our response has been highly effective. We have generally managed to get the balance broadly right between protecting our health outcomes and protecting our economy. It has been a very difficult balance to strike, but our cases and mortality rates have been low by international standards, and I reckon our performance also stands up very well. Nevertheless, the impact on our economy has still been very extreme. Both the speed and the scale of this downturn really are quite extraordinary. In the June quarter alone, economic activity across the country shrank by seven per cent. Prior to this, the largest quarterly fall ever recorded was just two per cent. This crisis dwarfs the economic downturns we saw in the 1980s and the

1990s recessions (see Figure 1). In just a few months during the 1990s recession, activity fell by 1.4 per cent, peak to trough, over two quarters. In the 1980s recession, activity fell by 3.7 per cent over a period of around seven quarters. Here, we have fallen more than seven per cent in just three to four months. The effects of COVID-19 have been widespread across the economy. Household spending, business investment, construction and exports, all fell sharply in June. Government spending, including on infrastructure, was one of the few bright spots amidst the gloom. Almost all industries have been badly affected; but, not surprisingly, our services sectors have been the hardest hit, especially those linked to tourism. In the accommodation and food services sector, activity fell by almost 40 per cent. Across sectors like the arts and recreation, transport (which means a lot to this group), administrative services and real estate services, activity fell by between 15 and 25 per cent. Now these numbers roll off the tongue, but they are incredible figures and are substantially larger falls than we have seen before, especially across such a wide range of sectors (see Figure 2). But perhaps the largest impacts of all have been

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Luke Yeaman

Chart 3: Gross value added growth, June 2020

4 Figure 2

on the jobs market. Between just March and May, 870,000

In countries like the United Kingdom, France, Italy, Spain

Australians lost their jobs, and total hours worked across the

and India, activity fell by closer to 20 per cent in the first half

economy fell by more than 10 per cent.

of this year, not seven per cent. Almost three times more than

Unlike past recessions, the predominant effect of those job losses has been felt in our casual workforce, particularly amongst younger workers and women. In the Federal Treasury, we have estimated that the effective unemployment rate – which includes those people who have lost their jobs, but also those who have dropped out of the job market altogether or are still employed, but are working zero hours – peaked at almost 15 per cent in April. In February, before the crisis hit, the unemployment rate was just 5.2 per cent. That is a 10 percentage-point increase in unemployment in just three months. Hopefully that gives you a sense of the scale of

we have seen here. I would argue that this relative success is the result of two key things. Firstly, our strong up-front health response, which included closing the international borders on 1 February, only one week after our first confirmed case of COVID-19. I agree with David Speers’s comments that there are always things we could have done better and faster, but overall, I think our health response has been very strong, and very effective in the main. The second factor that has made a difference for our international performance has been the unprecedented amount of fiscal support that has been provided by the Government and injected directly into the economy.

the crisis we are dealing with. This is not business as usual.

To date, the Government has announced over $300 billion

Having said that, it could have been much worse. As I said

of direct and indirect economic support. That amounts to around

earlier, when you compare Australia’s economic performance

15 per cent of GDP flowing into the economy, mostly in the next

with that of other countries around the world, we have done

six to 12 months. As you all know, the JobKeeper programme

well to limit the damage. When you look at the combined fall

has been the centrepiece of this support. More than $50

in GDP over the March and June quarters, very few advanced

billion has already been provided through that programme to

economies have performed as well as Australia.

support more than 3.6 million people and more than one million

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Chart 5: Forecast GDP levels, July Economic and Fiscal Update

6 Figure 3

Australian businesses. It really has been an incredibly successful programme and it has been effective, according to our analysis, in keeping people connected with their jobs, keeping businesses open during the worst of this crisis and putting a floor under business and consumer confidence. You can see it in the data; when that programme was announced, there was a noticeable stabilisation and improvement in confidence across the economy. That programme has been backed up by a range of other measures, including boosting and expanding eligibility for income support payments, including JobSeeker; a cashflow boost for eligible businesses and not-for-profit organisations of up to $100,000; allowing early access to superannuation; bank loan deferrals for household mortgages and small businesses; and a range of other measures. The Government has also provided direct support to badly impacted sectors like aviation, the creative arts sector, and construction through the HomeBuilder programme. Now, these policies have come at a significant cost to the budget. There is no doubt about that, and we will see the full impact in a few weeks’ time. But I do want to make the point that our debt levels remain very sustainable and low by international standards. There is not an immediate

need to pull back on spending, and there is enough ammunition in the locker. There is also no doubt that policy support has had a major positive impact on our economy and put a floor under activity and confidence. Without that support, we would have seen a much deeper recession of the kind we are seeing elsewhere in the world. We would have had a much larger mountain to climb on our way out of this crisis. What can we expect from here? That is the million-dollar question. As I said upfront, this is not a normal recession, if there is such a thing. How the economy recovers over the next few years depends almost entirely on how the virus and its treatment evolves, here and around the world. Of course, we all live in hope that the vaccine will be developed as soon as possible to allow us to resume normal business. But in the meantime, our success will depend on our ability to contain any further outbreaks, without having to return to widespread restrictions. On the positive front, prior to the second wave outbreak in Victoria, we had seen in the data that we monitor a very substantial and fairly rapid bounce back across a range of economic indicators as restrictions had started to be eased

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Luke Yeaman

“

Business confidence and conditions have shown strong improvements after falling to record lows in March and April respectively

across the country. By July, we had recovered around 340,000 jobs, or around 40 per cent of those that we lost between March and May. Business confidence and conditions have shown strong improvements after falling to record lows in March and April respectively. They are not back to the pre-crisis levels, but they had started to really bounce back close to those levels. Measures of consumer confidence and sentiment had also recovered much of their earlier falls, and retail spending had also rebounded significantly in the months following its record fall in April. We are seeing that recovery continue, albeit at a much more gradual pace, in those states that are still relatively free of the virus. This shows that if we can successfully limit

transmission of the virus and reopen our borders, there is a pathway to recovery. On the other hand, we have seen in Victoria the damaging effects that the second-wave outbreak and further restrictions can have on our economy. And it is having a very significant effect. David talked about a two-speed economy, and that is very much the case. In those states that are relatively COVIDfree, we are continuing to see an upward trend in many of those economic indicators, but Victoria is definitely having a severe effect on the national economy and dragging down confidence around the rest of the country, as well. Internationally, we are also seeing case numbers either continue to rise or rise again in a number of countries around the world, including France, Spain and India. And there is increasing thought being given to further restrictions being applied in some of those countries. In the absence of a vaccine, this risk of further outbreaks, both here and internationally, and the return to restrictions, will continue to drag on household and business confidence. I want to make the point that even if we can contain further outbreaks, past shocks and recessions have shown us that it still takes time to fully unwind the effects of an economic shock of this size and get back to pre-recession levels of activity. The jargon in the economic field is ‘economic scarring’, but it does take time for confidence to return into the economy, for the income effects to flow through the economy, for businesses to get back and invest, and for those people who have lost their jobs to retrain, adjust

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Luke Yeaman

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he main challenge T I see for the sector is to be able to respond quickly to the constraints that we know exist in this sector to make sure that infrastructure can play a worthwhile and important role

and find new roles. There is a mountain that we still need to climb. In the July economic and fiscal update, Treasury forecast the economy to gradually improve throughout 2021 as restrictions ease, and employment and incomes recover. The Federal Budget will provide an updated and longer-term forecast, but it is no secret that there are still some hard yards ahead of us. For the foreseeable future, governments will be focused on boosting confidence, lifting growth and productivity, and driving down the unemployment rate as fast as possible. I think the unemployment rate will be the key indicator of success over the next few years, and trying to drive that down quickly will be the key priority for all governments. I think Australia is very well-placed – as well-placed as any country around the world – to grow strongly out of this crisis, but it will require a concerted policy focus. I will finish by turning to infrastructure; I think this sector does have a critical role to play in supporting the economic recovery. It is no surprise to me that the Federal Government has prioritised infrastructure as one of the key planks in its JobMaker plan, alongside skills and training, deregulation, industrial relations, tax reform, and energy. Infrastructure serves a dual purpose in times like this. Firstly, as a stimulus, it can provide an immediate boost to growth and jobs, especially through the traditional suite of shovel-ready projects, like maintenance, road safety and other small-scale local projects. The fact that spending on government services and infrastructure flows directly through activity on the ground is a big advantage, especially where there is so much uncertainty and a lack of confidence. That is why the Federal Government has already announced an additional $3.8 billion, for land transport infrastructure projects in response to COVID-19, including $1 billion for priority shovel-ready projects. And I know that states are also looking at opportunities to accelerate and increase their infrastructure programmes.

Indeed, the Reserve Bank Governor has recently called on the states to spend an extra $40 billion on top of their existing plans over the next two years. Secondly, and importantly, as well as providing a short-term stimulus, as you all know well in this group, infrastructure can have a major long-term benefit for the productivity and competitiveness of our economy, provided it is high quality. And that’s what we will need in order to emerge strongly out of this crisis. We need measures that can create jobs in the short-term and growth, but we also need measures that boost the supply side potential of our economy, making it run better and faster over the longer term. Infrastructure, if done well, can address both of these needs. I know that right now, there is a lot of discussion out there about the longerterm impacts of COVID-19 on trade, on travel, and on the way people work and move around our cities. This year, we will also see a dramatic fall in the level of overseas migration into Australia, and population growth, which has been a key driver of infrastructure demand. But I cannot see any scenario in which good, high quality, productivityenhancing infrastructure will not play a critical role in the economic recovery. I agree that both sides of politics have prioritised this over time and I think will continue to do so. I want to be clear that this is across the full suite, including transport infrastructure, energy, communications, water and other social infrastructure, as well. To conclude, infrastructure clearly has a vital role to play in Australia’s recovery from COVID-19. And I think there will be a strong appetite from all governments – federal, state and local – to continue investing more over time. The main challenge I see for the sector is to be able to respond quickly to the constraints that we know exist in this sector to make sure that infrastructure can play a worthwhile and important role. That includes identifying high-quality projects and having the early planning in place to allow investment decisions to be made with confidence. And it also means continuing to ramp up the delivery capacity across the sector, including through skills development across the private sector and state agencies, so that we can get more spending out the door each year. Even prior to the outbreak of COVID-19, governments across the country had significantly ramped up their spending on infrastructure, and we were seeing those constraints start to play out in the sector with delays to some projects. As economic policymakers, Federal Treasury looks very favourably on infrastructure investments for the reasons I mentioned earlier, but we need to be confident in times like this that there are good, high-quality projects that can be delivered quickly to help the economy when it needs it most. I know from my past experience that Infrastructure Partnerships Australia and the sector as a whole is acutely aware of these challenges, and that you are all working hard to address them.

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Infrastructure investment – panel discussion

Infrastructure investment Key points: •

Despite asset writedowns throughout COVID-19, infrastructure remains, on the whole, an attractive investment class, offering opportunities for lower-risk returns and portfolio diversification.

•

COVID-19 has caused a rethink of risk by portfolio managers, and accelerated a preference for ESG investments that provide a natural hedge against climate risk, such as renewable energy assets.

•

Private capital can play an important role in supporting and accelerating government efforts to roll out infrastructure-led stimulus packages.

Panellists: ► Justin Bailey, Regional Managing Director, Asia Pacific, John Laing ► Emmanuel Gillet-Lagarde, Global Head of Infrastructure & Projects, Corporate & Investment Banking, Natixis ► Matina Papathanasiou, Deputy Head of Global Infrastructure, QIC

Moderator: ► David Donnelly, Partner and Sector Leader, Infrastructure and Transport, Allens

David Donnelly (DD): We have just been through a volatile three to six months. Matina, perhaps you could set the scene by telling us where we are at in terms of capital markets, asset valuations, and the general outlook. Matina Papathanasiou (MP): We have been very focused on essential services and keeping assets operating during all of these restrictions, managing health and safety issues. From a financial perspective, this is unlike any other event we have had before. It is unlike the global financial crisis. So, I think all owners of infrastructure assets are very active in trying to work out what the scenario looks like going forward and, therefore, what valuations should be. Overall, it is pleasing to say that the

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portfolios have been quite resilient from a valuation perspective, and they have performed pretty well – except, obviously, the airport sector, which has been hit hard. Airports in Australia have been some of the hardest hit assets around the world, with both domestic and international restrictions. So, in terms of asset valuations, people have been working hard on those. Valuations across the industry at 30 June indicated around seven per cent writedowns across the board. The transport sector had greater asset writedowns – around nine per cent – while energy and utilities performed more strongly. We are continuing to focus on the airports and how that sector is going to play out. A lot of valuers are adding a COVID premium for uncertainty, with equity discount rates having gone up in the short term to reflect the uncertainty. Going forward, there is a lot of capital still very interested in the infrastructure space. I think with interest rates being lower for longer, there is a view that assets such as infrastructure bring lower risk and diversification to a portfolio, so they are seen as attractive, but it may also lead to lower returns for those ‘super core’ assets. So, I think we will actually see increased allocations to infrastructure. But there will be some reclassification of risk. If we take airports as an example, they are going to move from core to core-plus. So, investors would be seeking a higher premium. But there is also a question of how to reflect, going forward, the pandemic in asset cash flows. Australian airports have lost six months of revenue because they have not been operating very much. And then you have lost that future wedge of growth that, with a compounding impact, can have quite a significant impact on valuations. So, it is going to be a combination of rates of return and the business plan. On the other hand, very secure revenue streams with CPI linkages are going to be hard to find in this uncertain environment, and people are going to find those very attractive. So overall, I think it is a positive story. DD: Emmanuel, I want to bring you in on diversification and what the portfolio might look like. Airports are being seen as less core and moving away from the ‘super core’ – as Matina put it – into a slightly riskier category. Do we see portfolio shape and size changing? Emmanuel Gillet-Lagarde (EGL): We have had a very similar experience to Matina on our own portfolio. Natixis has been one of the most active institutions on the infrastructure debt side globally over the past year. We have a very large portfolio across all the industry segments and many geographies, and we have seen only two segments that were affected. Firstly, projects under construction were affected because we had issues in the supply chain or difficulties in accessing sites. All those projects incurred some delays, but nothing material. The other assets that were affected were those exposed to either volume risk or price risk; for example, airports or motorways. On those brownfield assets, I think the impact

has been temporary – except for airports, for which it will be longer. Even for motorways, as long as there was a lockdown and people could not take their cars, nobody was on the motorways, but now it is back to a viable level. So, generally speaking, I do not expect any major issues in our portfolio. Even airports would take longer, but I believe those assets will remain essential assets to the economies they operate in. So, the market sentiment is that, again, the asset class proved its resilience through the crisis. Some segments, such as digital infrastructure, have even benefited from the crisis. But the market participants I have spoken with considered infrastructure to be the asset class to invest in. And I have heard from some infrastructure funds that are currently fundraising that infrastructure has benefited from asset reallocations by investors. So, generally speaking, it is positive. In terms of access to funding and the cost of funding, recent months have been quite volatile. In March, the capital markets got dislocated. This had a knock-on effect on private debt markets. On one side, you had banks that had a skyrocketing cost of funding, and on the other side you had institutional investors that were either on hold, focusing on their portfolio, or just benchmarking listed capital markets and requiring higher returns. At the same time, the market was closed for underwriting, so clearly no banks were willing to underwrite. And you had a kind of ‘flight to quality’ effect, so banks were just supporting their core clients. Those effects were very visible in the months of March and April, and then they have progressively disappeared. We are now back to more normalised markets on the debt side. On the equity side, generally speaking there is a lot of liquidity to be deployed. We have participated in quite a number of M&A processes. Clearly, it depends on the sector. On the airport side, the bid-ask gap is such that, at the end of the day, there is no process. But we are very active in renewables and digital infrastructure. The processes have taken longer because it is difficult to do due diligence, but generally speaking, I do not see much impact on the valuation side. Overall, I think the long-term value of assets remains, and investors are still very eager to invest in those assets. Clearly there will be more selections and requalifications in terms of assets, but there is willingness, and there are a lot of funds to be deployed. And now there is easy access to funding again on the debt side. DD: That is where I wanted to bring you in, Justin – on that selection process. There is clearly a lot of capital out there looking for a home, and long-term annuity-like returns are going to be favoured. But there have been, as Emmanuel said, some winners out of this, and digital infrastructure is a good example. So, how do you see this sort of change playing out, in terms of what transactions are likely to happen and what investors are looking for?

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Justin Bailey (JB): I think the event has shown that infrastructure is not a single asset class, and there have been quite differential impacts on different types of infrastructure. John Laing, as a business, is very weighted towards government-contracted cash flows. We have a large portfolio of assets that are availability-based. I think in these sorts of times, they become more interesting to investors looking for a safe harbour. They do not have the gross domestic product or market risks that other asset classes have. So, I think we will continue to see strong and probably increased appetite for these sorts of assets. I echo Emmanuel’s point about renewables, as well. I think renewables as an asset class have held up very well. There is a huge amount of appetite in the market for quality renewable assets. I think investors will take a close look at the revenue characteristics of each of the individual assets. I do not think we can say as a rule that all renewable assets will be treated the same. There will be people looking for the certainty of contracted cash flows, but in terms of what we have seen in the market recently, renewables seem to be a very attractive sector. DD: One of the themes coming out here is that infrastructure is an asset class that is made up of lots of subclasses, and they are very long-term investments. And so, while there is an impact at the moment on certain asset classes, in the long run

they might return to the mean. Matina, I’m interested in your view about what changes are temporary and what changes are more structural. What do you think that means for the asset class going forward? MP: Investors have particular reasons they invest in infrastructure, and they are all quite different. You could be looking to get alpha – core-plus, value-added-style returns – or more of a beta exposure – diversification and defensive characteristics. So, that is going to shape portfolios. I think COVID-19 has highlighted to people whether their portfolios are truly diversified. So, that is one factor that has been really important. Going forward, I think people will understand their assets and what they have a lot better, in terms of portfolio construction and diversification, how to get uncorrelated returns in a portfolio, and how to target investment objectives. Secondly, I think people will do more testing around risks. We have had the pandemic, so people ask ‘How has your portfolio behaved in the pandemic?’ I think the other big risk that is becoming very mainstream and will be assessed across portfolios and individual assets is climate risk. Environmental, Social and Corporate Governance (ESG) is now more mainstream – it is no longer just seen as a nice-to-have. I think it is really important to consider what governance stake you have, so you can control, have an influence, and be hands-

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on in the management of these assets. And you need to have a prudent approach to capital structuring because your capital structure needs to withstand these sorts of shock events. The other thing that is happening – and it has been mentioned by Emmanuel and Justin – is thematic investing. To mention two, there is digitisation, and everyone wants telco exposure. The discussion used to be around whether telcos are infrastructure. I think everyone now just wants exposure in their portfolios. It is a big theme. Then there is decarbonisation. We have heard about renewables, and once again, that is a big theme in terms of getting that exposure in the portfolio. Decentralisation is another of what we call the ‘four Ds’. There is distributed energy – and we acquired Pacific Energy last year, which fits in that theme. And there is democratisation. I think people will evaluate the ESG or the stakeholder impacts of different investments. Investors are looking at risk, and climate change is seen as a big risk. We think there is going to be a greater focus on utilities, digital infrastructure, decarbonisation and publicprivate partnership (PPP) social assets going forward, and a preference for sustainability. The other thing that may happen out of all of this is that investors look to re-weight their portfolios to understand what is going on and what they have, how these revenue streams are behaving, and various re-capitalisations. So, that may present different opportunities coming out of that, too. DD: One of the challenges for the sector is identifying projects, helping the Government to work out what the pipeline should look like going forward, and where investments will pay off in the longer term for the country. There is an inevitable constraint that is going to happen in terms of Government balance sheets. So, Justin, I was interested in what you see the role being for private capital in supporting the rollout of infrastructure – or the ‘reset’ or ‘reboot’, as it’s been called. JB: David, I might just provide a bit of context around John Laing as a business so people understand the positions I am putting forward. John Laing has a very long history in partnering with government to deliver complex infrastructure. The business has been around for 175-odd years as a builder, but over the past 30 or 40 years it has been active in developing and investing in infrastructure. We had interests in Australian airports in the early 2000s, but over the past 10 years, we have been focused on working with governments to deliver new infrastructure projects around the country, and to also develop renewable energy. The sorts of projects that we have been developing have been Optus Stadium in Perth for the Western Australian Government; Clarence Correctional Centre, which commenced operations in July; and Cherry Tree Wind Farm, which was a wind farm in Victoria that we managed to get

through to operations in the middle of COVID-19. That was really a testament to our partners on that project. So, in our DNA is a strong focus on partnering with government to try to deliver projects for government and communities. ‘Making infrastructure happen’ is our tagline because we see that as key to our role. When we look at the amount of government commitment to investment in new infrastructure to get the economy moving, and to keep the key construction workforces engaged, we obviously support that and are keen to see that followed through. At the moment, there is a big focus on maintaining existing commitments because I think what we are all aware of is that with the COVID-19 impacts, there is a challenge of maintaining procurement processes and project delivery. We really commend the governments for recommitting to those major projects, like Melbourne Metro, for example, notwithstanding some pretty difficult challenges on site in dealing with the COVID-19 risks. Most people at this point would expect me to launch into a story around the benefits of PPP. David, I am going to spare you that, and instead think about three areas that we are focused on at the moment, where we think there is a need for investment that can not only create jobs, but also create significant community benefits. The first is social and affordable housing. Clearly, COVID-19 is going to have dramatic impacts upon social services around the country. And we are going to see an increased need for social housing. We have already got 100,000 Victorians on the social housing waitlist. Governments at federal and state level are clearly trying to figure out what the right model is to bring institutional capital in to increase the amount of housing units and services. And I guess what we are seeing at the moment are examples in Victoria, where there are attempts to look at a concession-based model to allow mixed-use type developments to bring in institutional capital. We think that is a good model. It is an interesting way of achieving the social outcomes, but really finding a way to get institutional capital into the system. So, that is one area where we could see a significant pipeline going forward of projects that could move quite quickly if government can use the sort of planning leaps it has to get things moving. The second is the move to the circular economy. Clearly, we have an issue with waste going to landfill. The policy settings are shifting towards changes in the way we process waste here in Australia, and part of that is around Waste to Energy. We have a couple of projects in Western Australia, which will divert some 700,000 tonnes of waste from landfill every year. It is interesting that the Western Australians have embraced that as a way forward. We are yet to see absolute clarity on the eastern seaboard as to whether that is indeed

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a way that various governments want to go. But again, those are capital-intensive and they are well suited to institutional investment, so we see the ability to accelerate there and create jobs in the market. And for the final one, I will pick up Matina’s reference to the decarbonisation of transport. We are doing a lot of work around public transport and the electrification of bus fleets, in particular – it is a growing trend globally. We are seeing governments and major cities around the world commit to fully electrifying their bus fleets by 2025. It does bring interesting challenges in terms of the infrastructure that needs to be delivered alongside that. We see an opportunity for capital to fund the buses, fund the infrastructure, promote an overall service, and accelerate the replacement of buses. Frankly, we are still buying diesel buses that will be running around in 20 or 25 years’ time. I am not sure that that is a good outcome for people. Adrian Dwyer (AD): I might turn the tables by picking up on some points and pitching them to you, David. I have had a question about the prioritisation of investments and whether those should change from a government and investor perspective. It strikes me, from what Justin and Matina were saying, that the shift was happening anyway, rather than being driven by the current crisis. Is that a fair reflection? DD: I think that process is always underway. Obviously, COVID-19 changes a few things – it changes how we work and how we move around. If people work from home more,

it might change the sort of average commute, but also create peaks and troughs in commuting if Friday is twice as popular as Tuesday, for instance. So, you need to reassess some of the projects that are in the pipeline to make sure that they still make sense, and that they still deliver that benefit for the medium to longer term. AD: Matina, you mentioned ESG. Do you think that is something that is being accelerated by the current crisis, or was that a more fundamental theme over time? MP: I think it has been accelerated. I think that one of the reasons it has been accelerated is because people are very focused on risk. We have seen the pandemic, the impact it has had on the economy and financial investments, and obviously the impact it is having on society. There has been a lot around social license of infrastructure assets, and I think a number of investors are including net-zero emissions targets in their portfolios as they build them out. So, I do not think sustainability is special. I think it is mainstream now when you invest, and I think it presents a huge opportunity for an investment pipeline that could be created. The European Union has allocated €550 billion over the next five years to address climate issues. So, I think we have the opportunity in Australia to create a really big pipeline to invest in. I think that would be very attractive to the investment market as people try to position themselves long term with climate risk in mind. So, yes, it has definitely accelerated these things.

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David Thodey AO

David Thodey AO, Chair, NSW Review of Federal Financial Relations

Key points: •

There is a need to undertake critical funding reforms to ensure economic stability, including reforms to taxes such as the GST, stamp duty and fuel excise.

•

Australia should transition from the current road funding system and towards a road user charging system, given declining fuel excise. This will enable a stronger relationship between road investment and usage.

•

While we are unlikely to see sweeping reforms anytime soon, there is appetite from political leaders across the country for change in some form, which provides some hope.

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David Thodey AO

David Thodey AO (DT): What I thought I would do today is take you through two bits of work that I am involved in. Firstly, I am a member of the National COVID-19 Commission Advisory Economics Group. I thought I would just share a few insights into that in terms of infrastructure, and some of the work we are doing there. And then, I will pivot to the Federal Financial Review we did for the New South Wales Government. So, firstly on to the National COVID-19 Commission. As you know, it is chaired by Neville Power, and it has Paul Little AO, Jane Halton AO, and a number of the secretaries from the Commonwealth on the committee, as well. And then, it just pivoted a bit; we have had about another five commissioners join us, but our intent and objective is to give some independent economic advice to the Prime Minister and Cabinet in terms of the way forward as we try to come out of COVID-19. Peter Harris, who used to chair the Productivity Commission, is head of the secretariat there. I do want to stress that while we get involved in a lot of things, we are only one voice. We do not have any money and we do not have any policymaking capability, but we are providing advice around deregulation, advanced manufacturing, infrastructure, workforce reform and skills development, and we touch a little bit on tax and how to enable small to medium-sized businesses. The fuel excise tax is declining, and as we get more efficient small cars and electric vehicles coming in, there needs to be some offset to that. We are looking at recovery, how we make sure that the economy, from an industry perspective, comes out of this as strong as it can, and how to get people back into jobs. And where possible, we look at reform and industries, micro, macro, et cetera. But I should stress that the reform agenda is very influenced around the immediacy of trying to get people back into work. I think the react stage is pretty much behind us – at least, I hope – as we start to come out of the crisis. But as you know, this virus can rear its ugly head at any time. In terms of recovery, the challenge is that it is so diverse – by industry, by geography – and trying to get our arms around what is the best thing to do is very difficult. Paul Little has been doing a lot of very good work in terms of infrastructure, and the Government has been very supportive of shovel-ready projects when all the necessary paperwork has been processed, and also Public Private Partnerships. So, from an infrastructure perspective, there is a lot of support. If you do have any suggestions or ideas, Paul is our point person on that. And, obviously, this will be an ongoing focus as we move forward. But we do need pragmatism. There have been a lot of theories floating around in a lot of areas, but the Prime Minister is a pragmatist, and he is looking for outcomes; not long-term, decadal projects, but rather things that can deliver in the immediate time frame. As you know, the budget is coming pretty hard and fast at

“

he fuel excise tax T is declining, and as we get more efficient small cars and electric vehicles coming in, there needs to be some offset to that

us, and I am sure there will be considerations there. So, that is sort of the National COVID-19 Commission Advisory Board. I personally think it is a great opportunity for reform, and we do need to keep pushing at that, within the pragmatic world in which we live. Now on to the NSW Review of Federal Financial Relations. I was a brave person to take this on. The Treasurer of New South Wales asked nearly a year ago, which seems like an eternity, to have another look at Federal Financial Relations. Now, for anyone who has been involved in this area, it is a little bit esoteric at times, but when we start to get into things like border shutdowns, the way our Federation has been structured actually becomes very real. After the bushfires and COVID-19, it really has been a journey as we have gone through that. Since 1901, when Federation was passed into the Constitution, there have been a lot of reviews done on the Federation and how it works. As we looked at it, there was nothing radically new. But the challenges we were looking at 12 months ago, the funding gap between what the states were seeing and the tax revenues coming into the Commonwealth were just sort of blowing out, even though New South Wales had a $90-billion infrastructure plan. And, in effect, it still does. But the funding of this is going to be challenging as we move forward. This relationship between the states and the Commonwealth has always been tense, because it was only in 1943 or thereabouts, during World War II, when the Commonwealth actually started to collect taxes on behalf of the states and then distribute it. We ended up presenting this draft report at the National Press Club on 1 July 2020, coincidentally 20 years after the GST was introduced. So, it was quite a momentous day. But the issues we looked at were things like the question of vertical fiscal imbalance, meaning how much funding comes to each state from the Commonwealth. And if you did not know, we as a Federation have an imbalance in Australia; our states have the largest dependence on the Commonwealth of any Federation, meaning there is a greater dependence on a central government to distribute funds.

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David Thodey AO

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e have this very W high dependency on income and revenue tax, and profit tax from the corporations, but income tax for individuals

Then there is the way funding actually gets distributed and the principal equivalents – i.e., if I am a citizen in the Northern Territory, I get access to exactly the same standard of health care as I would in downtown New South Wales. And that is quite a big equalisation process that takes place – I already mentioned the funding gap. We have this incredible dependence on income tax. This is a consumption tax, and I will mention that in a moment because of the whole question of the role of GST versus income tax. Some of the state taxes we have – things like stamp duty and payroll taxes – are not inefficient, but it is this tax on labour, and how do we effectively use that? And then, of course, we have taxes like the fuel excise tax, which

is declining in a completely different way, meaning we need to look at how we fund our infrastructure. Let me just touch on a few of the recommendations in the next five minutes. Firstly, you will be glad to know the report only has 15 recommendations, which is a bit of a record for any report for government. There was quite a bit around the state relationship. I mean, the National Cabinet has been a really great implementation. It is still subject to politics, but the way the relationship between the Commonwealth and the states works is very important because there are powers vested in the states, and the Commonwealth has certain powers, so you really do need a meeting of the minds. For those who do not know, every few years there are these national agreements set up between the Commonwealth and the states. At the moment, we have got 50 that are less than $5 million each, and they take, on average, 12 months to negotiate very inefficient and very questionable returns. The GST was implemented just over 20 years ago now. We actually have quite a low dependence on consumption tax, and we are one of the highest OECD countries in terms of income tax and corporate tax. So, we have this very high dependency on income and revenue tax, and profit tax from the corporations, but income tax for individuals. Then you compare us to a country like New Zealand, where 30 per cent of its revenue comes from the GST, whereas we only have 12 per cent. So, we think

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David Thodey AO

the GST needs to be looked at again. We think it is quite an efficient tax; however, it is loaded with politics and therefore the probability of a lot of change there is quite low. We spent a lot of time looking at stamp duties and how inefficient that is. And we had a very strong recommendation that the states should move to a land tax across a very wide base, which gives greater certainty, and we think greater equity, as well.

of our recommendations with the Federal Treasurer and all the state treasures in the room. So, it was a very inclusive process and I am hopeful there will be some change. I am not convinced it is going to be wholesale, radical change, but I think there will be steps taken to try to address things like stamp duty, land tax, and I think road user charging could be considered going forward.

In New South Wales, there is a very strong dependence on insurance-based taxes for things like emergency services. We felt very strongly that that should not be based on insurance and should become more of an emergency services levy, which is very important for the bushfires. Payroll tax is something that needs to be standardised – it has become a crazy sort of tax. The states use to compete to get people to come and base their headquarters in various states at various times. And then, the one that is probably relevant is the road user charging model, and we think it is time now that we do phase into this. The fuel excise tax is declining, and as we get more efficient small cars and electric vehicles coming in, there needs to be some offset to that.

That’s it from me, Adrian. The National COVID-19 Commission continues to work, so if you have any ideas or any contributions, you can send me a note. And we will see where we get to with our tax reform on Federal Financial Relations.

I think we do need to relate investment in road infrastructure with usage, and that has to be very important. So, fuel excise tax at the moment is about $12.7 billion. Most consumers have no idea that for every litre of petrol they buy, they are paying about 40 cents to the Government. And then you have the states with their registration fees, which at the moment is around the $6 billion mark. We think it is time to move towards road user charging. We have had tolls in many of the major cities, but if we could go to a national approach on road user charging, we think that would be advisable. We initially felt that we would start with electric vehicles because that makes good sense (and, by the way, we are not buying into whether it is right for electric vehicles to be more on the road or not). We just think at the moment they are being exempt from contributing to their use of the road system and therefore it would be a good place to start. We think the treasurers should get together and put in a national approach to road user charging going forward. We also recommended a congestion tax, but as I went into Sydney CBD a couple of days ago, I am not sure we need a congestion tax. We may need to incentivise people to come back into the cities at the moment. So, that was sort of the broad-brush approach. The draft report is still available on the New South Wales Treasury website. We have submitted our final report, and we received a lot of input. We have submitted it to the Treasurer, and it is now going through consideration. I will say there was a lot of buy-in. I met personally with the Board of Treasurers, I think four times, and that was all the Treasurers from all the states. So, we were very transparent and inclusive in the discussion. Josh Frydenberg asked us to present the results, and we discussed various iterations

Adrian Dwyer (AD): I am sure you will get a rush of emails off the back of that, David, with people asking for reforms to be prioritised, and for the National COVID-19 Commission to recommend to the Prime Minister and the Treasurer to back an electric vehicle road user charge, given the audience that you have spoken to today. I might just ask one question, maybe combining these two roles that you have. Firstly, to what extent you believe the National Cabinet process will provide an enduring legacy around getting buy-in in reforms that are national in their nature. And then, secondly, what role do you think the Commonwealth Government might have in helping the states to drive those reforms that are largely at the state level in terms of the levers that need to be pulled? DT: I really hope the National Cabinet does continue. I know it has been challenged in recent weeks with the border shutdown. But the Federation was always designed to work, to get the states and Commonwealth together, and we need to continue to look at how we make the Federation work for the citizens of Australia. It is not an end in itself. The COAG process has also proven to be not as effective as we would like, and by having more meetings in a National Cabinet, I think there is great opportunity. Politically, will that happen? Adrian, it is not my role, but I am a great supporter of it, even if it is difficult. The second question, will the Commonwealth support states in transition? I have got to say that the Secretary of the Treasury has been very actively involved, and I think is very keen to provide support where it makes good sense to do so. So, I think there is opportunity, and I think it is an extension of the National Cabinet if we can get state treasurers and the Commonwealth Treasurer working together, along with secretaries of treasury, I think we can really make good progress. So yes, the Commonwealth is willing to step up. AD: Well, thank you, David. That is a great optimistic note to finish on. It is clear from your address that reform will be critical to re-establishing New South Wales’s and Australia’s economic stability.

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The future of airports – panel discussion

The future of airports Key points: •

Governments can support the aviation sector and underpin its recovery through a phased approach, with the removal of state border closures an urgent first step.

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COVID-19 has hit airports hard, but there are green shoots of a recovery driven by domestic demand in the near term.

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Airports have cut their capital investment programmes in response to the pandemic, but this year has provided an opportunity to accelerate works that would have been disruptive to regular operations.

Panellists: ► Geoff Culbert, Chief Executive Officer, Sydney Airport ► Adrian Littlewood, Chief Executive Officer, Auckland Airport ► Gert-Jan de Graaff, Chief Executive Officer, Brisbane Airport ► Lyell Strambi, Chief Executive Officer, Melbourne Airport

Moderator: ► Nick Carney, Partner, Herbert Smith Freehills

Host: ► Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

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Nick Carney (NC): Good morning. I would like to kick off with a question to all the panellists, and I’ll ask Lyell to answer first: The key focus of the aviation industry now is firmly on the path to recovery. It seems clear that the focus will be on easing domestic restrictions first. What are the remaining hurdles to build back domestic demand and create a trans-Tasman bubble? And beyond that, what steps are required for a staged restoration of international travel? Lyell Strambi (LS): Thanks Nick. Let me address the domestic question first. I do not think we have a confidence-totravel problem here in Australia. Our research is telling us that customers are really willing to get moving again. They do have confidence, particularly in domestic travel, though it is slightly different on international travel at this stage. The challenge we have actually got is the confidence to allow travel by the relevant regulators that are actually out there. Airfares as the airlines struggle to make ends meet are going to be stubbornly higher, I suspect, for a period of time, and we’ll have to get over that hurdle. And people who have potentially had bookings cancelled had real trouble getting refunds on previous bookings. That is going to be an impediment for a little while as people think about travel more broadly. On the international scene, it is really hard to see the pathway to opening up at the moment. I think a lot of people are hanging their hat on a vaccine. That is dangerous, because we do not know about the vaccine’s availability, production, widespread distribution and take-up. So, we probably need a Plan B, which is around how do we cope with COVID-19 and still manage to have enough border safety. NC: Thanks, Lyell. Geoff, what are your thoughts? Geoff Culbert (GC): I agree with Lyell. It is going to be a phased approach. Starting with domestic, we just need to get these state borders open. I think everyone in the industry is saying the same thing. We need a consistent nationwide set of definitions and metrics that determine what constitutes a hotspot, and what the triggers are for opening and closing borders. And importantly, these cannot be too conservative. They need to be realistic and they need to be achievable. What we have at the moment is a fragmented and inconsistent approach. We all have state allegiances, but first and foremost, we are all Australians and the behaviour we are seeing at the moment from certain states is inconsistent with what it means to be an Australian. And this is the moment where we should be banding together. We should have each other’s backs. That is what Australians do. But unfortunately, self-interest has swallowed national interest and that’s just holding us back. So, we need to get state borders down. There is a huge amount of pent-up demand. In that small window when state borders were open back in July, we saw activity increased by over 400 per cent, and then the borders came down again and we’re back to

where we were previously – 97 per cent down on international and 95 per cent down on domestic. As a country, we have somehow achieved the unique double of having one of the lowest infection rates globally with one of the worst performing domestic aviation markets in the world. That has to change. Once we get domestic borders open and we get interstate travel going, then I think the trans-Tasman bubble has to be squarely within our view. There was a lot of great work that was done, and we thought there was a chance of getting it open in July. That got derailed as a consequence of what we saw in Victoria, and some re-infection rates and new infections in New Zealand. But I think we have got to look at getting that up and running by the end of the year. And that will establish proof of concept, which will enable us to then start thinking about other international destinations. As Lyell said, it is not going to be an all-or-nothing approach. I do not think there is going to be an outcome where a vaccine is released and, on that day, at the flick of a switch, international travel opens again. We’re going to see a phased opening of international travel, taking a risk-based approach, looking at how we manage quarantine, using technology for rapid testing, enabling us to open up to markets where we feel like they have done a good job of managing the virus, and they also have good processes and controls at their end. We will need to work through that on a phased basis so that over time we get to a full opening of international travel. But it will not all happen at once, and we need to have a plan to be able to do it on a phased basis. NC: Thank you, Geoff. Gert-Jan, you are in Brisbane, and Queensland had a fairly heavy lockdown, as did Western Australia. What is your view on this? Gert-Jan de Graaff (GJdG): Yeah, there is a bit of a mixed view, I have to say, here in Queensland. You are absolutely right. The border closures are quite strict, with quarantine processes in place for the people that want to travel in from those states that are affected by COVID-19. And that, of course, does not help the people traveling to and from Queensland at the moment. On the other hand, today Brisbane Airport is probably the

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irfares as the airlines A struggle to make ends meet are going to be stubbornly higher, I suspect, for a period of time, and we’ll have to get over that hurdle

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biggest airport in the country with just under 15,000 passengers a day. That seems like a big number, but it is still fairly small. It is just over 20 per cent of normal patronage. But there are definitely mixed emotions within this state about the border closures. Some of the areas are doing much better in terms of tourism and business than they did before. Some regions are doing much worse – predominantly here in Brisbane, on the Gold Coast and in North Queensland. We are very actively promoting and suggesting to the Government to open borders where it is safe. I totally agree with Lyell and Geoff on this matter. I think that will happen in the foreseeable future. We’re also very actively discussing with our cousins in New Zealand, as well as the Federal Government, the development of a Plan B, because that’s absolutely necessary. The availability of a vaccine is a question mark, as is whether it will work. So, we cannot wait for that. We really have to develop alternative, safe ways of travelling. The current controls in place – border closures and quarantine – are not zero-risk. There’s still a risk, and we think there are alternatives possible with very similar risk outcomes. So, we are absolutely trying to push for those alternatives to be worked out by the aviation industry. We definitely see here in Queensland, where virtually only intrastate travel is possible, that there is still a lot of confidence to travel, given those 15,000 passengers travelling every day. So, I totally agree with the previous speakers that, as soon as the borders open, we will see at least an important share of the market recover almost immediately, and hopefully before Christmas. NC: Thank you, Gert-Jan. Adrian, everyone is very focused on the trans-Tasman bubble, and Auckland Airport would be a big beneficiary of that. What is your perspective on this question? Adrian Littlewood (AL): Kia-ora and good morning from New Zealand. You will find me in strong agreement with my colleagues on this call, but just a few things to pick up on. We have had the advantage of having a period of fairly open domestic travel in New Zealand during the months of July and now restarting in September. To pick up on the points made earlier by Lyell and others, there is no shortage of demand. We went back to around 60 per cent of normal domestic demand, tracking towards 70 to 75 per cent. If you allow for the loss of inbound international tourists, it is getting close to what you might call normal. New Zealanders can still travel outbound. We are seeing anecdotally that people are heading off on long trips to Europe, where those markets are moving on; they will live with the virus and still seek to travel. So, I do not think there will be an issue there. Testing for me is the first catalyst for rolling back travel restrictions. I think vaccines will take time. Effective, rapid and large-scale testing regimes will be the path, I think, to restart, and it will be lumpy and clunky. As it relates to the Tasman

bubble, we have worked very closely with those on the call here, and I think it was a great example of trans-Tasman coordination. But I do think we need to confront the fact that a bubble concept is actually a hard one to sustain because, as the others indicated, this is going to be really complex, and very hard to manage between states in Australia, let alone extending it to other countries over time. We do not want to create a perception of lockstep between countries, because in the minds of the public, that will make the reaction to any future outbreaks visceral. I think the sense of flexible connection is more important. I think that sort of approach is what we have seen between our two countries before – this sense of not of harmonisation but mutual recognition. Having systems that reflect the flexibility required now to make sure those connections can happen and be sustained is crucial, because none of us want our hard work to go into setting up a durable, sustainable system, and then have it pulled very quickly. I think that would destroy a lot of trust and confidence with the traveling public and make people’s lives more difficult than they are today. So, I think we have to keep evolving our method as we learn more about managing this. NC: Thank you, Adrian. That is a great point around trust and managing expectations. My next question is about capital in investment programmes, and I will ask Gert-Jan, Geoff, and Lyell. Prior to COVID-19, Australia’s airports were forecast to invest in excess of $20 billion over the next decade, with three-quarters of that directed into new runways and terminal expansions. How has COVID-19 impacted each of your capital investment programmes, and what is the path forward under these changed conditions? Gert-Jan, perhaps you could go first. GJdG: Obviously, COVID-19 and the constraints in terms of cash have quite significantly impacted our capital expenditure programme in the short term, but not so much in the longer term. We believe that the market will recover, and we will continue to invest in the future of the airports in terms of capacity, but also in terms of compliance and some commercial investments. In the last few years, we invested about $2 million every day in our new runway and other investments. We are not doing that anymore. Our capital programme for this financial year is just under $100 million. That is a mix of compliance-driven projects, as well as commercial opportunities. The COVID-19 situation has impacted our investment programme dramatically, but we are firmly of the belief that when the market recovers, we will continue to invest in the future of Brisbane. NC: That’s good to hear. Geoff, what are your thoughts from a Sydney perspective? GC: Ours is the same as Gert-Jan’s. Coming into this year, we had a capex budget of around about $400 million in 2020. We have cut that back significantly and we are targeting about

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$150–200 million this year. But next year, we are bringing it down even further and it will be in the range of $100–125 million. As Gert-Jan said, we are focusing really on critical projects to keep the asset going: basic stuff like runway re-sheeting, cybersecurity, power resilience and compliance expenditure. We are very carefully monitoring any other capex spend above that. We will, as Gert-Jan said, open up the envelope of capital spend as we come out of the crisis, but we will not get ahead of the crisis. We have to see a sustained recovery for us to feel confident about reinvesting. I do see us going back to those numbers of around about $400 million per year. We quote the number of a million dollars a day, which is a huge investment when you think about it. It reinforces the criticality of airports and the role we play in infrastructure in Australia. When you are investing that amount of money, you are creating a huge amount of benefit for the economy and you are creating a significant number of jobs. We are doing a bit of what we call opportunistic spend. For example, we are doing a refresh of our retail in our international terminal. There are no passengers in there at all, and therefore we have the opportunity to accelerate some work that we had planned. With no passengers going through there, we do not have to do it during curfew hours – we can do it during the day, and we can accelerate that.

NC: Thanks Geoff. Lyell, how are you thinking about it in Melbourne? LS: No surprise that we are seeing the same sort of patterns and the same sort of activities. Melbourne was in a unique situation where we were playing catch-up for many years. I would joke and say that we were not delivering capital just in time, we were probably delivering it just a little late, always. So we were spending somewhere between $500 million and $1 billion dollars each year, and we had a plan to do that for as long as I can see, not just to catch up. So, like everybody else, we have scaled that back. We have slashed our capital programme to the tune of 60 per cent over the next three years. It is surprising, picking up Geoff’s point here, how much money you have to spend even to stay still in the capital space. These are big assets and they are very old assets at their core. So, you have a constant flow of things you have to keep doing to it. Like Geoff, we have made sure that we kept a number of programmes going through the course of this year to really complete that catch-up work. And as Geoff said, it is actually relatively easy and, in fact, cheaper to do work at this time, so we’re not doing as much work out of hours; we’re able to do it in regular time, which is really terrific and has been quite helpful.

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he act of travelling T has been incredibly well-managed within the country with the techniques we are using at the moment – for example, social distancing

As we go forward, two really big things for us. First, runway capacity is a 50-year investment, not a three-year investment. We still see a real need to get pressing on with that runway programme. At the moment, we are focused on getting the approvals for that. We have gates that we will step through and assess the timing of the runway, but the need is not in question. We are going to have to face up to it and get that done at some stage. So that remains a really big focus for us. The other thing we are still very mindful of is trying to do some small things to improve the passenger experience with what we have at the moment. That remains a focus for us even in a crisis. NC: Thanks Lyell. The next question relates to resilience. It is a question I’ll ask all of you and I’ll perhaps ask Adrian to go first. The pandemic has brought the resilience of our infrastructure into the spotlight. COVID-19 accelerated the transition to contactless check-in, security and customs, and other physical layout changes. More broadly, how has the pandemic disrupted your thinking about the physical operation of your assets and the future terminal model? AL: Thanks Nick. Naturally it is accelerating some of the thinking that we had in train already around that multi-billiondollar infrastructure plan. It has also asked us to rethink what that looks like over the next few years, as the others have mentioned. In doing that, we have had to imagine what the future passenger requirements and categories of passengers will look like. These include simple ideas through to the highly complex in how we use our infrastructure and title. By that, I mean not just the classic terminal infrastructure and the subunits within that, but also some of our landside exits and how we put those into service as complex processing. For example, we can anticipate a scenario where some countries that we connect to may be complex for some time. We do not want the penalty or the efficiency penalty of carrying those inside our core capacity. We would want to bring those back into service from more normal operations. So we are looking at how we remove those passengers into a remote

processing area, so that we can continue to rebuild back into our normal networks where they are less complex for the future. We are also trying to think about our recast infrastructure plan – which was a couple of billion dollars. We are in the same spin as those on the call here. We are really trying to break those big chunks of projects into more sub-units of infrastructure, and thinking about how they might come in a different sequence. But that still gets us to our Master Plan over time, to bring together our internal operations into one integrated hub. It has caused us to go back and re-interrogate our longer-term plans. This has shown them to be strong and solid, as they should be in these circumstances, but also invited us to go after those problems in a different way, reflecting what the airlines or passengers will be looking for in a restart. NC: Lyell, your thoughts on that question? LS: Again, very similar views. I think it is certainly going to throw up some new challenges to us to rethink the way we do things through the airport or the way passengers transit to the airport. And you talked to that via contactless check-ins. I think we have to be very careful here that we’re not just doing things to be seen to be doing things that are not going to deliver some true value. This is going to be a challenge. It is a little bit like safety. You strive for complete safety, but you will never achieve it, so it is actually about doing the meaningful things that actually get you as near as practically possible to that solution. So, can I see a complete contactless transition through an airport? No, of course not. But everything you can do to reduce contact – new facilities and new technology – is really helpful. I think the challenge for us is making sure that the airlines are on the same page. It has been very interesting for us over the years; airlines often hit on us about airport charges and the like, and yet they do things at airports that actually reduce the greater use of the assets. They will have their own dedicated check-in systems, which prevent us from using common systems. Therefore, we are not getting the efficient use of those assets. They are sitting there, often redundant, or just not used, when that airline is not operating. So, we have to get over that as an industry, and work together to find smart ways that drive the great economic and health outcomes that we need to achieve to sustain user confidence going forward. It has been notable, though, that airports have not been the problem, even with big outbreaks here. Travel has not been the problem. The problem is the spread. The act of travelling has been incredibly well-managed within the country with the techniques we are using at the moment – for example, social distancing, which is pretty easy with the passenger volumes we have had. We have to think about how we achieve those ends when the volumes come back.

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I would say one of the things that has been changing over the last few years in airport management, and which will change the way we’re doing business in the future, is technology

NC: I think that is a good point, as is making sure that passengers are comfortable as we move forward. Gert-Jan, could I ask you your thoughts on that question? GJdG: At the risk of repeating each other, I would say one of the things that has been changing over the last few years in airport management, and which will change the way we’re doing business in the future, is technology. I think there are a lot of opportunities to further use and implement technology to enhance health, safety and security, but also efficiency and the personal experience in airports. I think we will continue implementing those new technologies going forward. In the short term, there are a lot of measures we had to take in terms of social distancing, cleaning regimes and disinfectants. But long term, I think it is more of an overall change focused on improving efficiency and the passenger experience with technology. There is another aspect to resilience as airports. We are not only an aeronautical-focused entity, but we all have a sizeable property business, as well. That business has been very resilient at the airports throughout this COVID-19 period. Some companies were actually doing a lot better than before, especially in logistics and freight. So, it is absolutely clear to us that we should further focus on commercial property development to make the overall business more resilient and less dependent on those passenger volumes, because it is quite obvious that there’s a high risk for our business going forward.

we had outgrown them, they were no longer fit-for-purpose. These were driving significant inefficiencies in the use of Sydney Airport. We have been encouraged by the fact that the government is looking at how we drive greater productivity and efficiency to assist the economic recovery from COVID-19 across the whole economy, not just the airport. Importantly, when you think about the role that infrastructure has to play in that recovery, there is no better candidate than Sydney Airport. We are Australia’s largest single-infrastructure asset. We generate more than seven per cent of the GDP of New South Wales. COVID-19 means we have a once-in-alifetime opportunity to take a look at how we more effectively manage demand at Sydney Airport. What we need is a system that achieves two basic outcomes. Number one: a system that provides fair and efficient access for everyone, and a system that ensures any airline that wants to fly into Sydney Airport can get access and we never have to turn anyone away. Before COVID-19, given the inefficiencies of the asset, there were circumstances where we were turning away demand. And as we look to recover out of COVID-19, that cannot happen again. Number two is that we know that there will be a significant restructuring of airline activity. We know that they will be scaling so we know there will be more slots that become available. We have to ensure that those slots are allocated in the fairest and most efficient way so that we capture all the demand that exists. It is really hard to argue with the two principles I outlined, and they’re going to be so critical to the recovery of the economy as we come out of COVID-19. NC: Thanks, Geoff. We have only got a short time left, but Adrian, how would you like the New Zealand Government to use the opportunity to reform its regulatory approach? AL: There’s almost an enshrined perception that airports are immune to risk, and asset bearers could be in the position of sustaining risk that is either disconnected or connected to national risk. I think this event has demonstrated that risk is very genuine. I am certain we have been describing that risk forever, but I just do not know whether the regulators have always heard that. I think we will be watching really closely to see how they interpret that risk because I think it is critically important for all.

NC: Thank you, and given the commonality of thoughts, Geoff, I might give you your own question and that is a slightly different topic. Beyond the physical operation of assets, the pandemic also provides an opportunity to rethink infrastructure regulation and reform. What do you think are the opportunities that the crisis presents to reform the operating restrictions and improve the efficiency of the slot regimes at Sydney Airport?

There are a lot of national assets that are 50 or 100 years old. They are reaching the end of their economic life and need to be reinvested for the future. Ensuring that owners of infrastructure and capital can find a sensible return reflecting genuine risk is fundamental to the cycle we need to face. So, we will be looking very closely to make sure that they stick to the principles and stick to the points that they’d be making over the last years of the evolution of our regulatory model here.

GC: It is an interesting question. The regulations that you are talking about are 20 years old, and even before COVID-19

NC: Thank you. I will pass to Adrian Dwyer to see if we have any questions.

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Adrian Dwyer (AD): Thank you very much for that, Nick. I wanted to go to some questions from our colleagues around the country. I might start with one to Lyell. I think there has been a lot of support for businesses generally flowing from the Government, but equally there have been some challenges around the distribution of that support. I know we all feel great sympathy for colleagues in the airline sector, but I wonder if you could reflect on whether we have got that balance of support right between the moving parts of the aviation sector, as opposed to the fixed asset part? LS: Clearly, the nation did need to get behind the aviation sector and keep it moving, particularly for those essential services we needed to conduct during this pandemic. It has been very interesting that most of the focus on support has been directly to the airlines to get them flying – and we understand the economics of that; it makes good sense. However, it does feel as though the airports have not been looked after quite as well. We get the sort of support that the generic businesses largely get across the nation. With the exception of some land tax relief, there has not been much else. It does feel a little unfair at the moment because we are obligated to keep the airports open. We are running them at a loss. It is almost like the Government has said that that is a problem for the shareholders of those airports. The problem is that those shareholders in our case are pensioners and people who are relying on income from the airport. They are not getting that income, and they will be subsidising this. So, we

are solving a national problem at the expense of one particular group, which does not seem particularly fair. I certainly agree with the notion that aviation is a critical industry to support and sustain. Most other nations have done a lot more in this space than Australia has done. And it does irk us a little bit that it is a little bit lopsided in support at this point in time. AD: If there are some silver linings in this, we’d have to think about the increase in freight that has happened with increased online deliveries. I wonder if we could get the panel to reflect on how that has flowed through from an airport perspective into air freight and whether or not we think that will be a permanent structural change, as opposed to something that is just aligned with the transient effects of COVID-19. I might come to Geoff on that first. GC: There has been an increasing level of activity in online shopping over the last decade. What we are seeing now is probably the acceleration of the trend that’s been happening for a decade or two. I would expect that once we get back to normal life, we’ll see a little bit more of a normalisation of that curve. But it is a trend that we think is going to continue for the foreseeable future. We are certainly looking at how we operate our airport and providing more space for freight and logistics operators. The level of demand is always increasing, and we have to meet that with supply. So, we are trying to work out how we use our property footprint to create more space for freight logistics operators.

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The future of airports – panel discussion

From our perspective during the crisis, freight activity has gone up significantly, but it has not meant much for us economically, because of the way the charges work. Currently, international charges are significantly higher than domestic charges, which are significantly higher than regional charges, which are significantly higher than freight charges. So, international is subsidising domestic, which in turn is subsidising regional, all of which subsidises freight. In the absence of any international activity of any substance, our economics look significantly different and the freight charges really do not align to the level of activity that is going on at the moment. I think that is something that over the long term needs to be looked at. I think the lesson out of this is that passenger risk is real; this is not an industry where passenger numbers just go up year after year. The historical model of the setback and privatisation where international subsidises everything else, including freight, is starting to show its weaknesses. But having said that, we see ourselves as an essential service. We will continue to keep the airport open and operate it even though we are operating at a loss. We will continue to support freight activity to ensure that all of our exports find their way out of the country. We will continue to operate the airport as an essential service to make sure that all the repatriation flights get back into the country and that the modicum of domestic travel happens. But to answer your question in short, freight has boomed during this crisis, but this has not meant much for us given the structure of the charges. But in the long term, there will be an increasing demand for freight and logistics as ecommerce continues to grow. AD: Gert-Jan, you mentioned in your comments earlier that there is a greater exposure in airports and non-aviation activity, including logistics. I know Lyell has said the same. And you mentioned that has been something of a high point in an otherwise difficult circumstance. Do you see those structural changes in the freight space meaning that you will see an increasing relevance of that within the portfolio of assets you have at the airport? GJdG: Obviously, the logistics industry plays a very important part in our property portfolio. We have seen that continuing, and we see that growing relatively speaking, but maybe a little bit different than what Geoff indicated before. We do not necessarily see the freight volumes growing; it is more that we see the aircraft capacity decreasing, and hence there was a lot more focus on freight in the recent past. We have been working really hard with our business partners, as well as the Government, to at least create enough international capacity for freight, especially for imports in terms of medical supplies and medication – but at the same time, securing export capacity for our farmers and the agricultural industry, with the export of seafood, for example. So, that

has been a very big challenge because usually, international air freight is transported in the belly of aircraft, and with the border closures, we do not see many international movements anymore. So, the increase in freight in Brisbane has been predominantly domestic and not international. AD: I am going to go to Adrian for this question. It is a question from a colleague in New Zealand who said, ‘Assuming we can get the trans-Tasman bubble up and running safely, the natural extension would then be to other countries with low COVID-19 transmission rates. What should governments be doing to make this happen? And do you think that there’s enough of a runway to make that happen before we have a broader solution to the COVID-19 issue around vaccines and the like?’ AL: The simple way to conceptualise this is to pick up the threads of what we already do in aviation. Aviation is inherently a risky business without layers of protection. There is obviously aviation security for physical security. There are customs and immigration for people’s security, and in these we have biosecurity to manage risk. And each one of those have people, process, intelligence and technology that add up to provide layers of protection. This is about domestic and international health security, and it needs that same philosophy to be applied to it. So, this is a complex problem that requires a sophisticated answer. We just have not had the time yet to build a sophisticated answer. So, what is in that answer? There is clearly a risk-managed philosophy that has to be applied and that requires a deep understanding of the epidemiological risk. It also requires a deep understanding of the controls that you have, to manage that, and that needs to be customised to different destinations. It could be even regions within destinations, but that is also why testing sits at the heart of restarting, because hoping and waiting for uniform performance across markets is going to be really hard. As governments start to wrestle with this, and as the private sector plays a role in trying to propose answers, governments are realising that they frankly cannot solve it all themselves, and they need the private sector to apply its knowledge and experience to the parts of the puzzle. I think the only thing we have to be realistic about is the politics. Politics, as we know, is dynamite in various parts of the world. It is visceral and stretches across that classic spectrum of logic and reason at one end, to feelings and values at the other. Somewhere in the middle is the answer, but that is quite a delicate zone to reach. So I think, while systems and technology can be built, it has to be done with a sense of urgency. Working with the private sector and Government, those answers can be found; however, I think the politics is the real unknown quantity in this, and how that interplays with political leaders’ appetite to push this hard.

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The Hon. Michael McCormack MP

The Hon. Michael McCormack MP, Deputy Prime Minister and Minister for Infrastructure, Transport, and Regional Development Key points: •

The Federal Government’s focus in response to COVID-19 has been on continuing construction activity across a range of projects – especially those supporting local jobs and communities.

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Strong collaboration between governments has been a major positive to emerge from the pandemic, with governments at all levels working together to progress projects and sustain economic activity.

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Transport and water infrastructure will remain a key focus of the Federal Government.

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The Hon. Michael McCormack MP

The Hon. Michael McCormack MP (MM): Thank you, Adrian, and I appreciate everything Infrastructure Partnerships Australia is doing in the infrastructure space. The budget is coming up in the first week of October. We’ve been busy every day through the Expenditure Review Committee process, through the Cabinet, formulating that budget. I know Treasurer Josh Frydenberg has been burning the midnight oil, as have I, to make sure that we have got the right infrastructure element. The Federal Government has, in response to COVID-19, put in place a range of stimulus measures. Notably, the $500 million provided for the Local Roads and Community Infrastructure Program has already led to around 1400 projects beginning. Those projects – in the 537 local government areas across the country – are getting money on the ground straightaway. They are getting money into those communities to ensure that we have local procurement, and to guarantee that we have local workers actively engaged in doing what they need to do to keep those local communities being their best selves. Importantly, that money came on the back of us asking the states in November last year to bring forward their infrastructure projects so that we could get some money on the ground. $4.8 billion has gone towards bringing forward work and, where possible, to get started on those larger infrastructure projects, many of which have been waiting around for a while. This has led to a lot of infrastructure construction work continuing, almost in a sense unfettered by the vagaries caused by COVID-19. When we talk about vagaries, I want to mention the issue of inconsistency across states with lockdown measures, even from capital cities to regional areas. We’ve said throughout this pandemic that we wanted those borders to remain open and, as much as possible, for construction to continue. That’s why I worked so hard with the transport sector to ensure that there was a consistent code that enabled transport operators to continue to have access across borders, so they could continue to keep the supermarket shelves stocked. We have a $100-billion infrastructure programme, which we are ensuring continues to get rolled out, despite COVID-19. It continued despite the bushfires and it continued despite the drought. Infrastructure, the resources sector and agriculture have been the shining lights of the economy. The recent unemployment figures were encouraging, as 111,000 people were either re-engaged in work, or hired to new jobs. While the unemployment level of 6.8 per cent is still too high, Australia is faring reasonably well compared to other nations – as with COVID-19 case numbers and mortality rates. In fact, in terms of health outcomes, we’re almost a world’s best standard for containing cases and getting on top of this virus. Of course, we will not be able to completely get on top of it until we get a vaccine.

In terms of infrastructure, we want to get on with delivering the pipeline, whether it’s the Bruce Highway, or whether it’s building dams. I was very pleased to announce a new Advisory Body for the National Water Grid Authority, which will provide advice as to where, when, and how we should build water infrastructure. I think it’s going to be key not only to construction jobs, but also to unlocking some of the potential of those regional areas. Because I know, as others do, that if we add water, we can grow agriculture. Add water, and we can untap the resource potential in some of those areas, and we can grow regional communities by having more water security. It is so important. Chris Lynch will be heading up that panel, which includes a range of representatives from the CSIRO, and Chief Scientist Cathy Foley, through to a young irrigation farmer from the southwest of New South Wales. The panel will be providing expert advice that will work through the complexities of state and territory management, and Commonwealth negotiations. While we have been rolling out a lot of water infrastructure, to my mind we need to ramp it up now. It’s probably not good enough that 16 of the last 20 dams and major water infrastructure projects have been in Tasmania. We want to see more of that activity happening on the mainland, and the Emu Swamp Dam near Stanthorpe in the Granite Belt area of Queensland is one of the priorities. We can get work started there, all things being equal, in coming months, and whether it’s Big Rocks, Hells Gates or the Hughenden, Queensland has a lot of potential when it comes to water infrastructure, as does the rest of northern Australia. Elsewhere in the nation, there are projects that are very exciting, and we want to get on and build them. We have $10 billion on the table for the Bruce Highway, and we’re working well with the Queensland Government. One positive from COVID-19 is that the National Cabinet has worked well thus far. Some might argue it has been a little bit untidy in recent weeks, but that always happens when you get a bunch of politicians of different political persuasions together. I have been meeting on a weekly basis with the transport and infrastructure ministers from around the country, and we’ve developed a good working relationship so that we get stuff done, and that’s so crucial in the grand scheme of things. I know that people expect governments to act on their behalf, and to be able to get things done irrespective of the politics, and irrespective of the level of government. That’s why it’s been important that we get that money out the door for the local governments, because we know that directly funding local councils gets action on the ground the fastest. Working with the states has been very good throughout the COVID-19 crisis. That is why we were able to get the national Freight Movement Code up and running. And that’s why I’m

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The Hon. Michael McCormack MP

very confident that among these ministers in similar portfolios of transport and infrastructure, we’ll be able to continue with some of the bigger projects, and bring forward some of that money that was pledged last November and is rolling out the door as we speak. Of course, Inland Rail is also an important component of our infrastructure project programme. We put in the last and final clip for the first section, the first of 13 sections, at Peak Hill the other day. Peak Hill is located between Parkes and Narromine, and is a 106-kilometre section. These are some really important numbers for that project: 1862 jobs, of which 760 were local people, and $110 million of local procurement for about 99 small local businesses. They are significant numbers. Right up and down the line, those numbers will be replicated. In some cases, they’ll be far higher because of the complexity of various stages of Inland Rail. The Narromine to North Star section has already begun, so that’s good. For Western Sydney Airport, we continue to move hundreds of tonnes of soil, and that’s also providing local procurement and local opportunities in the Western Sydney area. It will be Western Sydney’s first airport, not Sydney’s second airport. That is a significant feature of that project, and I’m very excited by it, but there are lots of projects and programmes being rolled out by the Government. We know that infrastructure is key to our economic recovery after the bushfires, and certainly through COVID-19. I might leave it there, Adrian. Thank you for your work and your efforts through COVID-19, and I’m happy to take any questions. Adrian Dwyer (AD): Well, thank you very much, Deputy Prime Minister. The first question was from a colleague in Queensland. They have said, ‘Thank you very much on behalf of the sector for the Federal Government’s efforts to look at infrastructure as a stimulus opportunity, but how do we balance the need for expediency in getting projects out the door with the need to ensure that they are the right projects and are prioritised correctly?’ MM: Throughout the COVID-19 situation, through a range of calls with industry and ministers around the country, working with the states has become easier in the sense that they identify that we have got a need to have work on the ground. They identify the expectation that stimulus money is going to be spent for the benefits of their states and their local communities. All politics is local. So, that is community engagement of local councils firstly, with states, and getting jobs done. If you go anywhere across the nation, you can see the delivery in action. The M5 and M8 motorways in Sydney have been great projects. We’re now looking at even more infrastructure spending in Sydney, Melbourne, Brisbane and other capital cities to unlock some of the congestion that besets those cities.

You can drive from a long way north of Sydney and Melbourne now, without encountering a set of traffic lights. Queensland Minister for Transport and Main Roads Mark Bailey and I worked well together on the Second Range Crossing at Toowoomba and, importantly, 85 to 90 per cent of the workers on that project lived in Toowoomba. Many of them had moved to Toowoomba to do that job, and Mark told me that – 12 months since the project was officially opened – most of those people have stayed in Toowoomba. So essentially, that is a decentralisation project. With Inland Rail coming and, of course, going near enough to Toowoomba, that is going to also engage a lot of those people who worked on that Second Range Crossing. With the Second Range Crossing, you can now drive a truck from west of Toowoomba, 140 kilometres into Brisbane without encountering a set of traffic lights. So that’s cutting time. We are also getting on with doing the Pacific Highway and Princes Highway – all those sorts of roads. We are working cooperatively with states, and we are ensuring it is also very much about road safety. AD: Thank you very much, Deputy Prime Minister. Thank you for your engagement with Infrastructure Partnerships Australia, and for your office’s engagement with us over the past six months. We’ve been able to tackle some prickly problems together and solve them. And thank you for taking the time today. MM: My pleasure. Thank you very much, Adrian.

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companyfocus

WaterNSW acts fast to secure water during drought WaterNSW is carving out a reputation as a deliverer of critical water infrastructure in New South Wales, improving water security and drought resilience for the communities and customers it serves.

Wyangala Dam

When New South Wales was hit with the worst drought on record, WaterNSW was able to identify and prioritise the most drought-vulnerable communities, and then plan and deliver the infrastructure required to prolong its water supply to meet critical human needs. The first drought-relief infrastructure project began in 2018 with the Wentworth to Broken Hill Pipeline. This major piece of infrastructure supplies 37.4 megalitres of raw water each day via a 270-kilometre pipeline from the Murray River, near Wentworth, significantly improving water security for the 17,000 Broken Hill residents. WaterNSW’s reputation in planning and delivering critical water infrastructure was again demonstrated with the Chaffey Dam to Tamworth Pipeline. Following a funding commitment from the New South Wales Government in 2019, WaterNSW delivered the 18.2-kilometre pipeline, reducing transmission losses by supplying the town’s water rather than having it travel down the Peel River. To

achieve the tight time frame, WaterNSW and its contractors worked tirelessly, delivering the pipeline in less than 12 months and extending water supply from months to years.

Our future is in safe hands

Although recent rain has been a step in the right direction, many areas of the state remain in drought. Having proven its ability to deliver droughtrelief projects via water solutions and new assets, WaterNSW has now been asked by the state and Federal Government to deliver the first new or augmented dams in New South Wales in a generation to further improve the state’s water security. This work will require the delivery of new water infrastructure on a scale not seen in Australia for decades, with Wyangala Dam Wall being raised, a new dam for Dungowan, and a final business case being prepared for a dam at Mole River, near Tenterfield. While experienced in delivering critical infrastructure, WaterNSW

recognised that to successfully deliver projects of this scale, it would need to expand its capacity and build skills and competence. In line with the New South Wales Government’s 10 point plan for the construction sector, WaterNSW approached the market, looking for a specialist partner who could complement and extend its capabilities in key areas, including engineering, design and construction. WaterNSW has since entered into an agreement with WaterSecure, a joint venture comprising KBR and Aurecon. Together, they will plan and deliver these major regional dam projects. To ensure maximum benefit to the people of New South Wales, the partnership has been established in a way to enhance WaterNSW’s own capability, providing the skills and experience required for WaterNSW to successfully deliver new largescale infrastructure projects long into the future.♦

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Peace of mind is knowing our most precious resource is in safe hands.

WaterNSW is more than a system operator. We are catchment protectors. We maintain and operate the assets that supply water to our customers and communities. We are building the infrastructure to secure water now and into the future. And we are making it quicker and simpler to access our water data, improving transparency and confidence in all that we do. We are WaterNSW and we provide water security for the people of NSW. Find us online at waternsw.com.au

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Shane Fitzsimmons AFSM

Shane Fitzsimmons AFSM, Commissioner, Resilience NSW Key points: •

The state of New South Wales experienced the compounding impacts of droughts, bushfires, flooding and then COVID-19.

•

Partnerships that deliver local solutions that are relevant and meaningful are required to aid in recovery, and build long-term resilience.

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Australia needs to undergo a cultural shift to confront future shocks and challenges.

Shane Fitzsimmons (SF): Thank you for the opportunity to join you today. The resilience of communities right across New South Wales has been challenged over the last couple of years. For us in New South Wales, we have not only had the bushfires of the last 12 months, but those bushfires also came on the back of an extremely challenging, protracted drought period with 100 per cent of the state drought-affected. We ended up seeing 5.5 million hectares destroyed by fire – more than

11,000 fires. In fact, the dryness of the landscape was such that we were averaging 1000 fires a month during winter alone, before we even started heading into spring and summer. Of course, the fires resulted in an extraordinary level of damage, destruction, despair and ultimately tragedy, with 26 lives lost. Two lives were lost in October, seven lives were lost in November, five lives were lost in December and 12 lives were lost in January, predominantly down in the south-eastern corner of the state where the concentration of damage and destruction was considerable. Of course, six individuals will never leave my mind: the three air crew in the large air tanker that crashed on 23 January, just down near Cooma, and our three volunteers. Sam died on 30 December, down near the Victorian border, when a fire generated a cyclonic wind event that resulted in the truck he was working on being flipped over, and crushing and killing him in the impact. And of course, our two volunteers, Geoff and Andrew, who were out trying to save a property in south-western Sydney. They were driving down a road and a burning tree crashed through their windscreen and killed the two of them in the front seat. So, the damage, the destruction and the tragedy was something like we’d never seen before in New South Wales, and it stretched

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from the Queensland border, all the way down to the Victorian border, right across the Great Dividing Range. The area burnt was something like seven per cent of the state, but if you look at the forested country – the ranges – it was closer to 20–25 per cent of the geographic footprint the fire actually burnt through. So, with an unprecedented fire season, we were also looking at an unprecedented recovery, restoration, rebuilding, repair and healing process. With the fire having caused damage across 40 local government areas, one of the greatest concentrations of damage, with the biggest home losses, is down in the Eurobodalla, where 500 homes were lost; the Bega Valley area lost another 400-odd homes; the Shoalhaven area lost just under 300 homes; and the Snowy Valleys region lost just under 200 homes. Up in the Clarence Valley in the north, just over 150 homes were lost and the mid coast of New South Wales lost more than 100 homes. The greatest concentration of damage centred in areas like Conjola Park, Nymboida, Malua Bay, Wytaliba, Cobargo, Yowri, and Rosedale. We have all seen so many of these communities showcased in our media for their resilience, for their response, and their endurance in the rebuilding and recovery effort. The fires caused billions of dollars in damage to property, primary production and regional businesses, hospitals, ambulance stations and schools – nearly 300 schools were damaged, and three of those schools were destroyed. The last report I had was that two had been rebuilt and the third was well and truly underway; it may be concluded by now. Over 10,000 livestock were killed, and there was an extraordinary environmental toll. The compounding effect of the drought, the bushfires, and then the rain in February (where a lot of the bushfireaffected areas that had also been drought-affected received an extraordinary amount of rainfall) resulted in a very denuded landscape being heavily eroded. What primary producers and a lot of communities had left in their topsoil, along with some of the fencing they had repaired, they now found had all been washed away due to these extraordinary floods. Of course, the ubiquitous nature of COVID-19 and all that comes with managing a pandemic has affected and impacted us all. While for some of us, we might only be affected by COVID-19, many of our communities have this extraordinary complication of compounding disasters. Disruptions impacting the way they live, work, invest and operate. It has taken an extraordinary toll, but in terms of the unprecedented season and the need to look at unprecedented recovery, rebuilding, healing and mending, we’ve seen an extraordinary commitment of many billions of dollars. In the bushfire recovery efforts alone, we are talking about $3.5 billion, with $2.3 billion from New South Wales and $1.2 billion from the Commonwealth. So, the strength of partnerships between the governments, including tying in with

local governments, has been really strong. We have also seen support in driving and assisting businesses and industry with grants and packages – hundreds of millions of dollars in small business grants, another $100 million or more into primary industry grants, and another couple of hundred million dollars into industry recovery packages. We have got 4600 kilometres of fencing able to be rolled out – that is greater than the distance from Sydney to Perth. We have got tens of millions of dollars going towards the hardest hit families who have not got the capacity to manage things like insurance, and are the most susceptible and vulnerable in our community. There are programmes partnering with building contractors and industry experts to consider the sensible and viable alternatives to help them recover and heal. We’ve also got an extraordinary amount going into mental health and wellbeing, with tens of millions for targeted programmes – with an overall multi-billion-dollar investment in mental health infrastructure and systems, along with programmes and support for people doing it particularly tough. We have had some really good examples of Public Private Partnerships (PPPs). There is a partnership targeting the removal of debris from destroyed infrastructure on people’s properties to assist them in deciding what is next, how they are going to rebuild and what the options might be. And in that partnership alone, we identified more than 3600 properties that have been cleaned up. The primary contractor had an arrangement where, through a tender process, they would engage local contractors and local businesses to help with the rebuilding and provide a return back into those communities trying to get back on their feet. Throughout the clean-up programme of more than 3500 properties, there were 120 separate clean-up crews, across 250 different locations. Around 99 per cent of all work went into local and regional businesses and subcontractors, with a strong representation of Indigenous businesses and workforce. The other thing they introduced to help stimulus and confidence in local communities was a maximum 14-day payment period for all contractors and subcontractors. Many of them were paid within a number of days. I met a couple of locals on my visits that were part of the subcontractor employment regime, and they thought it was particularly important. It was very much welcomed and not only provided jobs and confidence, and focus, but allowed them to give back to their local communities. To be part of that healing and mending process was particularly important to them. Throughout the programme, more than 1000 jobs were created directly in response to that extraordinary clean-up effort. Other programmes we have seen emerge with joint infrastructure and improvement programmes are from some of the non-government organisations – the philanthropy organisations – and one that comes to mind is the Minderoo Foundation. Andrew and Nicola Forrest worked with us to look

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at providing 100 recovery pods, temporary accommodation, or homes for people to live and stay on site. This allowed people to still care for their property, look after their animals and their livelihoods, and focus on the rebuilding of their home or their businesses. While that partnership started out with 100 pods through Minderoo, we’ve been able to grow that partnership with other non-government organisations and charitable institutions, including the Salvation Army and Red Cross, taking the total programme to over $10 million and delivering more than 200 pods. Pods are converted shipping containers that have independent power, water supplies, toilets, showers, kitchenettes, washing machines, dining tables and chairs, and sleeping arrangements. When I spent time with individuals who have received these pods, the relief of being able to have a hot shower out of the elements while staying warm, particularly as we went through winter, was a significant step in their healing journey. Being able to stay on that property made a massive difference to the way they operated, and their sense of belonging and inclusion into that local community. We’ve also seen other partnerships with organisations and local governments reaching out to people through customer care lines, assisting more than 11,000 people. In the early stages, we had more than 8000 people in emergency accommodation. We are still dealing with 11,000 individuals and families that are working through their recovery and healing journey. That includes a lot of small and medium businesses impacted by the fires, and local community organisations. Ultimately, we want to make sure that everybody gets help, that we’re thinking outside the box around partnerships and synergies, and that we can help deliver the best-led services, and the best recovery efforts that are locally led and locally driven, but supported, enabled and facilitated through state coordination arrangements. The collaboration across governments, through governments, from

the Commonwealth to the state, to local areas, through nongovernment organisations, to business and industry, has been quite extraordinary. We have more than $1 billion being spent on public infrastructure that was damaged by the fires. So where key infrastructure such as timber bridges have been damaged during the fires, we’re not just replacing them with the same old bridge, which is the historical arrangement – we’re looking at replacing them all with concrete bridges. And, where it’s appropriate, raising the height of that bridge by half a metre or a metre where it’s feasible to do so, which also then provides additional resilience for those communities to better withstand the implications of flooding, and rivers that create isolation and separation. We are working together and in partnership, focusing on the enormity and scale of the challenge. Ensuring that we are identifying and delivering local solutions that are relevant and meaningful to locals is critically important, particularly for those enduring disaster after disaster over the last couple of years in New South Wales – droughts, bushfires, floods and, of course, COVID-19. As the adage goes, we are all in this together – we are all working together, and we need to continue that into the future. Adrian Dwyer (AD): Thank you very much, Commissioner. From your experience managing the New South Wales Rural Fire Service, are there any lessons for how we develop a resilience mindset for those who oversee infrastructure to prepare for future challenges? SF: That’s a good question, Adrian. The government in New South Wales established Resilience NSW to take a leadership and an insurance role across government. So, an Executive Agency in Premier and Cabinet, able to partner with other key entities like Infrastructure New South Wales, Regional New South Wales, Service New South Wales, ensuring that the whole of government is working

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“

he biggest challenge T we have as an Australian society is that old Aussie culture of, ‘She’ll be right, mate – that won’t happen to me’. It is a great culture, and it is relaxed, but it’s not a great culture when it comes to genuinely understanding and personalising our risk or our vulnerability to things

with industry and business to consider resilience and risk in planning, construction, critical infrastructure, demographic patterns and trends. From my experience in the Rural Fire Service over many decades, the biggest challenge we have as an Australian society is that old Aussie culture of, ‘She’ll be right, mate – that won’t happen to me’. It is a great culture, and it is relaxed, but it’s not a great culture when it comes to genuinely understanding and personalising our risk or our vulnerability to things, and how we then individually and collectively prepare for that, contemplate that, invest in mitigation and prevention strategies, and then ultimately respond, recover, and come out better at the other end. We have really got to get into the mindset that disruptions will happen. It is our job to capture them, understand them, contemplate and forecast them, then actually do something about them. AD: On the issue of risk management and risk awareness, a lot of firms would have had pandemic in their risk frameworks but spent very little time on it during board meetings or considered how they would respond. How do we prepare for a future where there will be unknown risks like COVID-19, and unknowable risks, to some extent? To what extent do you draw experience from the past about how you can prepare as a business or an organisation to be able to deal with those unknowable or unknown risks? SF: It is something that should be at the forefront of all of our minds. I do not mean to be a pessimist, but I’ll look at

everything, and I have done my whole life, considering what the risk is of things happening, and being very realistic about the viability of an event happening and being disrupted. A really good pragmatic example was during the bushfires, down on the South Coast of New South Wales. We needed to remove tens of thousands of people from a heavily populated holiday area of the state. Everyone needed fuel to get in their vehicles to get out of the area, but power was out and the bushfires had done so much damage. Ineffective business continuity plans and contemplations individually and collectively meant that there was plenty of fuel in the ground, but because power was out, the fuel stations could not get the fuel out of the ground. And even when they were able to get generators in place or alternate power back in place, not everyone carries cash anymore, so no-one had the ability to pay for the fuel that they were pulling out of the ground. At an individual level, a business level, and a community level, what are those critical infrastructure elements? We have got to seriously think about how we harden them up and how we plan for the business disruption and the continuity. The old idea of ticking a box and saying, ‘Oh, yeah, if I lose power, I’ll go and get a generator’. That’s okay if you’ve got the generator, but it’s not okay if there are 1000 businesses in that area that are all going to go down to the local hire company and pick up a generator when there’s only 50 in stock. It just is not going to work. So,the biggest challenge we have as an Australian society is that old Aussie culture of, ‘She’ll be right, mate – that won’t happen to me’. It is a great culture, and it is relaxed, but it’s not a great culture when it comes to genuinely understanding and personalising our risk or our vulnerability to things. What if you lose power for weeks or months? What is the disruption? And the more connected we are today, the more we rely on electronic devices and connectivity, the more it matters to us all. The real trick is to have meaningful deliberations and scenario contemplations about the ‘what ifs’ and the ‘what might happens’, and seriously think about how we operate individually, as families, as businesses, as industries, as communities and as cities. We are seeing that really amplified in light of COVID-19. I think there are many lessons that will be learned and are continuing to be learned right now, with the successive disasters and disruptions that we have had over the last couple of years. AD: It goes to that resilience mindset that you mentioned earlier, about how one assesses risk and responds to it. On a personal note, I live in a bushfire-prone area, and this summer there were a number of times we were on a ‘watch and act’ alert. Because not many people would get the opportunity to say this to you directly: thank you for everything you and your team did to keep us safe over the summer. SF: Thank you, Adrian.

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The Hon. Catherine King

The Hon. Catherine King MP, Shadow Minister for Infrastructure, Transport and Regional Development Key points:

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Investment in infrastructure will need to be leveraged to support Australia’s economic recovery from COVID-19.

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Changing travel patterns need to be accounted for in future infrastructure planning decisions.

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Infrastructure investment decisions need to be removed from election cycles.

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The Hon. Catherine King

The Hon. Catherine King MP (CK): It is terrific to be here today, and it is lovely to see so many people who are interested in a continuing dialogue about infrastructure right now. The crisis has, of course, reminded us why infrastructure is just so important to our economy and to the functioning of our society. Throughout this crisis, our ports have kept operating, our transport and logistics infrastructure has kept moving, our buses and trains have kept running, construction workers have kept building, airlines and airports have done everything they can within the constraints they face to keep planes in the sky, and Australians have moved about on foot and bicycle in record numbers. It’s increasingly clear that just as infrastructure has kept us going throughout the crisis, it is going to play a critical role in seeing us out of it, not just in terms of the economic stimulus it will bring, but also as an enabler of much, much more. We are in our first recession in three decades, and for the first time in our history there are more than one million Australians out of work. Through the hard lessons learnt from the recessions of the past, we know that governments must intervene to limit the pain, to stop the damage and to regrow the economy. One of the ways to do that is to invest in infrastructure – from roads and rail, to social housing, water storage, communications and energy transmission, right through to roundabouts in communities. But we have to do it with a purpose. Even before the crisis, we were facing challenges. Our pre-COVID economy was in the doldrums with disappointing growth, stagnant wages, and sluggish productivity. In response, we had the Governor of the Reserve Bank call for infrastructure funding to be increased on at least 20 occasions. Without substantial investment in infrastructure, Infrastructure Australia was predicting that road congestion costs in our major cities would more than double over the next decade, while public transport would become even more crowded. Without investment, Infrastructure Australia found that the cost would reach almost $40 billion by 2031. Before COVID-19, all indicators pointed to a future in which Australians were less productive and spent less time at home with their families. Post COVID-19, not only will we need to get Australians working again, but our very way of working and living may well be changed. While the ultimate impacts on our lives will be seen over the longer term, there is anecdotal evidence that the experience of working from home, including mixed and staggered hours, has led Australians to reconsider how they live their lives and how they work. That is particularly evident in Victoria, where there has been a much longer lockdown. Free from being tied to big office towers in capital cities, Australians may no longer wish to rush to work in peak hour. They may spend some of their working week in the home office or relocate to regions like mine. As we move out of the pandemic, governments at all levels will have to be aware of

and responsive to the changes that have happened to our economy, as well as to our society. What will it mean for our cities, and what will it mean for our regions? This means that there will need to be more consideration of the types of infrastructure that governments invest in. Australia’s infrastructure networks today are largely built to get commuters into the centre of the cities in the morning, and return them home to the suburbs in the evening. If the use of our cities changes, our infrastructure will need to follow suit. The investments that offered the greatest benefits in the past may not be the same in the post-COVID environment, and governments will need to be aware of those changes. In being aware of those changes, we must break the inertia and, frankly, misplaced priorities that have often defined infrastructure spending around our election cycles, while at the same time building a more resilient, more productive and more livable Australia. Adrian Dwyer (AD): Thank you very much, Catherine. I want to expand on some of the points you made about prioritisation of infrastructure. A question has come through about the demand shifts that have happened with public transport. Should this shift Government’s transport investment priorities? And a follow-up question – how do we avoid over-weighting the current circumstances given that we are considering 100-year decisions based on six months of data? CK: I think that is absolutely the challenge. Big projects in public transport, or even big projects in rail, have very, very long lead times, and it is important from an economic perspective that they continue. But I think what we’re going to need to look at is how patterns of usage change. I think we are going to see for a while staggered start times, people working different days, and more people coming into the region. So, for example, I’ll take my own city of Ballarat, where during COVID-19, land sales have just absolutely gone off the charts. Vacant blocks of land, where you would think you’re not going to see too many people wanting to build, have just sold. Targets for land sales that normally would have taken six to 10 months to hit, have been reached within one to two months, according to the City of Ballarat’s reporting. It is going to be really interesting to see what that means. And if you look at things like the rail link from Geelong, from Ballarat, from Teralba, from Shepparton – all of those regional towns – there are a lot of projects needed there. And I think that changing settlement pattern is going to be really important to take account of going forward. AD: So, you think a potential sea change or tree change for people who do not have to commute as regularly should be met with increased capacity and speed on connections to regional centres and the like? CK: I think certainly faster rail – real faster rail – is going to be really important. Anthony Albanese and I are very keen on

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the big long-term vision of what high-speed rail might look like down the east coast, and the need to start that planning process now with corridor preservation. But faster rail, particularly within our regions, is going to be an area of investment that governments will need to look at very seriously in the future. It is difficult, because at the moment in Victoria, Geelong is the most viable in terms of the passenger numbers, but I think that is going to change across regions and across the country. AD: Catherine, you spoke about Infrastructure Australia and the prioritisation work that they do. What is your view of the role for independent infrastructure bodies around the country, Infrastructure Australia, Infrastructure Victoria, and others, in prioritising projects for stimulus and for the coming few years? CK: Given that we set up Infrastructure Australia, we think it’s vitally important. The challenge we’ve always had at the political level is that announcements are largely based on election cycles, but these investments require long-term planning and long-term investment that goes well beyond any one political party, and any one term of government. That’s why Infrastructure Australia is so important to get that pipeline of projects going. I’m really pleased it has started to think of infrastructure much more broadly; the focus around water infrastructure and Indigenous communities is particularly important. And when I spoke about investment with purpose, what better purpose would there be than to actually improve the water supply to Indigenous communities, if that’s where you’re going to invest in infrastructure, or to improve investment in social housing? That is the challenge with the interface between Infrastructure Australia and government: what is our purpose in investing in infrastructure? For business, it’s to get good economic returns, while for governments it’s how infrastructure is an enabler of so many other things, such as livability in our cities or people’s ability to participate in the economy. Those sorts of things are really going to be

important in the interaction between Infrastructure Australia and government. AD: And potentially a fundamental reset on what people consider to be important over the last few months. What incentives do you think could be offered in the upcoming Federal Budget to accelerate private investment against climate risks, a circular economy and decarbonisation across the infrastructure sector? CK: I think we need certainty for investment in energy; that’s really the critical thing. There are some really interesting things happening around transmission – particularly around renewables, and about how you might get renewables into the energy grid, and how you might do that in a way that maintains the social licence for renewables in regional communities, in particular. I think that’s the most critical thing that governments can do at the moment – have a long-term energy plan that is consistent and is agreed by the parliament to provide investor certainty. And we just have not had that for a long period of time. I think the latest plan was the 20th one it has come up with. AD: Pre-crisis, there was a lot of talk about skills and capacity in the infrastructure sector, and then we talk about an increased infrastructure pipeline to support stimulus and to support the economy. What is your sense from talking to stakeholders around the sector that we actually have the capacity to deliver on an expanded pipeline? What do you think will be needed from a skills and training perspective to support the pipeline? CK: I’m hearing that there are significant capacity constraints in some areas – not so much in the regions, but certainly in major capital cities. I think what would be absolutely devastating is if we see mass investment in infrastructure that is not linked to training and skills for Australian apprentices. I think if we do not do that, we will have had such a missed opportunity to upskill the next generation of engineers and tradespeople.

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Sir Danny Alexander

Sir Danny Alexander, Vice President and Corporate Secretary, Asian Infrastructure Investment Bank Key points: •

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The Asian Infrastructure Investment Bank is providing immediate financial support to low- and middle-income economies in the Asia-Pacific region to aid their recovery from the COVID-19 crisis. Partnerships between multilateral banks, commercial institutions and private-sector developers will be critical to meeting the combined infrastructure needs of the region. Infrastructure financing can play a vital role in assisting Asia-Pacific nations to achieve their economic and sustainability objectives, while supporting improvements in productivity and employment.

Good morning. Thanks for asking me to address Partnerships 2020 with Infrastructure Partnerships Australia, and thank you to Adrian for inviting me to take part. I had the pleasure of visiting Infrastructure Partnerships Australia in early March. It felt like another world, of course, before many of the travel restrictions were in place. I was very impressed by what I saw about the system for developing the pipeline of infrastructure projects in Australia and New Zealand, and the role that many companies and institutions within the Infrastructure Partnerships Australia family play. I look forward, as does the Asian Infrastructure Investment Bank (AIIB), to working with many of you in the months and years to come. I know many members are very active in infrastructure development all over Asia, and so I hope in time that we can form our own partnerships to invest in the region to support sustainable economic development in Asia and beyond. Australia is a very important founding member and shareholder of AIIB – one of our most significant shareholders

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in the region. Australia has been very active and strongly committed to the AIIB since its inception – active in the negotiations that created the AIIB as the first new multilateral development bank of the 21st century. And we are enormously grateful for the strong support and active engagement of the Australian Government in the governance and the operations of the AIIB. We are fortunate also to have a number of Australian nationals working in our headquarters here in Beijing, and a very strong relationship already between the Australian Government, Australian people, and Australian businesses, and the AIIB. This is the fifth year of our operations, so we’re still a very new, young and growing institution, and we look forward to working with you further as AIIB continues to develop. I’ll say more about our investment priorities later. Obviously, we’re speaking now in the context of the COVID-19 crisis and the terrible health effects that this disease has had in many parts of the world, and the very severe economic effects that are being felt and will continue to be felt with severe recessions in almost every part of the global economy. As we look around, particularly at our members in Asia and those low- and middle-income countries that are the main borrowers from the AIIB, we see very severe effects. We see the ongoing health crisis in South Asia, in South-East Asia, and Central Asia, but we also see very active responses from the governments in those places. There is a very wide range of policy responses across the Asia and Asia-Pacific region. Singapore and Indonesia have respectively committed 13 per cent and 4.1 per cent of GDP in fiscal support to their economies. The monetary stimulus, to see economies through the immediate crisis, is also very significant. We also see very uneven and fragile recoveries. Many of our members are still very much in the depths of the crisis. Some are in survival mode, while others are now moving into a more pro-growth mode. We see stress in sovereign bond markets for some members, but many still have very strong access to financial markets, and that’s a very good thing. We see the scale of the fiscal stimulus, especially if it has to continue for a longer period, having very significant effects on public debt and public finances. That’s true all over the world – not only in the developing world, but even more so in the developed world, and that will be a great challenge. Having been the Chief Secretary to the Treasury in the United Kingdom between 2010 and 2015, when we were dealing with the aftermath of the 2008/2009 financial crisis, I know how challenging that can be. I was responsible then for fiscal policy in the United Kingdom, and those issues will no doubt come down the track. Each country faces very specific and distinct issues, challenges and problems. For many AIIB members, their economies are highly dependent on the tourism industry. For those members especially, the scale of

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Multilateral development banks like the AIIB have a very strong and very important role to play in supporting our members through this challenging period

the economic hit is even larger, and the prospects for recovery even slower, until such time as international travel can resume. Multilateral development banks like the AIIB have a very strong and very important role to play in supporting our members through this challenging period. As part of a coordinated international response within the multilateral development banking community, we are working with partners like the World Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and others, to put in place a very significant COVID-19 Crisis Recovery Facility (CRF). We have set aside up to US$13 billion for financing projects in our member countries, specifically related to COVID-19. That includes loans for health infrastructure, including public health emergency support in places like India, Bangladesh, China and many others. For many members, the immediate pressure is on their budgets. So, we can use the CRF to provide budget support in partnership with the Asian Development Bank and the World Bank. We have already dispersed very significant amounts to a number of members facing those challenges, and can also provide liquidity support under that facility, too, for private-sector institutions related to our business focus on infrastructure. The CRF is part of a response across international institutions to provide emergency financial support. Already with our CRF, we have approved US$7 billion worth of projects, many of which have already dispersed the finance completely, showing the scale of the urgency and need that those members are facing. Equally, as we move on, we in the international financial community have a strong responsibility to be thinking about how we can continue to finance the recovery from COVID-19 in the months and years to come. For AIIB, this brings us back to the focus of our institution, which is financing infrastructure projects, particularly in low- and middle-income countries in Asia, but also beyond Asia, where that fits with our mandate and our policies.

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We are in the process now of finalising our corporate strategy for the next decade, and that sets out a very strong focus for AIIB on the infrastructure that matters for those members in the decades to come. We highlight four areas of what we call ‘infrastructure for tomorrow’. Firstly, for AIIB, we see a major focus for our bank on financing what we call sustainable infrastructure. Particularly, projects that are compliant with the Paris Agreement and that support climate mitigation, climate adaptation and transitions under the Paris Agreement. That has already been a significant part of our business in our aim to be a lean, clean and green institution. That green element particularly comes through the projects that we finance, and is an area that we think we can continue to prioritise in the years to come. Secondly, obviously, connectivity is crucial to economic growth and will be crucial to the economic recoveries of many places, enabling trade and business to be enhanced. Thirdly – private capital mobilisation. It’s commonplace that the scale of the need for infrastructure in the Asian region goes far beyond the resources available to multilateral development banks, or indeed to governments. Our partner, the Asian Development Bank, estimated a couple of years ago that the need is US$1.7 trillion per year. So, working with private-sector partners, mobilising private sector finance for infrastructure in Asia is crucially important, and will be crucially important coming into this economic recovery phase. We can finance private-sector projects as well as public-sector projects. We have made equity investments, as well as loans. We have also brought forward some capital market initiatives to try to encourage capital markets in Asia to shift in the direction of more green and sustainable financing. Our ESG bond portfolio, and our climate bond portfolio and framework, all point in that direction.

Lastly, but also very importantly in the light of COVID-19, is digital infrastructure. That’s a crucial part of what many places around the world need to ensure that they are developing their economies and growing their economies in the right way. We think that those areas of investment are going to continue to be enormously important for our members in Asia and beyond. We see a strong role for AIIB as a growing financial institution to invest in projects in the public and the private sectors in those areas that support economic recovery, and to also meet longerterm needs and challenges that we are facing in this region. We very much look forward to working with many partners in delivering this agenda. Partnerships are going to be very important in the coming period, where for many governments, financing all of the infrastructure they need by themselves may be challenging. That’s why partnerships between multilateral banks, commercial institutions and private-sector developers are going to be critically important to meeting the needs that exist in many parts of the region. So, I hope very much that in the coming years, as the AIIB continues to develop as a strong multilateral institution with high standards, with strong governance, and with active involvement from our shareholders, including from Australia, that we’ll be able to work with many of you, including with many of the businesses and organisations in this event today. Our goal is to invest in the infrastructure that is needed to ensure that the sustainable economic development of Asia can continue to raise living standards, to help tackle climate change, and to ensure that we meet our objectives and the objectives of our members as an institution. Thank you again, and I look forward to working together with all of you in Infrastructure Partnerships Australia in the future.

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David Speers

David Speers, Australian political journalist

Key points:

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The COVID-19 pandemic has demonstrated the limitations of the Federal Government’s power. The formation of the National Cabinet has illustrated the importance of involving the states and territories in key decision-making.

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Infrastructure is one of the few areas that has enjoyed bipartisan support throughout the crisis and will continue to play a key role in economic recovery.

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We are unlikely to see any sweeping reforms anytime soon, with the Federal Government’s decisions likely to be characterised by pragmatism.

The word ‘unprecedented’ has been used an unprecedented number of times already during this crisis. But in the 20-plus years that I have covered federal politics, I have never seen anything like it. Most of us have not – whether it is the depth of the economic crisis we are in, the budget crisis we are in, or the fear and/or anxiety we have seen in the electorate, as well. I cannot recall a moment like this where this nation has been quite so anxious, or where there has been such a willingness to trust political leaders. We have also seen a willingness of political leaders to trust experts and even, at times, to put decision-making powers in the hands of experts.

has shocked many, at times, but I do think this pandemic has been quite revealing in so many ways. I think that to understand it, we probably do need to go back to where we were before all of this began, back to the bushfire period over the summer. Do not forget that Scott Morrison had come out of 2019 having won an election against the odds; he was being lauded as a political genius, certainly on his own side, but more broadly, as well, as having pulled off an unwinnable election. And he had a blank canvas, too, having not overburdened the electorate with a heavy policy offering at that election. But then along came the bushfires, and it really was the summer from hell.

Along with this has been the compliance of the population to go along with tough restrictions – lockdowns and so on. This

There was the Prime Minister’s holiday in Hawaii. There was his, ‘I don’t hold a hose, mate’, comment. There was

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the refusal of some of those in the bushfire-ravaged towns to shake his hand. Politically, things really came crashing down to Earth for the Prime Minister and for the Government. Suddenly there was this realisation that he does not necessarily have the ‘Midas touch’ all the time – that he can make big political missteps – and this was followed by the ‘sports rorts’ saga. You would recall the funnelling of all that money into target seats in the footy clubs in marginal electorates. And along with this came the denial that there was anything wrong; that it was all how things go. And then there was the light-touch inquiry. Yes, there was a ministerial scalping of Bridget McKenzie, but really on a technicality.

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I n politics, there is a regular struggle between fear and hope – they are two very powerful forces. Usually, politicians do acknowledge that fear is the stronger driving force

I think that by coming out of the summer with those two big issues dominating, they were really two big hits or two big strikes for the Prime Minister, particularly with the bushfire crisis. The nation viewed that very, very cynically. Where was our leader when we needed him? Why was he suggesting that he could not really help us during this time of crisis? These two strikes really were a wake-up call to the Government. The Prime Minister knew, the Labor party certainly knew, and the media knew that he could not afford a third strike. Then, along came the news out of the Wuhan wet market that this virus had transmitted, presumably from a bat to a human, and that it had pandemic potential. Everyone was starting to wake up to the reality that there could be something pretty bad on the way. I do not think any of us realised at the time how this could change the world.

but by and large, the Government got a lot of the big calls right. And, certainly, when you compare what happened here and what happened elsewhere around the world, there is no doubt that things like putting the JobKeeper wage subsidy in place, and putting a more generous unemployment benefit through JobSeeker in place, were the right calls. Things like freezing mortgage repayments, negotiating with the banks and the Reserve Bank for a funding facility to do this, and preventing tenants being evicted – all of these steps were done very quickly, and they were very important steps.

And, arguably, we will not fully know for some years how it has changed the world, but we could already see the potential of this. And I think at the time some of us marvelled at those authoritarians in China, being able to lock down an entire city, who stopped people from leaving their homes, and stopped people going to shops and seeing loved ones. We were amazed that they were able to do that. I mean, how little we knew back then about what was coming, but it was coming. Fortunately, we saw Scott Morrison do something pretty early on that leaders rarely do, and that is learn from their previous mistakes. He was not going to be missing in action this time. That was very clear. He wanted to show very early on a willingness and ability to lead through this particular crisis. Even if there was an initial reluctance to blow that long-promised and over-hyped budget surplus, they ultimately knew they had to do it, and they did.

On the health front, too – getting the ventilators and the personal protective equipment in place. Yes, part of the pandemic plan you would assume would be in place, but when we looked around the world, we saw terrible, scary things in places like northern Italy, New York and London, and they were not happening here. And I think that these are places that are very familiar to Australians, and that really gave us a sense of fear and appreciation that this was not happening here. In politics, there is a regular struggle between fear and hope – they are two very powerful forces. Usually, politicians do acknowledge that fear is the stronger driving force. That is why politicians spend so much time in their campaigns on negative advertising, attacking the other side, and stoking that fear, rather than focusing on the optimistic message of hope that they might be able to offer.

Now, not everything went according to plan in those early stages. Yes, we have got the benefit of hindsight now, but even at the time, we knew things like international borders probably should have closed earlier than they did. The JobKeeper wage subsidy probably should have been rolled out a couple of weeks earlier than it was to prevent those heartbreaking scenes we all remember of those long queues of newly unemployed Australians lining up around the blocks outside Centrelink offices. So, things like that, yes, should have happened faster,

But with this pandemic, they did not need to stoke it. They did not need to harness it. Fear was there. Fear was very real, and, as I say, it is a very powerful political force. And that is why we very quickly saw this support for not just the Prime Minister, but for our state premiers, as well. It was really quite extraordinary. Now, the willingness of the Prime Minister to at least appear as though he was putting politics to one side was also a very important thing that he did through a few things. Setting up the National Cabinet was clearly a big part of that,

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high point was probably back in April–June, when they put together a three-stage reopening plan, but then along came that so-called Victorian wave, the second wave of the virus, and it crashed across the National Cabinet processes, as well as the rest of the country. Up went the state borders all of a sudden – these hard border closures that are still there – and the agreement around the National Cabinet table really started to break down at that point. The Federal Government was not happy with how Victoria was handling this crisis, whether it was the initial failures in hotel quarantine, or whether it was the inadequacies in its contact tracing. And now, more recently, the Victorian Government plans to reopen. The Federal Government kept the veneer of cooperation – certainly between Scott Morrison and Daniel Andrews – but it is pretty clear for all to see, and certainly in private conversations, that the Commonwealth is deeply angered by how Victoria has handled this and how it continues to handle the situation. I would note, though, that just before we joined this morning, the latest daily count out of Victoria was 28 cases, the lowest in three months. That is very good news. Clearly lockdown is working. We can argue about how long it needs to stay, but there is some good news there, at least.

as was showing a willingness to share power collectively with premiers and chief ministers from both the Labor and Liberal parties in making the key decisions. And also his willingness to ultimately put Liberal Party ideology to one side and spend big, and throw a lot of money at this problem. That was rewarded, as well. Voters saw that as a politician willing to put his normal politics to one side. The decision, as I say, to establish the National Cabinet was a really important one. It was Scott Morrison’s idea; he suggested it at a regular COAG meeting, and not surprisingly, the state leaders quickly agreed. I mean, why would they not want a seat at the key decision-making table during a crisis like this? Undoubtedly, it was of great benefit, particularly in those early stages, allowing collective decision-making and shared responsibility around some very difficult calls on shutting things down. Yes, there were differences. There were tensions over school closures, when to close restaurants and pubs, and so on. By and large, they managed to hang together, and this was quite remarkable in our modern politics to see leaders at the state and federal levels working as well as they did, particularly in those early stages. I think that harmony, however, was never going to last. And we have certainly seen that in the last couple of months. The

There are clearly legitimate grounds for criticising how Victoria handled all of this. The dynamic, though, in Melbourne is really a fascinating one, and perhaps explains a bit about why the Commonwealth is being a little guarded in its criticism here, only going so far, and leaving it to others to attack Daniel Andrews, if you like. I spoke last night to a political strategist who does focus group research every night, via Zoom at the moment, of course, here in Melbourne, just to get a sense of how things were tracking. And this strategist is not on the Labor side of politics, but was quite amazed by the fact that Melburnians are still with Daniel Andrews. Yes, there is anger, and there is resentment, but the way he put it to me was that most people are frustrated but compliant. The mums and dads who were still locked down, well, they joked about the fact that an 8.00 pm curfew did not matter much to them because they do not usually get to go out at night anyway. Those under 30 are the ones who have suffered more job losses. They are more angry, they are more frustrated, but they are not about to leap over to supporting the Liberals. They are stickier with the Labor Party and the Greens, is how he put it to me. The anxiety about the economy, though, is really growing. It is really pervasive now. The sense is that things are bad, but they are going to get worse, certainly in Victoria. In a couple of weeks, we will see the JobKeeper and JobSeeker payments start to come down. They will drop by $300 a fortnight, and this is going to hurt a great deal in Victoria. There is no doubt about it. It is going to take a lot of discretionary spending out of the economy, and I think a lot of small businesses are very worried about what that will mean.

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People will not be spending money on takeaway and coffees and so on, to the extent that they are now, particularly here in Victoria. And it does underline, I think, one of the great challenges that the Federal Government faces in handing down this very critical budget in just a few weeks’ time. We have got very different speeds going on in the economy now. Where I am in Victoria, things are terrible. In other parts of the country, things are better – things are starting to recover, and the Federal Government is in no mood to help out Victoria with any further special assistance. And it is a dilemma because while there is clearly a need for ongoing Government support – subsidies, generous unemployment benefits and so on – while people are locked up and unable to work, in other parts of the country, the Government can not keep propping up zombie businesses for too much longer. This is part of the way an economy recovers from a recession. And if you keep those supports in place too long, well, that is going to have a detrimental effect. So, how the Federal Government can tackle, can help to fix an economy in two different speeds or more, is a real challenge. We are likely to see from the Federal Government a few things in this budget. One, without a doubt, which all of you will be aware of in this conference, is infrastructure spending. Government debt is cheap, and there is a need for infrastructure – it is a good way to generate employment and get things going, and it has strong support. We know Anthony Albanese’s history when it comes to infrastructure. He is a big fan, and there will be no problem in spending a hell of a lot more money on infrastructure. I will let others get into the debate about how it should be spent, where it should be spent, and so on, but there is no doubt that it is coming. For the rest of the budget, though, I do not see the sort of bipartisanship that we witnessed a few months ago continuing. We are already seeing it break down quite starkly at the federal level. Essentially, the bipartisanship has broken, right? We have got two very different paths, and the ideology has returned. The Government, on the one hand, wants to harness a private sector–led recovery, right? Whether that is industrial relations reform, cutting red tape or cutting taxes, there will be a big business investment guarantee – a depreciation allowance. It will be a generous offering and will be on the sort of write down provisions they have previously announced. All of that is really aimed at getting business to drive the recovery. Labor, by contrast, seen in the arguments it is mounting on JobSeeker, JobKeeper, aged care and so on, still wants a very heavy public sector, government spending–driven recovery. Whether it is maintaining those support payments at higher rates for longer, or whether it is investing far more – the Government will do a bit on aged care, but Labor will argue that it needs to go a whole lot further, and in childcare as well, in the caring sector, in public housing, and in infrastructure.

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ow the Federal H Government can tackle, can help to fix an economy in two different speeds or more, is a real challenge

So, we are already seeing that divergence, and I think that divergence will really dominate. We will see the detail, but it will dominate much of the political debate over the next 12 months, and we could be seeing the next federal election in about 12 months from now, in the second half of next year. So, they are the contours – who is right, who is wrong – and we will have to wait and see the specifics, but that is the sort of debate we are going to be looking at. The private sector–led recovery versus the public-led recovery. We are seeing mixed economic speeds among the states, but they are not just divided in terms of their economic performance; they are divided, of course, by these hard border closures. And there are inconsistent rules that we have between the different states on borders. This is frustrating for business. This is also frustrating for a lot of families who are separated by these borders, and every other week we are seeing heartbreaking stories and how that is playing out. It just feels like Australia is more divided now than certainly at any time I can recall in our living memory. And this presents another great challenge for the Federal Government. The states have shown with their hard border closures that they are the ones calling the shots. It is not the Federal Government, which is not exactly sidelined, but certainly its limitations have been well and truly revealed. The states are deciding on lockdowns, when to reopen, and they are deciding on their state borders, as well. How much of this has to do with their state elections that are coming up? Well, a bit. Queensland, of course, has an election at the end of next month. And there is no doubt that this is popular for Annastacia Palaszczuk, and no doubt it helped Michael Gunner in the Northern Territory last month. He was returned and he campaigned on this hard border closure. Palaszczuk is doing the same in Queensland. There is no doubt that politics is playing a role here. It is not the entire reason, though – do not forget there are other states that have adopted similar positions. South Australia and Tasmania have also closed their borders – and they are Liberal states. Western Australia, too, has perhaps adopted the hardest line

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there. But yes, politics is a factor here in these hard border closures. This separation that we are seeing in the Federation is a fascinating dynamic, and one that’s a real challenge for the Federal Government, which at times has not really known which way to jump on this. Early on, it rallied against the border closures, and was supporting Clive Palmer’s challenge against the Western Australia border closure. It then realised how politically diabolical that would be for its prospects in the west. This was hugely popular over there. The Federal Government backed out of that court case, and now it sort of gets into these skirmishes with Queensland over individual cases when it comes to the border bit. But by and large, it cannot do much about this. This border issue is wholly in the purview of the states. But it is an issue that is going to have to be resolved sooner rather than later. All the Prime Minister can do is try to gather as many states together towards this new hotspot approach that he’s trying to deliver. He wants that done by Christmas. From where we sit right now, I would say good luck with that. I do not see Palaszczuk changing her border closure before the election at the end of next month, and probably not for some time after that, either.

And Mark McGowan, well, he has already signalled he will keep his borders shut until there is zero community transmission around the rest of the country for two weeks. Well, that is going to be a very, very long way away – perhaps not even until a vaccine is found. So, since those harmonious days early on in March and April in the National Cabinet, it is the states that have been calling the shots. The premiers have been holding the daily news conferences, beaming into the lounge rooms of Australians. They are the ones who are really leading the day-to-day decision-making of this pandemic, not so much the Prime Minister. I think the National Cabinet, though, is going to continue. It still clearly is an efficient and effective body. I think there is still a productive benefit to having the cabinet meet this way, rather than the old COAG way in a time of pandemic. For that reason, it will continue and will make progress where it can, but I just think we need to be realistic. It is not going to be the body that delivers sweeping tax reform, getting rid of unproductive state taxes, payroll taxes and so forth. It is not going to be the sort of body that suddenly cracks through these handbrakes in our federation – the overlap when it comes to health and

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“

I just do not think we should get our hopes up any longer that this National Cabinet approach is going to suddenly deliver the panacea, the fix to all the problems

tertiary education. I just do not think we should get our hopes up any longer that this National Cabinet approach is going to suddenly deliver the panacea, the fix to all the problems – in our Federation and in Australia – that have bedevilled us for so long. We just need to be realistic about what it can achieve. This week it is arguing over letting in a couple of thousand extra Australians each week, and even that is proving to be a difficult process. As for Anthony Albanese, I do want to mention the Labor side: this has not been an easy crisis for the opposition leader. He has had to walk that line between holding the Government to account, but not appearing to politicise any tragedy, and, indeed, this pandemic. In phase one of the pandemic, which was, I suppose, that initial phase where things were managed very well before this second wave came along in Victoria, I think Anthony Albanese really did struggle to get much attention at all. He wanted to be in the National Cabinet initially, but when that was not going to happen, he decided that Scott Morrison’s decisions were fair game, and that he was going to go after them where he could. The opportunity to do that certainly came along with aged care. Labor was helped, of course, by some damning evidence before the Royal Commission into aged care at the time. It did expose real Government failings, and Labor mounted a pretty strong case, I think, against Minister for Aged Care Richard Colbeck, who was left looking incompetent, and is lucky to be holding onto his job. Labor will not let the Government move on from this aged care issue, either. It will keep coming back to it, any opportunity it gets, to show this weakness in the Government’s response to the pandemic, an area of direct Government responsibility. But as we move into this debate around economic recovery, I think there are dangers, as well as opportunities, for Labor coming up. One of those dangers is the question of climate change and energy. We are seeing the Prime Minister move on some of this, this week announcing a gas plan. Today, he is announcing plans

to expand the remit of the CEFC and ARENA, the two climate funding bodies, to not just fund wind and solar, but also carbon capture and storage, and hydrogen, and these sorts of things. Labor does not believe that these vehicles should be allowed to fund carbon capture and storage. So, we’re going to get back into a debate for Labor. It is going to have to grapple once again, as it has really been for years, with this question of how ambitious to be on climate change, how to accommodate – and whether to accommodate – coal and gas in our energy mix for much longer. It is still an unresolved issue within Labor after its third election defeat last year. Labor lost big in Queensland, it knows it has to win that back if the party is to have any chance of winning government again, but to do that, how far does it need to go on coal and gas? We all know what the differences are in Labor on this: the progressive inner-city vote versus Queensland and seats like Joel Fitzgibbon’s in the Hunter. So, that will continue to be a difficult one for Labor to land, as will some of the questions around bringing forward tax cuts for top income earners and what benefits to give business. Labor is going to have some challenges with all of this. Finally, I would like to shift to the international area, because, while we have been gripped by this pandemic, a hell of a lot’s been happening in terms of our international environment, and things have been deteriorating pretty rapidly. I will come to China in a moment, but on the US front, in the next seven weeks we are going to be very heavily focused on the race for the White House. It is a fascinating contest, and it is a historic election, genuinely, for that country this time around. I would say it is less likely at this stage that we would get another term of the Trump administration as I do think Joe Biden is the favourite, but it cannot be discounted. It cannot be dismissed, and certainly the polls were badly wrong last time around. A second Trump administration, what would that mean? Well, I think it would mean a continued retreat from global leadership, and a continued path towards America-first protectionism. He is a completely erratic, unpredictable in many ways, offensive president, but it is to the credit, I think, of both Malcolm Turnbull and Scott Morrison that they have managed to keep a good working relationship with him. Yes, that has come at some domestic political cost to them in Australia, because clearly Australians, by and large, do not like Donald Trump and do not like Australian prime ministers getting too close to him. But it is unquestionably in Australia’s best interests for them to have done this. If Joe Biden wins, we will go back to a more normal relationship, a more normal, predictable, knowable and understandable occupant of the White House. But I do think we will still see, whoever wins, a continuing path towards greater protectionism and ‘America first’.

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David Speers

On China, this is the far more concerning relationship as far as Australia goes. Kevin Rudd said it last week (and he was right) the relationship has never been this bad since formal ties were established. Certainly, I cannot recall things being this bad. Our governments do not seem to be talking to each other. Ministers cannot get a return phone call, our security agencies – whether it is the Ministry of State Security there, or the Department of Home Affairs here – seem to be targeting each other, both behind the scenes and publicly. Trade has been used as a weapon by China against us. We are clinging onto the perhaps optimistic assumption that China will keep buying our coal and iron ore, but who knows for how long? What I think is most concerning here is the lack of any sort of signal, sign and path as to how we normalise relations again. How do we put a floor under this deterioration and stop it getting even worse? And it is not clear to me, at least at the moment, how that happens, and what that looks like. So, I do think that is a real concern. I mean, there is no doubt that China has a lot to be blamed for here. It is becoming more assertive and more aggressive under Xi Jinping, but particularly during this pandemic. As the global economy struggles, we are seeing China become more assertive in Hong Kong, in the South China Sea, in the region more generally, and behind the scenes, as well, whether it is with cyber warfare or attempts at influence. Australia is having to deal with this, and is having to respond to this. It is not entirely blameless, though. I think there is a good reason for scrutiny over some of the provocative steps that Australia has taken, like being first out of the box calling for the inquiry into the origins of the coronavirus, and even some of the actions that we now know it took in relation to this foreign interference investigation, back in June, who it was targeting and so on. So look, Australia does need to step very carefully. This is not easy. But as I say, it is a real problem that whatever happens with this pandemic is going to be ongoing and incredibly challenging for Australia to deal with.

“

I t is a real problem that whatever happens with this pandemic is going to be ongoing and incredibly challenging for Australia to deal with

women back into work. But the great risk here, and one of the political policy challenges, will be inequality. Recessions drive greater inequality, and that is something that governments need to keep an eye on, because inequality leads to political populism. We can look around the world at what happened after the global financial crisis, the rise of Donald Trump, and the rise of Boris Johnson – populists. I mean, not to the same degree here, as we did not go into recession back then, but there will be polarisation, politically. There will be appeal by populists if inequality grows as a problem. So, that is something I think the Government needs to be aware of. Can the Government tackle all of these problems? Well, it is going to give it a crack, by the sounds of it. Will it be ambitious? Are we going to see some creative policy solutions to some of the problems that we have known about it in our economy for some time? Again, I just caution some reality here. I do think Scott Morrison is a pragmatist. I do think that what we have seen from him is someone who wants to be seen as a practical problem-solver. He does not want to be the guy stuck in Hawaii again. He does not want to be the guy saying he cannot help. He

Now, to sum things up, there is a list of challenges for the Government, whether it is on the international front or the economic front, or in dealing with the states. Let’s hope, of course, that a vaccine is proven to be successful and rolled out quickly, but historically pandemics do hold up a mirror to society – to its weaknesses and vulnerabilities.

wants to get on and fix things. He does not want to get into

And that is no different this time around. That is what we are seeing. Who are the ones who have been most vulnerable to infection? Well, it has been the healthcare workers, the aged care workers, and some of our more vulnerable frontline workers. Who have been the ones losing jobs? Well, it is the retail, hospitality and tourism workers. And in both cases, we are talking about a lot of women who have lost their jobs. Young workers, as well. So yes, when they are talking about generating jobs, they need to talk about the caring sector and getting these

stick to its guns. So, I do not see the Government being too

long ideological battles for years and years over particular measures that are going to get bogged down in the Senate. Labor is already signalling, with what it is saying on JobKeeper and JobSeeker, that it is up for a fight. Labor’s not going to wave through what the Government wants; it is going to ambitious in the coming budget in a few weeks, or, indeed, the one that will follow early next year in terms of big, bold economic reform. I suspect what we are going to see is a more realistic approach. So, my prediction is that pragmatism will reign, at least on infrastructure, though we can expect some broad bipartisanship and a lot more spending. Perhaps unprecedented spending, as well.

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companyfocus

Marinus Link to power clean energy transformation New interconnector would help drive Tasmania’s national renewables revolution. Marinus Link, a proposed electricity connection across Bass Strait, will be more than a second interconnector for Tasmania and Victoria in the National Electricity Market (NEM). Marinus Link is a Tasmanian Government project, driven by TasNetworks. The innovative project is listed by the Federal Government as a ‘national recovery priority’. It also connects into Tasmania’s environmental and economic goals. Marinus Link, together with supporting transmission developments in North West Tasmania, will unlock further dispatchable hydropower in Tasmania, and enable pumped hydro energy storage and wind generation opportunities. Abundant, low-cost and reliable clean energy, moving between Tasmania and the NEM, will accelerate Australia’s transition to a low-carbon future. Marinus Link boosts Tasmania’s potential for long duration (deep) energy storage. Expanded storage is fundamental to Australia’s clean energy transformation. By providing costcompetitive deep storage, Tasmania could become a key part of Australia’s least-cost energy future. A central element is the Battery of the Nation initiative, led by Hydro Tasmania, which is about expanding the state’s hydropower capacity through optimising existing assets and adding new deep storage pumped hydro. ‘Marinus Link is visionary,’ says Christopher Gwynne, Project Director of Battery of the Nation. ‘It will enable Tasmania to produce more renewable

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Bess Clark and Christopher Gwynne

energy for the NEM, and realise the full value of our renowned hydropower system and vast wind resources.’ Bess Clark, General Manager of Project Marinus at TasNetworks, says there’s a robust investment case. ‘The project alone will deliver 2800 jobs at peak construction. It is potentially a huge boost for North West Tasmania, which welcomes more jobs, and for Victoria’s Latrobe Valley, which is transitioning after the Hazelwood Power Station closure, with more closures on the horizon.’ Clark says Project Marinus combines three clean energy advantages. ‘Tasmanian wind has 25 per cent higher output. The capital cost of pumped hydro in Tasmania is 30 per cent lower. Also, the state has ready-to-use hydropower capacity. Savings to the NEM from Marinus Link, over its projected 40-plusyear life, significantly outweigh the project’s $3.5-billion investment.’

Government endorsement

Hydro Tasmania – Australia’s leading clean energy business and largest generator of renewable energy – will use Marinus Link to develop its hydropower and energy storage capabilities. TasNetworks, responsible for electricity transmission and distribution in Tasmania, is leading Project Marinus. The Business Case Assessment Report, released last year, demonstrated the project’s technical and commercial feasibility. It showed that the project provides benefits to energy customers and regional communities, and increases optical fibre capacity across the Bass Strait. The Federal and Tasmanian governments strongly support Project Marinus. The Commonwealth has provided funding to start design and approvals work, and included Marinus Link as one of 15 major projects to be fast-tracked, and one of three

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companyfocus

critical interconnector projects that they will work on with relevant states on accelerating. Prime Minister Scott Morrison believes that these projects can support Australia’s economic recovery from downturn caused by the COVID-19 pandemic.

Long-term benefits

Gwynne says that Marinus Link is a blueprint for developing Tasmania’s clean energy sector. ‘This enabling infrastructure will attract new renewable energy firms to the state and create decades of opportunity for existing firms. A vibrant fourth pillar of Tasmanian industry will emerge in clean energy (in addition to tourism, education and agriculture).’ He says that the benefits Marinus Link unlocks extend nationally. ‘Tasmania will provide more renewable energy, at lower cost, to the NEM. That’s good for industry. Marinus Link will strengthen energy security because Tasmania can contribute more renewable energy into the grid when other states need it, and store excess energy when there is too much in the system.’ Gwynne says Marinus Link connects Tasmania’s proud history in renewable energy to a future at the forefront of clean energy innovation. ‘Tasmania has pioneered renewable energy in Australia for more than 100 years. Marinus Link can take that capability to new heights and contribute to a more sustainable future.’

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Clark says that Marinus Link will benefit generations of Tasmanians through a cleaner environment, lower power prices and enhanced energy security. ‘Like many Tasmanians, I’m passionate about preserving the environment for my children. Ultimately, Marinus Link means more renewable energy and less fossil fuel.’ Extensive community engagement will feature as Marinus Link and required transmission developments proceed. ‘We will listen and respond to the concerns of those affected,’ says Clark. ‘By working together, we can find the best balance between investment, jobs and clean energy supply – and meeting community needs.’

Nation-building infrastructure

Interconnectors have a vital role in Australia’s clean energy future. The NEM is transforming as coal-fired power generators retire and renewables become a bigger part of the energy mix. Solar and wind produce clean, low-cost energy, but supply shortages can emerge when the sun is not shining or the wind is not blowing. Hydro Tasmania’s hydropower storage will support solar and wind by storing excess energy and making it available through Marinus Link when it’s needed. Tasmania and Victoria are already serviced by the 500-megawatt Basslink interconnector. Marinus Link will add a further 1500 megawatts through a subsea-

and-underground interconnector in two 750-megawatt phases. By connecting two cables, Marinus Link has backup if one fails or needs maintenance. Marinus Link is proposed to run from North West Tasmania to Victoria’s Latrobe Valley. Using a different route to Basslink further diversifies and protects access to Tasmania’s energy supply. Marinus Link’s first 750-megawatt cable could be in service from 2027. Across Tasmania, a number of wind farm proposals are under construction and in various stages of planning, further boosting Tasmania’s clean energy capacity. Hydro Tasmania believes it could supply an extra 500 megawatts of reliable capacity with minimal investment for the first phase of Marinus Link and make this available over summer when Victorian demand peaks. The first cable also presents opportunities for Hydro Tasmania to proactively invest in its existing assets to increase capacity, bringing hundreds of megawatts of extra capacity at minimal cost. The second 750-megawatt phase could be in service by 2030. It would trigger further significant investment in world-class wind generation, new pumped hydro development, and a ‘step change’ in Hydro Tasmania’s clean energy generation and storage capabilities. ♦ For more information, visit www.marinuslink.com.au and www.hydro.com.au/battery-of-the-nation.

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Helping the nation’s future energy challenge

Through Marinus Link and Battery of the Nation, Tasmania can play a key role in supporting Australia’s continuing transition to a clean energy future. Marinus Link unlocks Tasmania’s renewable energy and long duration energy storage to support a resilient future national electricity market.

Together, we will deliver low-cost, reliable and clean energy.

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We think in decades, not years IFM Investors was established more than 25 years ago by a group of Australian pension funds to protect and grow the long-term retirement savings of their members. To achieve this we think in terms of decades, not years. Committed to delivering strong returns over the long term, we focus on sustainable investments that generate social and economic benefits for the wider community, including essential infrastructure assets, such as toll roads, ports and airports. Aligned with the objectives of our pension fund founders, IFM today prioritises the interests of more than 470 like-minded investors globally. The A$159 billion entrusted to us by these investors incorporates the retirement savings of more than 30 million working people worldwide. To find out more visit ifminvestors.com

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DEBT INVESTMENTS | INFRASTRUCTURE | LISTED EQUITIES | PRIVATE EQUITY

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Future Building 2020

Articles inside

Tim Pallas MP, Treasurer of Victoria

Shemara Wikramanayake, Managing Director

Decarbonisation | panel discussion

Luke Yeaman, Deputy Secretary

Chairman’s foreword | Sir Rod Eddington AO Chairman, Infrastructure Partnerships Australia

Decarbonisation pre-panel address | The Hon Matt Kean MP, Minister for Energy and Environment, New South Wales

Scott Charlton, Chief Executive Officer