Future Building 2010 by Infrastructure Partnerships Australia

The Australian Infrastructure Review Inaugural edition

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The Australian Infrastructure Review

Contents Editor-in-Chief: Ric Navarro E: ric.navarro@executivemedia.com.au Contributors: Mark Birrell, Heather Ridout, Leon Gettler, Jeanette Leigh, Mike Quigley, Pru Sanderson, Gemma Peckham, Dan Stojanovich, Brian Haratsis, Michael Roche, Clare Corke, Alex Guy, Owen Hayford, Tracy Ong. Design: Joanne Marchese

Foreword | By the Hon Mark Birrell, Chairman, IPA

Embracing Australia’s infrastructure challenges | An interview with the Minister Anthony Albanese

More support needed to better skill Australia | By Heather Ridout, Chief Executive, Australian Industry Group

Future Building is published by:

The oracle of Australian infrastructure | An interview with Sir Rod Eddington

IPA National Infrastructure Awards |

Realising our broadband future | Presentation by Mike Quigley, Executive Chairman, NBN Co

Rollout of the National Broadband Network |

And now back to the big picture… nation building after the GFC | By Dan Stojanovich

Achieving higher densities and delivering increased liveability | By Pru Sanderson, Chief Executive Officer, VicUrban

It’s time to get serious about Australia’s Cities | By Mark Birrell, Chairman, IPA

Australia’s 2050 challenge: what Intergenerational Report Three (IGR3) means for infrastructure in Australia | By Brian Haratsis, Chief Executive Office, Macroplan Australia

Long Term Forecast predicts build-up to boom later this decade |

The national freight challenge | By Dan Stojanovich

The changing climate of risk allocation in infrastructure projects | By Owen Hayford, Clayton Utz

Australian infrastructure potential shines amidst GFC chaos | By Dan Stojanovich

Funding of PPP projects – where to from here? | By Clare Corke, Senior Foreign Associate, Blake Dawson

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Where next for the global PPP market? | By Alex Guy, Partner, DLA Phillips Fox

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Foreword

On behalf of Infrastructure Partnerships Australia, I am delighted to launch our new magazine, Future Building. I hope that this publication will provide a forum for the leaders of the national infrastructure sector to reflect on the future directions, challenges and opportunities facing our sector. The launch of this industry journal comes at a time of tremendous change. Australia shows good signs of emerging strongly and quickly from the Global Financial Crisis; but while we have emerged relatively unscathed, we have not emerged unchanged. The lessons of recent times are driving new thinking across government and industry about how risks can be best shared. The public sector is showing a renewed awareness of the need to meet the appetites and abilities of the market, and we are seeing renewed vigour toward a better functioning, better designed infrastructure market. Major projects such as the Port Phillip Bay channel deepening, the Sydney desalination plant and the Clem Jones Tunnel in Brisbane demonstrate how a spirit of cooperation and partnership has sustained the infrastructure market through a period of great challenge. Infrastructure Partnerships Australia has a busy agenda of policy, research and industry events over the coming year, and we seek the input and active engagement of the sector to ensure that key challenges facing the sector can be addressed. I hope that you find this journal a useful contribution and I would welcome any feedback you may have. This edition particularly celebrates the recent National Infrastructure Awards and the spirit of partnership that brings together the best of the private and the public sectors.

Mark Birrell Chairman - Infrastructure Partnerships Australia

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Embracing Australia’s infrastructure challenges By Jeanette Leigh

An interview with Anthony Albanese

On taking office in 2007, the Australian Government under Prime Minister Rudd outlined plans for an unprecedented infrastructure program to prepare the Australian economy for growth over the next 40 years. The government moved quickly to establish Infrastructure Australia’s Advisory Council, consisting of commonwealth, state and private sector representation. Infrastructure Australia produced its first national infrastructure audit in December 2008. After a priority list was established May 2009, the government committed to a record national investment of $36 billion in roads, railways and ports. Anthony Albanese, the Minister for Infrastructure, is very pleased with progress to date. He says that the current government has spent more on rail in 12 months than the previous government spent in 12 years. “We have established everything that we committed to in the Nation Building Program and more because we got the structure right in the first place. “Infrastructure Australia applied a rigorous methodology to assess and prioritise projects. Prior to this, the development of infrastructure and investment was not approached in a coordinated and exacting manner,” says Mr Albanese. Government priorities are to deal with clogged and outdated railways, roads and ports that pose a very real threat to growth and productivity. Road traffic congestion alone cost the economy approximately $9.4 billion in 2005, and according to the federal government’s ‘State of Australian Cities 2010’ report, this figure is projected to rise to $20.4 billion by 2020. Port congestion is so chronic that in some places more than 50 ships can be waiting to dock. At one stage in November 2009 there was a vessel queue of 76 ships waiting to enter the coking coal export terminal at Dalrymple Bay in Far North Queensland. In some places, coal production is reduced because the infrastructure is unable to keep pace – a costly outcome. “At the Australian Transport Council last year we agreed to have single national regulators for rail safety, heavy vehicles and maritime sectors. That will lead to significant productivity benefits over the medium and long term,” says Minister Albanese. EDITION 1

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Embracing Australia’s infrastructure challenges

Bailout packages adopted during the GFC by major countries belonging to the G8 thwarted the potential collapse of many infrastructure projects globally. Mr Albanese says that having the infrastructure program “topped up” by some of the measures in the economic stimulus plan added more value. “Funding for projects such as the black spot program for roads, the rail level crossing program that installed safety measures such as boom gates, and the designated program for additional rest stops for truck drivers were added to the Nation Building Program,” says Mr Albanese. Minister Albanese concedes that, “There is always more that you can do but you must consider the impact this government has had on turning underinvestment in infrastructure around in a matter of just three years to the point where we are delivering significantly on investment and reform.” The $43 billion scheme that Prime Minister Kevin Rudd refers to as Australia’s biggest ever infrastructure venture, will connect approximately 90 per cent of homes from remote outback settlements to coastal cities. Cable will be laid across a staggering 7.7 million square kilometres. If we are to compete in a global market then this project is arguably a pivotal one in the infrastructure program. The NBN is close to Minister Albanese’s heart and he is keen for Australia to never again be embarrassed by our lack of speed. “When we came to office, Australia was ranked 27 out of 30 OECD countries in terms of average download speed. Highspeed broadband is critical for our future economic growth. Now more than ever we need to be smarter in the way we deal with infrastructure and the way we position ourselves so we can take advantage of growth opportunities in the Asia Pacific region. “Distance is a big challenge. We are a big country with a relatively small population. One of the great benefits of broadband and the use of information technology is ease of communication. It allows us to conduct business across vast territories without getting on a plane.” The project is still in its early stages. NBN Co has been established to deliver the broadband initiative, and Mike Quigley, former president and operations chief of French telecoms equipment giant Alcatel, has been appointed as CEO. 6

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Infrastructure Australia applied a rigorous methodology to assess and prioritise projects. Prior to this, the development of infrastructure and investment was not approached in a coordinated and exacting manner,” says Minister Albanese.m Test sites are being prepared to gain understanding of the varying environments that installers will need to operate across. In February, Mr Quigley told Senate Estimates that the project was on track and that the national broadband network will be brought to some homes on the mainland in the second half of this year. Location testing will determine issues such as cost differences in varying design alternatives, for example the question of deploying fibre optics under or overground. Mr Albanese emphasises that the pace of change is quicker than we think, which is why national broadband is so important. “The program will be critical in terms of the next few years because it connects with everything the government is doing. It has the potential to impact throughout the economy and is vital for education, e-health and transport,” says Mr Albanese. Delivering these large expensive projects has been made more viable for the Australian Government through Public Private Partnerships (PPP). A 2007 IPA report, titled Performance of PPPs and Traditional Procurement in Australia, confirmed that PPPs are the best method of delivering large-scale infrastructure projects because they demonstrate greater cost and time efficiency over traditional procurement methods.

Embracing Australia’s infrastructure challenges

Some investors have learnt hard lessons about being overly ambitious regarding the patronage of new roads. However that does not mean that PPPs are wrong. You have to get the figures right and make sure that the analysis is not overinflated... In 2008, the Rudd Government created uniform national PPP guidelines to remove any barriers to private sector involvement. These were set down by the Council of Australian Governments upon recommendation from the Infrastructure Australia advisory council. “Alongside direct investment, these measures help facilitate the move towards a seamless national economy that promotes productivity, reduces costs for business and supports future economic growth,” says Mr Albanese. There is debate about whether PPPs are the best funding model. Enormous contracts must be financially viable for the companies vying for them and there have been some failures, the underperforming Lane Cove Tunnel being a case in point. The predicted patronage for the $1.6 billion roadway was overestimated. This was a salutary lesson that cost its owner and operator, Connector Motorways dearly, and it was placed into receivership earlier this year. Minister Albanese says that there is no one size fits all solution. Business is risky and that is unavoidable. “Some investors have learnt hard lessons about being overly ambitious regarding the patronage of new roads. However that does not mean that PPPs are wrong. You have to get the figures right and make sure that the analysis is not overinflated. “There are plenty of examples of successful PPPs such as the M7 Westlink in Sydney and the Peninsula Link project in Victoria. For Peninsula Link a revised model was adopted where the private sector investor component is largely taken from superannuation funds. This is a positive development.

An IPA report confirms that PPPs are the best way of delivering large-scale projects. (Image: Transurban)

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Embracing Australia’s infrastructure challenges

High speed broadband is critical for Australia’s future economic growth.

“At the same time if the private sector risk isn’t balanced then it will not attract investment. Transference of risk is a part of the model. If the government holds onto all the risk it begs the question, why would you proceed down the PPP track?” says Mr Albanese. Improved living standards are also high on the federal government’s agenda. Demographic predictors say that 60 per cent of people will inhabit the urban sprawl by 2030. As such, a key component of the government’s $42 billion Nation Building – Economic Stimulus Plan focuses on community infrastructure investment, to give the functionality of cities a makeover. Many challenges lie in providing health, education and community facilities that meet the needs of a population that is predicted to increase by more than 60 per cent by 2050. As such, the Federal Government is taking a much more handson approach to urbanisation, not leaving urban planning and the integration of transport, housing and employment growth solely up to state governments. So far, more than a billion dollars worth of infrastructure programs are being implemented at local government level. Out of the 3,300 approved projects across 565 councils, 2,800 have been completed. Community centres, town halls, parks and playgrounds, and pool and sports facilities across Australia are receiving significant overhauls. The largest grant, $36 million, was allocated to build the Gold Coast AFL Stadium, owned by the council. 8

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Other projects include streetscaping of suburban main streets, and increased disability access. In some projects sustainability initiatives such as solar panels and water recycling plants are being installed. “One of the great things about the local government program is that it formed a large part of the Economic Stimulus Plan, so the work could be done quickly and have an immediate impact on communities and jobs across the country,” says Mr Albanese. There has also been record investment in school infrastructure as part of the Building Education Revolution, with $16.2 billion being spent on the upgrade of schools across the nation. This includes the Primary Schools for the 21st Century program with 7,961 primary schools receiving funding, and 537 science laboratories and language learning centres currently being built or refurbished under the Science and Language Centres for 21st Century Secondary Schools program. Work has been rolled out at lightning speed, with the government expecting the upgrades to take place within a couple of years for more than 24,000 projects. “If there was a theme describing the government approach to infrastructure, large or small, it would be creating jobs today while supporting the infrastructure that we need tomorrow. Short-term investment helps to build productivity and economic growth for the future.

Embracing Australia’s infrastructure challenges

“And the exciting thing is that the billion dollar cost of our project has created more than $2.5 billion in economic activity around Australia at a time when it was sorely needed. “Organisations such as Infrastructure Partnerships Australia play a vital role in ensuring that infrastructure policy is high on the political and social agenda. I have chosen IPA to launch a number of major speeches because it is the peak organisation that is broadly representative of the entire sector,” says Mr Albanese. Along with government focus on the challenges facing Australia’s infrastructure, there also must be community focus. How we choose to live can have a considerable effect on the advancement of infrastructure. For example, while the average number of people in Australian households is decreasing, the average house size is increasing. As we face a significant population rise within the next 40 years, this will not be sustainable. The government faces a range of community infrastructure issues, including the promotion of diverse, healthy communities, and addressing environmental concerns. Government and communities together must implement a range of initiatives to tackle these challenges, says Mr Albanese.

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Embracing Australia’s infrastructure challenges

“These kinds of issues are complex and require community engagement. This is a major challenge for the government. Through the House of Representatives Infrastructure Committee we have set up an inquiry … on smart infrastructure, and this will form part of the debate as to how we use our existing infrastructure more efficiently and get more out of what we have,” says Mr Albanese. Mr Albanese has a strong sense of optimism for the future carbon constrained economy. “Electric cars are moving fast, as are changes in energy generation. Information technology will be integrated with most areas of endeavour, such as transport systems, creating greater efficiencies. We are already using it to ‘green light’ public transport such as buses. “There is no doubt that we have to have more significant investment in public transport to ensure the sustainability of our cities. And having people work from home keeps people out of cars, reduces greenhouse gas emissions and enhances quality of life.” In 2008, the Major Cities Unit was established within the Department of Infrastructure to work with Infrastructure Australia’s Advisory Council, so from the Prime Minister down, there is engagement in the cities debate on issues such as urban congestion, which is having a massive impact on residents in places such as western Sydney where there are desperate public transport needs. Mr Albanese empathises with the challenges of those people who spend more time commuting in their cars than at home with their kids, saying, “This is why it is so important to have Commonwealth engagement in urban transport, water provision and infrastructure and to work in partnership with state and local government to make sure we deliver improved living standards and quality of life.”

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There is no doubt that we have to have more significant investment in public transport to ensure the sustainability of our cities. And having people work from home keeps people out of cars, reduces greenhouse gas emissions and enhances quality of life.

More support needed to better

On taking office in 2007, the Australian Government under Prime Minister Rudd outlined plans for an unprecedented infrastructure program to prepare the Australian economy for growth over the next 40 years. The government moved quickly to establish Infrastructure Australia’s Advisory Council, consisting of commonwealth, state and private sector representation. Infrastructure Australia produced its first national infrastructure audit in December 2008. After a priority list was established (May 2009), the government committed to a record national investment of $36 billion in roads, railways and ports. Anthony Albanese, the Minister for Infrastructure, is very pleased with progress to date. He says that the current government has spent more on rail in 12 months than the previous government spent in 12 years. “We have established everything that we committed to in the Nation Building Program and more because we got the structure right in the first place. “Infrastructure Australia applied a rigorous methodology to assess and prioritise projects. Prior to this, the development of infrastructure and investment was not approached in a coordinated and exacting manner,” says Mr Albanese. Government priorities are to deal with the clogged and outdated railways, roads and ports that pose a very real threat to growth and productivity. Road traffic congestion alone cost the economy approximately $9.4 billion in 2005, and according to the Federal Government’s ‘State of Australian Cities 2010’ report, this figure is projected to rise to $20.4 billion by 2020. Port congestion is so chronic that in some places more than 50 ships can be waiting to dock. At one stage in November 2009 there was a vessel queue of 76 ships waiting to enter the coking coal export terminal at Dalrymple Bay in Far North

Australia’s structural skills shortage is one of the big constraints on our future growth. 12

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skill Australia By Heather Ridout - Chief Executive, Australian Industry Group

While skill shortages were less evident during the global economic and financial crisis, as we start to see a return to growth it’s clear that the shortages were just below the surface. Our research has found that companies are anticipating skills shortages across a range of occupations for 2010. The most prominent are technicians and trades workers (28%), across the manufacturing, construction and services sectors. Engineers along with construction managers (15%) are also expected to be in short supply.

Our survey Skilling Business in Tough Times, in partnership with Deloitte, has given us a better understanding of employment and training trends as we emerge from the downturn. We found that business has learnt the lessons of past recessions and is doing all possible to retain staff for better times ahead. However, there have been and will continue to be cuts to training budgets during 2010/11. While it has been more about trimming than slashing these resources, it will still affect the strength of our skilled workforce. Of particular concern is the expected drop in apprentices in training and uptake of new apprentices. As a short-term measure, and in response to calls for action from Ai Group and other industry bodies, the federal government in December introduced the Apprentice Kickstart Bonus, which offered additional financial incentives to employers who hire a new apprentice in a traditional trade.

We are calling on the Federal Government to extend this important program and to invest in additional policies that will help employers address their skills and training needs. Australia’s structural skills shortage is one of the big constraints on our future growth. This is especially important given the number of major construction, defence and infrastructure projects on the horizon. Immigration also has a big part to play and Ai Group welcomes the recent changes to the skilled migration program. Putting greater emphasis on a demand-driven system that better matches the needs of business will help ease the skills pressure. It will also help in the longer term to address the demographic pressures of our ageing population. We support the abolition of the broad Migration Occupations in Demand List (MODL), which had given priority to prospective migrants with occupations on that list and in doing so, had created a bias towards lower skilled migrants. It will be replaced by a more targeted Skilled Occupation List (SOL). Engaging Skills Australia in the development of the SOL to create a targeted skills list will enable skills in need to be identified in a more flexible and timely way and with a broader workforce development approach. The greater emphasis on employer sponsored migrants, as part of the reform, will also help fill the skills gap. While training our own workforce is absolutely critical, it alone will not be sufficient to meet our skills requirements and permanent and temporary immigration programs will remain an important part of the skills solution. Note: Heather Ridout is a member of Skills Australia. EDITION 1

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The Great Australian Fragmentation is the nation’s first biggest infrastructure problem. The second is who is going to pay for it. Leon Gettler discusses these issues with the captain steering Australia’s historic infrastructure reforms, Sir Rod Eddington.

The oracle of Australian infrastructure

Each of Australia’s three tiers of government are responsible for building and maintaining the nation’s infrastructure from local roads, hospitals, schools, public transport, aviation, ports and telecommunications. This has created a range of federal, state and local bodies in charge of different elements of infrastructure, from freight to roads. There is little coordination; the system is fragmented. For Australia, the challenge is not just about building new rail lines, roads, and ports, and creating a faster and more efficient broadband network, but about ending the fragmentation and creating some policy coordination. Sir Rod Eddington agrees that fragmentation is one of the biggest hurdles. It’s there, he says, not just in infrastructure but in a range of other areas. Part of the problem reflects Australian history and a national constitution framed 110 years ago. “The challenge of the national agenda is not just a frustration in infrastructure,” Sir Rod says. “You hear echoes of it in education and in health. It is not something that is limited to infrastructure. “Infrastructure is one of those topics where naturally parts of it fall to federal government, parts of it fall to the states and parts of it fall to local governments. It’s about the way in which our constitution is constructed. “Education and health, for instance, are currently matters for state governments, and on the transport side, rail infrastructure is a matter for state entities. Shipping and aviation are federal matters. Telecommunications is a federal matter. “The reality is that parts of the infrastructure jigsaw that were put in place before Federation were and are still organised along state lines. The things that came to pass since Federation – aviation and telecommunications for example – are all organised nationally. “In a sense, that is one of the things Australia is trying to do, get a national perspective on these sorts of things. EDITION 1

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The oracle of Australian infrastructure

“While we have state bodies there, we also have federal entities that have responsibility for water, that have responsibility for energy and we have federal bodies that have oversight of transportation. “There really has to be more coordination, and one of the frustrations that the infrastructure challenge has faced over the last few decades has been to try and get the key players thinking about it nationally rather than on a state by state basis.” Then there is the question of cost. With Australia’s population tipped to hit at least 35 million by 2050, the next 40 years will make or break Australia in terms of its infrastructure. Unless the funding is right, and models that have the private sector investing in infrastructure are encouraged, then Australia risks becoming a backwater. On top of that are the findings of the federal government’s recent intergenerational report which warns: “A growing population will help manage pressures of the ageing population but will put pressure on our infrastructure, services and environment. This will require continued planning and investment ahead of time.” The intergenerational report identifies a key problem. An ageing population means fewer will be entering the workforce. As a result, the tax base will shrink and tax revenues will not keep pace with rising costs, which means the private sector will have to help fund infrastructure. And it will be costly. In freight and transport alone, the amounts required are staggering. IPA has called for a complete overhaul of the system. As Prime Minister Kevin Rudd said in January, the needs are “truly staggering”. According to IBISWorld figures, commissioned by IPA, Australia’s freight volumes will triple by 2050, an inevitable development from the projected population growth in that period. According to the report, transport infrastructure would need to nearly quadruple to an eye-popping $62.5 billion a year to meet the demand. An interim report prepared by Infrastructure Australia says priority should be placed on 40 road projects worth $69 billion and six port and airport projects worth $6 billion. The infrastructure challenge cannot be underestimated. Over the long term, infrastructure investment in Australia has been slipping. According to a 2009 OECD report, Australia’s investment in transport, storage and communications infrastructure as a percentage of GDP fell between the 1980s and 1990s. Worse still, it fell again in the first decade of this century. In contrast, infrastructure investment for these sectors has been rising across the OECD. That means one thing – if the trend continues, Australia will slip behind the rest of the world, affecting national productivity, growth and living standards. There is a massive chasm between the infrastructure now in place and what this country needs.

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Better infrastructure not only creates a more efficient and workable country, it lifts productivity. International Monetary Fund research shows that in developed countries such as Australia, increasing public infrastructure stock by just one per cent results in an increase in output by 0.2 per cent. According to the Productivity Commission, improving the efficiency of Australia’s energy and transport infrastructure could increase GDP by two per cent. Sir Rod is also chairman of Infrastructure Australia, the body established by the Rudd Government when it took office in 2007 to provide advice on the long-term planning of Australia’s infrastructure needs. Infrastructure Australia is now working on a National Ports Strategy and a Freight Network Plan. Infrastructure Australia works closely with COAG, which seeks to develop a national approach to infrastructure issues. It also reports to the infrastructure minister Anthony Albanese.

The oracle of Australian infrastructure

Three quarters of our economy is in services today, and over 80 per cent of employment is in services.

The Hinze Dam Stage 3 project will increase water supply from the dam to 225 million litres a day. (Image: Thiess)

Sir Rod is also closely linked to Infrastructure Partnerships Australia. IPA chairman Mark Birrell sits on the Infrastructure Australia board and Sir Rod gave the Infrastructure Oration at the IPA’s annual dinner in March. Sir Rod says the services sector needs infrastructure. “The last 50 years have shown us that services are a growing percentage of the economy,” Sir Rod says. “Technology has shown us that traditional areas of employment like agriculture and manufacturing require fewer and fewer people to deliver the goods. Instead, we have found a growing emphasis

on services in the economy and services in the employment community. “Three quarters of our economy is in services today, and over 80 per cent of employment is in services. “That raises the question about the role of cities and their supporting regions in a services economy. What, for example, is the role of our international gateways, like the ports and the airports? “We see both of those as being important in the economy of today and tomorrow. “We don’t just export iron ore and coal and beef through those gateways. We import manufactured goods like motor cars.

That raises the question about the role of cities and their supporting regions in a services economy. What, for example, is the role of our international gateways, like the ports and the airports?

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The oracle of Australian infrastructure

I think one of the things we are beginning to see now is this whole question of the role of cities and what they mean for the economy and what they mean for liveability and the environment.... ..

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“And also, the third and fourth biggest contributors to the economy in Australia today are education and tourism, both of which depend on our airports.” He says the workability of our cities is an important part of the infrastructure jigsaw. “I think one of the things we are beginning to see now is this whole question of the role of cities and what they mean for the economy and what they mean for liveability and the environment,” he says. “Now, when governments reflect on infrastructure, they don’t just reflect on the economy, they also reflect on the community and sustainability. In Australia, when reflecting on the infrastructure needs of the economy, we need to look hard at those issues as well.” The other key part of the equation is projecting into the future, complete with its unknowns and uncertainties. What will tomorrow’s economy look like? What will be its key drivers? “One of the ways you can look at it is to say, what is the economy going to look like in 20-30 years time? And importantly, what is the role of our of cities, the international gateways? We also see regional and rural Australia in that context and ask what their infrastructure needs are. “You come back to the connectivity and viability of our international gateways for trade. “So you try and get a vision of where the economy is headed, where the community is going and what the sustainability agenda will be. As you reflect on infrastructure for the future, you need to reflect on those things.” The world today faces challenges that were inconceivable just 10 years ago. These include convergence of industries and products, the rising cost of capital, the growth of the finance economy, the end of

low inflation, globalisation’s transformation of trade, water, terrorism versus the nation state, derivatives and the shadow banking system, the rise of China and India, overcapacity, ageing, climate, networks, intangibles and volatility of markets. Our supply chains were built to get coal to the loaders, and wheat, sugar and barley to the silos at port. Will that still be required 40 years from now? What is the future of coal in a low carbon economy? Will we still be building rail to new coalfields? Will the government continue to subsidise a timber industry and create infrastructure around it when it takes water and land away from food production? How many people will be living in the eastern cities in 2050? Will new cities emerge in the population boom? Will, for example, a place like Broome become the next Gold Coast? Will the Murray-Darling have a future as an agriculture producing area as global warming takes hold? Sir Rod says this is the major challenge for all infrastructure planning. “We don’t know the answer to those questions, in part because they beg other questions. Like, for example, what about carbon capture and storage? Will that be available at an industrial level? That’s going to have a real impact on the future of coal’s role in the future economy. “We need to think about what the economy looks like tomorrow and what’s happening tomorrow. “The electricity grid, for example, needs to accommodate renewable energy supplies including wind and solar which will come from different geographies from coal fired plants. “It’s about the need to look forward to the economy of the future.” Sir Rod says Infrastructure Australia’s review of freight and electricity are an important part of this future planning. “We are looking hard at a national ports policy. The resources sector, for example, relies on our international gateways and our ports, and we have seen some real constraints around our country.

The oracle of Australian infrastructure

“We have 60-plus ports around the country, we need to ensure that we have an understanding of the holistic picture of our ports and how they work and how they contribute to the economy. “There are also issues about the connectivity of the ports through surface infrastructure, road and rail being key pieces of the jigsaw, and how all our ports are linked in. “We are also looking at the demands on the national electricity grid, challenged as it is by things like the commitment to renewable energy and renewable energy sources. “The current electricity grid is built primarily around fossil fuelled power plants, many of which are located at coal fields. In a world where renewable energy also has

an important role, the question is what you need to do to the grid to accommodate these new energy sources.” But doesn’t global warming create issues for road transport? In a low carbon economy, road transport is now vilified by many because of its relatively high output of greenhouse gas emissions. Sir Rod concedes it is an issue but insists the planning needs to be realistic. “My view is quite simple,” he says. “This not about road or rail, it’s about road and rail. If you look at freight for instance, one of the things we are focused on is rail freight and the capacity of the network to carry more of the freight burden, particularly for long haul freight.

“Now, freight comes into its own over a long distance. But a lot of things that get moved in a freight sense end up at your front door and they are not going to make the last piece of that journey by rail. We need to recognise the importance of the road network to freight as well. Not instead of the rail network but as well as.” When all is said and done, however, there can be no infrastructure growth without the private sector. “To be frank if it doesn’t happen, the infrastructure won’t get built,” he says.

State governments have turned to PPPs to put infrastructure projects on the map.

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Potts Point Sydney: Tourism is the fourth biggest contributor to the Australian economy.

“Traditionally, much of the funding for infrastructure has come from federal and state governments, but federal and state purses are getting stretched thinner and thinner by escalating healthcare and education costs and escalating spending on issues like security, law and order and social welfare. How does government continue to meet its growing obligations, and on the other hand meet the challenge of infrastructure spending? “We need to be more inventive about how we think about infrastructure funding.” Many state governments have turned to public private partnerships to get major projects off the ground. Examples include CityLink, EastLink and the desalination plant in Victoria, the Sydney harbour tunnel and the link to Brisbane airport. Sir Rod says the PPP model is a “broad church” and governments need to consider it carefully. “We have seen examples of where this idea works and where it doesn’t,” he says. “The issues are who takes what risks when. Who takes the construction risk, who takes the patronage risk and what sort of returns do infrastructure investors get? “The private sector will step up to infrastructure investment as long as it sees it as a reasonable investment opportunity. There is no shortage of investment funds looking for long term stable returns. The question is on what terms.” Another innovative approach, he says, is developing infrastructure bonds for the public to invest in big projects, and get good returns. In the end, however, it will require some creative and lateral thinking from Australia’s political leaders. “Governments will need to think about finding opportunities in the broadest sense,” he says.

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Snapshot – Sir Rod Eddington Educated as an engineer at the University of Western Australia and then Oxford University as WA’s 1974 Rhodes Scholar, he has demonstrated his acumen and expertise on the national, regional, and international stages. Sir Rod’s career began in transport and aviation in 1979 when he joined the Swire Group and Cathay Pacific and went on to be CEO of Cathay Pacific, Ansett and British Airways, before retiring in late 2005 to return to Australia. In 2005, Sir Rod was awarded a knighthood by the British Government for services to civil aviation. In December 2006, he completed a study for the British Government on the links between transport and the economy, before conducting in 2008 a similar investigation and report for the Victorian Government, the ‘East-West Link Needs Assessment’ transport study. Today, numerous companies benefit from his time and talents. In addition to maintaining non-executive directorships with News Corporation, Rio Tinto PLC, CLP (China Light & Power) Holdings and John Swire & Sons Pty Ltd, Sir Rod also serves as chairman of Victorian Major Events Company.

When Laurie Walker finances a public-private partnership, 5,779 students benefit. Working as an advisor, Laurie and her group arranged funding for seven new schools in South East Queensland. Combining senior public funding with subordinated private debt, they minimised project risk and lowered the cost of capital. It’s all part of Total Capital Solutions. Put Laurie and Commonwealth Bank’s resources on your side.

laurie_walker@cba.com.au

commbank.com.au/totalcapitalsolutions | Commonwealth Bank of Australia ABN 48 123 123 124. CBANK-598AG

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DLA PHILLIPS FOX WELL PLACED TO TAKE ADVANTAGE OF THE UPSWING IN INFRASTRUCTURE PROJECTS Australian Federal Government economic policy is clear: increasing economic productivity through investment in infrastructure is a national priority and essential to Australia’s long-term growth prospects. A shortfall in infrastructure investment over recent decades has resulted in a disconnect between the infrastructure Australia needs and the infrastructure it has - particularly when it comes to ports, freight, rail, roads and broadband. Productivity Commission research has indicated that improving the efficiency of energy and transport infrastructure could lead to an increase in Australia’s gross domestic product by almost two per cent. With infrastructure investment on the up, leading business law firm DLA Phillips Fox has seen a growth in demand from industry players for cost effective and strategic solutions. The firm has significant experience advising public and private sector market participants on the biggest infrastructure projects underway in Australia including the Oakajee Port & Rail project in Western Australia, the Regional Rail Link in Victoria, Sydney Metro in New South Wales and the Gladstone LNG Project in Queensland. With newly appointed Chief Executive Tony Holland at the helm, DLA

Phillips Fox has signified a strong intention to step up its advisory capacity in the infrastructure sector. New appointee Holland is wellequipped to drive this push, having over 25 years experience in project and infrastructure finance, energy, resources, infrastructure and projects, PPPs, acquisition finance, international finance and restructuring and workouts. Prior to his appointment at DLA Phillips Fox, Holland was the Regional Head of Finance for the Middle East and the Managing Partner of the Dubai office of DLA Phillips Fox’s exclusive alliance partner, DLA Piper. The firm prides itself on its ability to offer clients access to legal expertise from all around the world through its alliance with DLA Piper. In addition, the firm recently recruited Alex Guy, a leading international lawyer on large scale PPP and other infrastructure projects. Alex has particular expertise advising on the development of rail projects and has advised on PPPs for London Underground, the Nottingham Express Transit System, the Luas Light Rail in Dublin, and the Docklands Light Rail system in London. His addition to the DLA Phillips Fox team demonstrates the firm’s commitment to growth in this area.

TONY HOLLAND CEO, DLA Phillips Fox

LEADING ADVISORS TO THE

INFRASTRUCTURE SECTOR www.dlaphillipsfox.com

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INNOVATIVE LEGAL SOLUTIONS FOR THE

INFRASTRUCTURE SECTOR %X (0% 4LMPPMTW *S\ [I HIPMZIV WSYRH ERH MRRSZEXMZI WSPYXMSRW XS GPMIRXW SR EPP EWTIGXW SJ MRJVEWXVYGXYVI GSRWXVYGXMSR STIVEXMSR ERH ½RERGMRK As part of the DLA Piper group, we are able to provide the expertise of over 300 specialist infrastructure lawyers globally, to develop PPP opportunities and contracts to ﬁt local commercial conditions. We offer clients sector expertise in roads, congestion charging, rail, airports, defence, waste, energy, resources and social infrastructure. EVERYTHING MATTERS to our infrastructure team. Our lawyers are pragmatic ‘solution ﬁnders’ viewing the transaction from the perspective of the clients. We are passionate about client service.

David East, Partner Tel +61 2 9286 8340 david.east@dlaphillipsfox.com

Alex Guy, Partner Tel +61 7 3246 4072 alex.guy@dlaphillipsfox.com Admitted as a Solicitor in England and Wales Australian Registered Foreign Lawyer*

DLA Phillips Fox is a member of DLA Piper Group, an alliance of independent legal practices. -X MW E WITEVEXI ERH HMWXMRGX PIKEP IRXMX] % PMWX SJ (0% 4MTIV SJ½GIW GER FI JSYRH EX [[[ HPETMTIV GSQ *Restricted in Australia to the practice of foreign law only. Entitled in Australia to undertake work in connection with Australian law only: (i) to the extent permitted by s167(3) of the Legal Profession Act 2007 (Qld) where such work is necessary and incidental to the practice of foreign law; or (ii) as a lay associate under the supervision and authority of an Australian legal practitioner

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IPA National Infrastructure Awards PROJECT OF THE YEAR – Sponsored by ARUP Winner: Melbourne Channel Deepening Project Port of Melbourne Corporation, Royal Boskalis Westminster, Cardno, Minter Ellison, GHD, Sinclair Knight Merz The prestigious Project of the Year for 2010 was awarded to Victoria’s channel deepening project. The selection of this excellent project also marks the first time that a project delivered under an alliance model has received the award. Previous winners include: 2009: HQ JOCC (CTH) 2008: Eastlink Motorway (VIC) 2007: NSW Schools PPP (NSW)

Completed in November 2009, the channel deepening project underpins future growth for Australia’s most valuable container port and will deliver economic benefits of more than $2 billion to the national economy. Giving the port at least another 30 years of capacity, the project involved the removal of nearly 23 million cubic metres of sediment from Port Phillip Bay, allowing ships to enter the bay and the Yarra River up to a depth of 14m at high or low tide. The previous maximum depths had been 11.6m, or 12.1m at high tide. Dredging Port Phillip Bay was the largest marine infrastructure project in the Port of Melbourne’s 150-year history. Along with dredging, the project was also an opportunity to undertake a general upgrade of the port, including work on navigation aids, upgrading of berths and protection of essential underwater services. Commencing in February 2008, the project was completed in November 2009, one month ahead of schedule and at least $200 million under budget. Of particular note was the successful delivery of this project in the face of massive opposition from pressure groups, while being subject to the most stringent environmental management plan applied to any infrastructure project in Australia’s history. EDITION 1

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IPA National Infrastructure Awards Finalists Sydney Desalination Plant Sydney Water, Blue Water Joint Venture (John Holland and Veolia Water Australia) and Water Delivery Alliance (Bovis Lend Lease, McConnell Dowell, Kellogg Brown and Root, WorleyParsons, Environmental Resource Management and Sydney Water). Sydney’s $1.8 billion desalination plant was commissioned in January, representing the culmination of more than three years’ design and construction. It is capable of supplying up to 15 per cent of the city’s water needs, independent of rainfall, and can be easily doubled in size if demand for water rises as a result of population growth or climate change. Built in partnership with the Blue Water Joint Venture and the Water Delivery Alliance and transferred to Sydney Water on commissioning, the plant runs on fully renewable energy.

Melbourne Convention and Exhibition Centre (MCEC) Plenary Group, Brookfield Multiplex Constructions, NH Architecture, Lincolne Scott, Winward Structures, Minter Ellison and Deutsche Bank Perched on the south bank of the Yarra River, the Melbourne Convention and Exhibition Centre was opened by Premier John Brumby in June 2009. The centre incorporates world-class design, allowing the feature 5,500-seat plenary hall to transform into three separate theatre spaces. The venue was awarded a six-star environmental rating, the first of its kind for a convention centre. A major economic asset for the city, the MCEC – Australia’s largest convention and exhibition facility – will ensure that Melbourne continues to attract investment and high-value tourism compared to other Australian and regional cities.

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Clem Jones Tunnel (CLEM7) Brisbane City Council, RiverCity Motorway Group, Baulderstone, Bilfinger Berger Australia, Leighton Contractors, AECOM, Parsons Brinckerhoff, Golder Associates, United Group, Bilfinger Berger Project Investments, Leighton Holdings, The Royal Bank of Scotland, Bilfinger Berger Services Australia, Leighton Services, Coffey, Clayton Utz. Opening in March, the $3 billion Clem Jones Tunnel is Brisbane’s first major road tunnel and will provide a valuable north-south crossing of the river. The 6.8km tunnel will carry up to 100,000 vehicles a day, bypassing the CBD and 24 sets of traffic lights, reducing travel times on Brisbane’s increasingly congested roads by up to 30 per cent. CLEM7 will eventually link to the inner city bypass and the Airport Link road when they are complete in 2012. The project – one of the most complex and challenging of its kind in Australia – was completed on time and under budget.

IPA National Infrastructure Awards

Chairman’s Prize Sydney Water Managing Director, Dr Kerry Schott The Chairman’s Prize acknowledges an individual for an outstanding personal contribution to national infrastructure. Dr Schott’s career has spanned the public and private sectors. Before being appointed to head Sydney Water, Kerry served as a Deputy Secretary in the NSW Treasury, as well as having a distinguished career in academia and as a senior Deutsche Bank executive. In 2007, Kerry was selected to serve on the Board of Infrastructure Australia - recognising the depth of her understanding and commitment to the infrastructure sector.

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IPA National Infrastructure Awards GOVERNMENT PARTNERSHIP EXCELLENCE AWARD Sponsored by the University of Wollongong’s Smart Infrastructure Facility Winner: Sydney Desalination Plant Sydney Water, Blue Water Joint Venture (John Holland and Veolia Water Australia) and Water Delivery Alliance (Bovis Lend Lease, McConnell Dowell, Kellogg Brown and Root, WorleyParsons, Environmental Resource Management and Sydney Water).

Sydney Water, in partnership with the Blue Water Joint Venture and the Water Delivery Alliance, delivered this $1.8 billion project on time and $60 million under budget, with the plant coming into operation in January 2010. The proponents included worldleading measures to minimise impact on the land and marine environment, which will include stringent monitoring of the marine environment and the development of a 67-turbine wind farm to offset the plant’s energy use. The project was procured during an acute water shortage and long-term water restrictions, and demonstrated a strong partnership between the public and private sectors to deliver a project that ensured that the state was no longer dependent on rainfall. The Government Partnership Excellence Award recognises innovation in the development and delivery of public policy objectives. Judges looked at the scale, size and complexity of policy objectives, how risk was allocated, and achievement of time, cost and quality objectives.

Finalists Calvary Mater Hospital, Newcastle NSW Health and the Novacare consortium (Hastings Funds Management, Abigroup, Medirest and Honeywell) Colongra Gas Turbine Power Station Delta Electricity & Jemena

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Long Bay Forensic and Prisons Hospital Project NSW Corrective Services, NSW Health, and PPP Solutions (Brookfield Multiplex, Compass Group (Medirest), Amber Infrastructure) Sydney Harbour Bridge Upgrade Project NSW Roads and Traffic Authority and Bridgeworks Alliance (Baulderstone, Freyssinet Australia, Aurecon)

IPA National Infrastructure Awards

CONTRACTOR EXCELLENCE AWARD Sponsored by The Royal Bank of Scotland Winner: Clem Jones Tunnel (CLEM 7) Baulderstone, Leighton Contractors

Brisbane City Council opened the Clem Jones Tunnel earlier this year, inviting up to 50,000 people to walk or run through the 6.8km tunnel. The project represents the culmination of thoroughly integrated finance, design, development, operation, maintenance and delivery, drawing on the strengths of all parties and standing as a testimony to the value of collaboration. Two $50 million, 4,000-tonne boring machines imported from Germany tunnelled 20m a day, extracting 3.5 million tonnes of rock to build the twin, two-lane tunnels. The tollway, which will carry up to 100,000 vehicles a day, and bypass the CBD and 24 sets of traffic lights, will reduce travel times in Brisbane by up to 30 per cent. The Contractor Excellence Award recognises innovation and best practice in the construction and delivery of infrastructure projects.

Finalists New Perth Bunbury Highway Leighton Contractors Queensland Gas Pipeline Stage 1 Expansion Jemena

ADVISORY EXCELLENCE AWARD Sponsored by Hansen Yuncken Winner: Biosciences Research Centre Project KPMG

The new La Trobe University facility is a $288 million world-class agricultural biosciences research and development centre built under a PPP for the Victorian Government and La Trobe University. The Plenary Research consortium – comprising Plenary Group, Grocon and Honeywell Services – won the tender to design, construct, finance and provide facility management services required for the operation of the facility over a 25-year period. KPMG was the lead commercial and financial adviser to the state government and La Trobe University. The Biosciences Research Centre will be a key plank in protecting Victoria’s $11.8 billion agricultural sector, by fostering the development of new generation crops and livestock for drought-prone conditions, and enhancing the response to plant and animal, pest and disease outbreaks. Special consideration in the Advisory Excellence Award was given to the special requirements of the advisory work and its scale, complexity and difficulty.

Finalists Adelaide Desalination Plant KPMG Victorian Desalination Plant Corrs Chambers Westgarth and PricewaterhouseCoopers EDITION 1

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IPA National Infrastructure Awards OPERATOR AND SERVICE PROVIDER Winner: Acacia Prison Serco Asia Pacific

FINANCIAL EXCELLENCE AWARD Sponsored by the Commonwealth Department of Infrastructure, Transport, Regional Development & Local Government Winner: Victorian Desalination Plant Macquarie, the Victorian Department of Sustainability and Environment, Corrs Chambers Westgarth, PricewaterhouseCoopers, Thiess and Degrémont

The $3.5 billion Victorian desalination plant is the world’s largest Public Private Partnership commissioned since the global financial crisis. In spite of the liquidity crisis at the time of its procurement, the project has been fully financed by the private sector – demonstrating confidence in the sector both domestically and overseas. Macquarie, the Victorian Government, sponsors including Thiess, Degrémont and Suez Environnement, and debt and equity financiers, collaborated in an innovative financial structure, with the state government saying it would step in as a lender of last resort to finance the plant. The measure was not required in the end, with the project 50 per cent oversubscribed after it was syndicated. The Financial Excellence Award is judged on financial engineering, structuring and innovation, and the scale, complexity, size and difficulty of the financial structure. All nominees in the category should be recognised for being able to deliver major pieces of infrastructure during extraordinarily difficult economic times.

Finalists Brisbane Airport Northern Access Road Project Brisbane Airport Corporation South East Queensland Schools PPP Project Queensland Department of Education and Training, Aspire Schools Consortium (Leighton Contractors, Commonwealth Bank of Australia and Broadgroup Holdings) and Ernst & Young 30

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Acacia Prison is Western Australia’s only privately managed prison, operated by Serco. Serco expanded and invested in numerous education, training, rehabilitation and resettlement programs in 2009, focusing on restorative justice, and community and social responsibility. Enhancement and upgrading of correctional facilities and services – done at the same time as 200 additional prisoners were integrated into the prison – was aimed at ensuring prisoners left Acacia with the ability to make a positive contribution to society. Acacia Prison was commended as one of Western Australia’s two highest performing prisons in the Office of the Inspector of Custodial Services 2007–2008 annual report. Former Western Australian Inspector of Custodial Services, Professor Richard Harding, found that the change of operator had been very positive, with the performance of the prison improving markedly.

IPA National Infrastructure Awards EXCELLENCE AWARD – Sponsored by Plenary Group

The Operator and Service Provider Excellence Award recognises world-class operation of infrastructure. The judges considered efficiency in delivery and operation, management of team and stakeholder relationships, and general satisfaction of stakeholder groups.

Finalists Veolia Water (a multi-project entry comprising the Queensland Western Corridor Recycled Water Project, South East Queensland Desalination Plant and the Sydney Desalination Plant) Queensland Gas Pipeline Stage 1 Expansion Jemena

Independent Judging Panel The 2010 finalists and winners of the National Infrastructure Awards were selected by an independent judging panel of senior public and private sector leaders. IPA thanks the panel for their dedication to the awards. The panel comprised: Tony Shepherd, Chairman Transfield Services (Panel Chairman) Mark Birrell, Chairman Infrastructure Partnerships Australia Adrian Kloeden, Chairman Serco Asia Pacific Peter Duncan, then Deputy Director-General NSW Department of Premier & Cabinet John Fitzgerald, Deputy Secretary Victorian Treasury

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Adelaide Desalination Plant South Australia

Techport Australia Common User Facility South Australia

North Melbourne Station Redevelopment Victoria

Sydney Desalination Pipeline Alliance Project New South Wales

BUILT TO LAST

Southern Regional Water Pipeline (SRWP) Queensland

Cape Lambert Port Upgrade Western Australia

MCG Concourse Widening Project Victoria

Adelaide Oval Western Grandstand Redevelopment South Australia

Meander Dam Tasmania

No matter what your project is, we offer the people, the smarts, the desire and dedication to get it done. We don’t just build infrastructure, we offer a holistic approach to every project, big or small, no matter what it is or where it’s located. Our creative approach is what makes us stand out from the crowd, and that’s why our projects consistently win engineering and environmental awards. Anyone can build it, but we believe we build it better. It’s something we’re proud of and we strive to be the industry leaders. It shows in our work. To find out how we can provide a creative solution for your project infrastructure challenge call our Australian Head Office on +61 3 9816 2400, email macdow_corp@macdow.com.au or visit our website for more information on all of our state locations. www.mcconnelldowell.com

Bogong Hydro Power Development Project Victoria

PARTNERING THINKING DESIGNING DELIVERING

Maunsell, EDAW, ENSR & Bassett are now AECOM.

www.aecom.com

In his speech at the ‘Realising our Broadband Future‘ conference, the man charged with spearheading the transformation of Australia’s broadband network outlined his vision for one of the nation’s most important infrastructure developments. In what will eventually emerge as one of the most ambitious infrastructure projects undertaken in Australia, the National Broadband Network is poised to put down roots across the nation. Mike Quigley explained why he is so enthusiastic about the project, and how it will benefit Australians on a business, economic and social level.

Realising our broadband future

Presentation by Mike Quigley, Executive Chairman NBN Co at the University of NSW, December 2009

We have just heard the Prime Minister articulate the government’s agenda to realise Australia’s broadband future, and the part that the National Broadband Network will play. His address made it clear why this initiative is raising so much interest around the world. It is a unique nation building program that has the potential to lift Australia’s productive capacity. I am also reminded as to why I was very keen to be part of this project. For a telecom professional this initiative is a once in a lifetime opportunity. This is why my colleagues and I are so enthusiastic about belonging to the growing NBN Co team. While we are growing rapidly we are keeping our attention very tightly focused on the objectives we have in front of us, which are: 1. To provide broadband coverage across the nation, offering speeds up to 100Mbps to 90 per cent of the population and 12Mbps to the remaining 10 per cent. 2. To facilitate the development of a level competitive playing field for access seekers, by building a wholesale platform providing open and equivalent access. 3. To build this wholesale network in the most cost effective manner possible. The NBN Co team is using these three broad objectives as a reference point for everything we do. I am also keen to ensure that these objectives, and the way in which we go about realising them, will be as transparent as possible, giving future customers, and of course taxpayers, the opportunity to hold us accountable. NBN Co is a startup. But not quite like any startup I have been associated with. Normally, startups have an opportunity to stay under the radar as they get themselves established. EDITION 1

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This has not been possible for us as, understandably, there is considerable public interest in the job we are doing. And that job is to build an access network that can provide a suite of wholesale products to Access Seekers. This involves developing a wholesale product offering, selecting technology and then designing the network and systems. Processes and systems will be put in place to maintain the network. The design is then tested and qualified in our test labs and the end to end solution exercised in field trials. We then move into volume rollout of the network. In parallel with the design and planning process we are developing both a financial plan and a project plan. We are working closely with the lead advisory team of McKinsey/ KPMG as they undertake their Implementation Study. NBN Co and McKinsey are focused on somewhat different aspects of the project, but there are significant benefits from us working cooperatively together. So this is exactly what we are doing. I believe it was very sensible of the Government to set up this dual stream approach at the beginning of a project of this size and complexity. There are many complex issues to be tackled and the interaction between NBN Co and the McKinsey/KPMG team is very productive and will, I am sure, lead to the right outcomes. I intend to give you some detail of how NBN Co is approaching our task but first I would like to address two questions that I am often asked. The first is: Why do we need 100Mbps? The second is: Why roll out FTTP when it can all be done with wireless?

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I believe it was very sensible of the Government to set up this dual stream approach at the beginning of a project of this size and complexity. There are many complex issues to be tackled and the interaction between NBN Co and the McKinsey/ KPMG team is very productive and will, I am sure, lead to the right outcomes.

Realising our broadband future

1. What will we do with 100Mbps? I will only mention applications briefly because, frankly, there are people better qualified than me to talk about future high bit rate applications. Instead I am going to point to some broadband traffic trends and ask what judgements it is sensible to make given these trends. First, let’s see what Cisco believes is going to happen to worldwide fixed IP traffic. (Slide 1)

What is driving this growth? Largely video applications of every sort – VoD, HD Videoconferencing, Internet TV, HD image transfer for medical applications, PVR downloads, distance education, etc. As Cisco observes, the continuing increase in screen resolution and the steadily increasing power of processors means that people are going to be more inclined to be running multiple highbandwidth applications concurrently. Next let’s have a look at some history (Slide 2). Here I have modified somewhat a slide that I know Geoff Hayden of AlcatelLucent has used.

It shows the downstream bit rates since 2,400bps V-series modems came into general use back in the late ‘80s. Should we assume that the trend will now roll over (red band) or continue (green band)? I would not put my money on the red band. If we believe the trend will continue upward as shown in the green band then it makes sense that the Government initiated this major project, since a wholesale FTTP network of this sort cannot be built overnight. I said I would not focus on applications, but I will use just this one slide (Slide 3) to illustrate the types of applications that will become available as access speeds increase.

When we get to the point where 3D collaboration and full remote computing is commonplace then fibre will be the only way to provide the speeds required. It is not just the Australian Government that has recognised the importance of fibre based broadband (Slide 4).

You can see that there are a number of fibre based initiatives taking place in our region. Five of the six are providing speeds of 100Mbps or above. Given these trends, I am confident that Australians will productively use 100Mbps in the years ahead. Now to the second question.

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Realising our broadband future

2. Why not do it all with wireless? Here is another IP traffic projection from Cisco, (Slide 5) but this time showing mobile IP and fixed IP traffic on the same chart.

As you can see, fixed IP traffic is expected to dwarf mobile IP even though the growth rate for mobile is considerably higher than for fixed. While wireless is currently enjoying high growth rates, it has inherent limitations compared to fibre. It is simply very difficult to overcome the limits imposed by physics. Spectrum is a scarce resource and there is just so much you can do to increase spectral efficiency using better modulation or coding schemes. We have seen real increases in speeds and download capacities offered with wireless networks in the last decade. Some of this is due to more spectrum becoming available, to larger channel bandwidths and to better modulation techniques. But by far the most important factor in the growth of total wireless capacity has been the increasing number of cells and the shrinking of cell sizes. This factor outweighs, by several orders of magnitude, all the other factors that have led to the million-fold increase in wireless capacity since the 1950s. So, why can’t we just keep increasing the number of cell sites and continue to reduce cell sizes? We can, but we still have to haul the traffic out of the cell sites and for that we need fibre. As traffic demand increases we can keep reducing the size of these fibre-connected cells so we end up with a very large number of cells, each serving a small number of premises. Is this likely to be a cheaper option than FTTP? I doubt it. We must remember that wireless is a shared medium, and so we must factor contention into the access traffic calculations.

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Peak speeds may be high and equal to those of fibre currently, but average speeds are dramatically lower. High-bandwidth, constant bit rate applications such as IPTV and HDVC are very challenging over a wireless network. It is also the case that users at the edge of the cell experience a far lower grade of service than those in the centre. At the centre of a cell, in next generation wireless systems, a user may experience speeds of up to 150Mbps, but at the cell edge the peak may be only 10-20Mbps. These are speeds for single users. The speeds obviously reduce as the number of users in the cell increases. There is no magic to this. If 100 users on a cell are downloading content at the same time, each will get, on average one per cent of the total capacity. In spite of these limitations there is a very important place for wireless broadband in the NBN world. One would be foolish to think otherwise. But one would be equally foolish to think that wireless technologies are going to solve all our traffic needs, particularly as HD video and other high capacity remote computing applications proliferate. We need both technologies, fixed and wireless, to meet our future needs. 3. Getting the competitive structure right There has been a lot said about where Australia fits in the OECD comparison on broadband penetration rates, so I will not revisit that data. But we are further behind than we would like to be. This can be attributed, in part, to the less than ideal industry structure that we currently have in place. The telco industry has been dogged by long-running disputes through the regulator, in the courts and in the media, over the issue of equivalent access. Despite years of attempts by the ACCC to resolve access issues, disputes over equivalence continue. Given the Government’s conviction that ubiquitous high-speed broadband is critical to Australia’s economic future, it is no surprise that action is being taken to correct the competitive failings of the current structure. So, every bit as important as building out a fibre network is the need to get the industry structure right. We have seen that in some metro areas of Australia the DSL market can be highly competitive and deliver real consumer benefits. NBN will enable an improved version of this model to operate nationally. After considerable industry consultation the Government decided that what is needed is equivalent access, at a wholesale level, to any bottleneck access assets. So how do we ensure this for the fibre assets we will be building?

Realising our broadband future

4. What will we be providing and to whom? To answer that question I need to explain what NBN Co will be providing and to whom. NBN Co is charged with the job of building a platform so that a 100Mbps fibre based service can be delivered to 90 per cent of premises and 12Mbps to the remaining 10 per cent. The platform for the 90 per cent will be either GPON or Ethernet point-to-point fibre. The technology used for the remaining 10 per cent will be wireless or satellite, depending on location and geography. For the fibre based wholesale service we will be providing a layer two, Ethernet based bitstream which will connect premises to Points of Interconnect (PoIs). The Points of Interconnect will be located where it is convenient for access seekers to connect. I am going to return to the subject of Points of Interconnect, but first I will expand a little on the bitstream service. You can see from the red and green elements on this chart (Slide 6) how we are positioning NBN Co as a layer two bitstream provider only. We simply move bits from a premise to a Point of Interconnect.

From the Optical Network Terminal (ONT) at the premise through the fibre network to the Optical Line Termination (OLT) and then to an Ethernet switch located at the PoI. To coin a phrase we are the “network plumbers”, providing high capacity, configurable pipes. We expect there will be both wholesale service providers, shown in grey, and retail service providers, shown in blue, who will build services on top of our layer two platform. They are the ones who will provide the services and applications to the end customer and deal with issues above layer two, such as IP addressing. We are designing the network so that the 100Mbps bitstream is able to be partitioned logically. This gives the end user the option of obtaining their voice, Internet and video services from one service provider or several. We will also be providing some sophisticated capabilities as part of the bitstream service, such as multicasting, so that services like IPTV can be run efficiently on the network.

We are not restricted to carrying only today’s services of voice, video or Internet. We are agnostic to what is running on our Ethernet platform, and so a range of new services can be carried over this platform. Returning to the question of Points of Interconnect (or PoIs). We will locate them where there is contestable backhaul. This will ensure that access seekers can reach any customer by connecting to an NBN Co PoI, which will by definition be served by backhaul from more than one backhaul provider. There will be several types of PoIs deployed and I will show two of these on the next slides. The first (Slide 7) is a “Fibre Access Node”. It terminates the multitude of fibres coming from the Gigabit-Capable Passive Optical Network (GPON) systems connecting the premises within the area served by the node.

In the node is an Ethernet switch to which access seekers can connect. In this case there is contestable backhaul to the Fibre Access Node. If the Fibre Access Node is at a location where there is only uncontested backhaul, then we need to do something different. In this case NBN Co will aggregate the traffic from several such Fibre Access Nodes, as shown in this next slide (Slide 8), and haul it back to a location where there is contestable backhaul.

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Realising our broadband future

This second location, which we call an “Aggregation Node”, then becomes the PoI for access seekers. In this case the Fibre Access Nodes are not PoIs. There are, of course, a few more variations on this theme, but I think you will have got the concept. There are likely to be between 100 and 200 of these NBN Co PoIs throughout Australia and their location needs very careful consideration. Where we place these PoIs may have an impact on industry structure so we will be consulting with the industry and holding discussions with the Government and the ACCC to ensure we get this placement correct. By limiting our scope both in the geographic sense, from premise to PoI, and in the network sense, by not going above the Ethernet layer, we are occupying as small a footprint in the overall value chain as possible. This leaves plenty of scope for the users of our network, the access seekers to build facilities, innovate and develop new services. It is now time I mentioned the support systems. Business Support Systems (BSS) support processes such as sales activities, customer interactions, taking orders and processing bills. Operational Support Systems (OSS) support network processes such as maintaining network inventory, provisioning services, configuring network components and managing faults. NBN Co plans to build a low-touch, self-serve, business and operational support environment. Because we are a startup and building a new network we have no legacy systems constraining our design. We are also doing everything we can to keep both the wholesale product suite and network as simple as possible. This reduces the complexity of designing and building the OSS and BSS, which as we all know is one of the complex challenges all telcos face. Given this, we have set ourselves some requirements as we design our BSS/OSS. These are: • Being able to cope with high transaction volumes with variable peaks. • Providing transparent processes and automated systems for ordering, provisioning, assurance and billing. • Ensuring equivalence of access for service providers regardless of size and capabilities. • Providing seamless interworking to Access Seekers so they can add, delete or modify services as simply as possible. We will, of course, be discussing these and other requirements, and their implementation, with potential access seekers. Turning now to the solutions for the 10 per cent of premises not served by fibre. For this remaining 10 per cent we are aiming to provide a wholesale product using both wireless and satellite technologies. We would like the wireless and satellite products to be as similar as possible to the fibre based product. 40

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But fibre and radio based technologies are not the same. Nevertheless, we will do our best to align the products as much as possible. The question of spectrum availability for the parts of the country where we will need to use wireless is still an issue to be resolved. There is obviously an advantage in using spectrum at the lower end of the range so that we can use larger cell sizes and reduce the number of cell sites needed in low-density areas. This will keep costs to a minimum. Given the size and demographics of Australia, we will need to use satellites to reach the last several per cent of the population. This is the only economic way of doing it. We believe this will likely be done with a couple of new Ka band satellites. Current satellite designs are available that can provide capacities of close to 100Gbps. We are still doing the traffic dimensioning and costing on the fibre, wireless and satellite solutions and the outcome of these calculations will inform our choices of where the technology boundaries will lie. The capabilities of each technology and the dimensioning choices we make will of course be included in our wholesale product specification. We are intending to have an extensive industry consultation on this wholesale product suite, prior to the submission of an access undertaking to the ACCC. So, in summary, we are in the process of developing a wholesale product suite that will: – Support differentiation and innovation by service providers – by providing them with an experience as close as possible to owning their own network – Offer open access and equivalence to create a level competitive playing field for service providers – Promote maximum end-user choice in terms of both services and providers – Deliver appropriate network reliability, resilience and security – Allow secure simultaneous delivery of multiple applications with predictable levels of quality – Offer flexibility in terms of speed, usage, degree of symmetry and quality of service. – Support legacy services, with for example, an Analogue Telephone Adaptor on the ONT. We will also plan for the evolution of the network as speeds and capacity demands increase. While the passive fibre network will likely have a very long life, the active equipment will need to be upgraded as technology evolves. So we are giving careful thought to the potential upgrade paths from the 2.5Gbps GPON systems of today to the 10Gbps systems which will be available in a few years and then the 40Gbps systems which may be available with Wavelength Division Multiplexing Passive Optical Networks (WDM PON). I will now say a few words about getting the network built.

Realising our broadband future

5. The Network Build The largest costs in deploying this network are in the civil works surrounding the fibre build. There are many choices and factors that can have a large impact on the costs of deployment – the aerial versus underground mix, availability of duct space, lead-in distances, availability of backhaul, ONT placement and configuration, battery backup, migration costs... the list to be considered is long. Estimating the costs associated with each of these factors is not an easy exercise. In preparing a business plan the two factors that dominate the estimates are the deployment costs I have just mentioned and the revenue plan, which is also dependent on a large number of variables. So it is quite sensible to work through the details of product definition, pricing architecture, network design and build planning before trying to assemble a business case on which one could rely. Sometimes the data one needs is just not known. For example, in estimating route and drop fibre lengths, there is no readily available database we can use. But we do have some sophisticated geospatial tools, which allow us to make some reasonable estimates. This next Slide (9) is a picture from one such tool showing the distribution of Geo-coded National Address Files (GNAFs) throughout Australia. The red areas represent the 91 per cent of premises that are

appreciation for the remoteness of much of Australia and the extent of the build we will be doing. As you would expect, we are taking all the steps necessary to prepare for this very large civil construction job. There are discussions taking place now regarding access to critical infrastructure such as ducts and poles. We are going to need to leverage a significant part of the capability of the Australian construction industry in getting this job done. Once the build is underway we will be dealing with, in close cooperation with service providers, the complex task of migrating customers from the copper network to the fibre network. This needs a good deal of coordination between activities at the premise, activities in the local exchange, and activities within the databases and systems. There is a considerable amount of work to be done in the preparation of all the potential migration scenarios, and that work is now underway. It is another area in which we expect to have significant industry consultation. There are many more issues on which we are currently working in NBN Co, as we design and plan the deployment of the National Broadband Network, but I hope with this brief description, I have given you a flavour of what this new company is now doing. So let me conclude.

6. Conclusion

served by a pillar. These are in 8 per cent of the land area. The green areas represent the 9 per cent of the premises that are served directly from the local exchange – possibly over a very long distance using long copper runs or a rural radio system. This 9 per cent is in the remaining 92 per cent of the land area. It is possible to zoom in on this map and see the occasional little green dot that represents another premise.

In being interviewed for the role of the CEO of NBN Co back in July 2009 it became apparent to me that the Government had a clear vision of the economic and social advantages for the nation in rolling out a high-speed, fibre based network. It seemed to me that they had identified the technologies that would be needed and the right approach for getting this complex job done. So it was with some enthusiasm that I accepted the role to lead NBN Co. I would have to say that after five months in the job, my confidence in both the judgement and resolve of the government is undiminished. I believe I can speak for the whole NBN Co team in saying it is a privilege to be associated with this nation-building initiative of the Rudd Government.

Spending a few minutes playing with this tool gives you an EDITION 1

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Realising our broadband future

Rollout of the National Broadband Network

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Earlier this year, the Rudd Government’s $43 billion broadband plan made the first step towards unfurling its networks across Australia’s mainland with a call for tenders to form a partnership with NBN Co in the implementation and operation of the National Broadband Network. In February, Communications Minister Stephen Conroy visited Mt Isa in Queensland’s outback – the halfway point along an extensive broadband spine that will cover 3,835km between Darwin and Toowoomba – to inspect initial fieldwork at the site, where the first stages of the network’s development will begin. It is estimated that this fibre optic link will take approximately 18 months to complete, and will directly benefit 160,000 Australians living in rural and outback communities. The link will provide a ‘backbone’ for the national network, which Senator Conroy believes will drive down prices in remote areas, and provide essential information technology. “Once complete, this link will allow other broadband providers to enter the market and offer faster broadband speeds, cheaper prices and more choice for people and businesses across the region,” he said. The day after the minister’s visit to Mt Isa, NBN Co advertised for information technology organisations to put forward tenders for operations that will help to link the new wholesaler cabling system to retail networks. On 19th February 2010, NBN Co posted a Request for Capability statement on their website, calling for tenders for Business and Operational Support Systems and Services. The request appealed for “Capability Statements from experienced Business and Operational Support Systems and Services (BSS/OSS) software vendors, development houses and integrators to support the build, implementation and ongoing maintenance of the BSS/OSS required to operate the National Broadband Network.” The tender closed in March, and on 1st April 2010, NBN Co issued a statement to advise that it had selected IBM, Oracle and Accenture to deliver and operate critical software support for its core business functions.

A second Request for Capability Statement was released on the company’s website in late March, calling for tenders for the Design and Construction services for the fibre to the premises network. The tender specified that “potential construction partners will need to show they have the capability and capacity to design and deliver telecommunications infrastructure projects of significant size and complexity”. NBN Co intend to encourage mid tier and smaller contractors to register interest, who will then be assisted with offering assistance to the head contractors during construction. Senator Conroy emphasised the importance of the building stage, saying, “While the NBN will ensure Australia has a world-class broadband network for generations to come, it will also inject valuable investment into the economy and create jobs for Australians during the construction phase.” Senator Conroy’s visit to Mt Isa marked the transition from the testing phase of the National Broadband Network in Tasmania to the inception of the Australia-wide network, which will ultimately provide 100Mbps broadband coverage to 90 per cent of the population. In September 2009, work commenced on the project in Tasmania, where it is predicted that 5000 homes across three small towns will be connected to the broadband network by July this year. In February, Senator Conroy told the Senate that the Tasmania works were well underway. “The trenching and layout of the conduit for the transmission link between Cambridge to Midway Point has been completed. We are on track for the first services to be connected in Tasmania from July this year,” he said. The government is still working with NBN Co to cement details of the rollout and schedule of the mainland broadband program, and it is estimated that the entire National Broadband Network project will take approximately eight years to complete.

“The firm’s attention to detail and its ability to innovate is what keeps us coming back,” says a client. IFLR1000, 2009 INFRASTRUCTURE INTEGRATED SOLUTIONS FOR TOTAL PROJECT DELIVERY When you deliver an infrastructure project, the issues you face are not just legal. Efficiency, public perception, your people, suppliers and the political context are all important to its success. Projects and their legal issues are multi-faceted, they need to be skilfully and sensitively managed throughout a project’s life. Many of Australia’s largest infrastructure providers and financiers rely on us to deliver ‘end to end’ solutions that contribute to their success. We regularly handle some of the most intense, complex and demanding infrastructure projects for governments and the private sector throughout Australia. For further information, please contact: National

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From its beginnings in Western Australia as a construction partner to the mining sector, UGL has grown to become a multi-national, multi-sector service provider operating in engineering, construction, maintenance and asset management through four divisions: UGL Infrastructure, UGL Rail, UGL Resources and UGL Services. A market leader in the design, construction, installation and maintenance of plant and systems in the power and water sectors, UGL Infrastructure is also a leading provider of mechanical and electrical systems to the road and rail infrastructure sectors. UGL Infrastructure has been providing services to the power and water sector since 1969 and is experiencing strong and growing presence in Canada and New Zealand in the power sector and for water projects in South East Asia. In Australia, an exceptional list of projects and an outstanding safety record provide proof of the breadth and quality of capability across three divisions. POWER In Power, UGL has design, construction and commissioning capability in three segments. Power Generation, where UGL delivers balance of plant design, construction and integration solutions for clients such as the 390MW 7DPDU 9DOOH\ JDV ÀUHG SRZHU VWDWLRQ LQ 7DVPDQLD 8*/ LV DOVR ZRUNLQJ RQ LQGXVWU\ ÀUVWV ZLWK WKH GHOLYHU\ RI 0: JDV WXUELQHV IRU SURMHFWV LQ 1HZ Zealand and Western Australia. Power Systems. This team have been delivering high-voltage substations for power utilities and large industrial complexes for more than 50 years with over 52 substations delivered in the last 10 years, the majority of which were design and construct. Power Transmission, delivered via BBUGL (Balfour Beatty United Group Infrastructure JV) operating since 1982. BBUGL offers turnkey design, supply and construction of overhead and underground electrical transmission and distribution systems. The BBUGL JV has successfully delivered projects nationally such as the 66km Innisfail - Edmonton (NorthEast QLD) 275kV line and the 70km Shotts - Wells (South-West WA) 330kV line. UGL’s technology independence provides freedom to select best-of-breed solutions from power OEMs globally, assuring clients of good value and technical excellence.

WATER The Water business plays a vital role in our communities, providing leading technology solutions in both municipal and industrial water and waste-water treatment. Highly trained process specialists combined with the ability to design, operate and commission water plants delivers real value to customers - a true cradle-to-grave service. UGL can undertake preliminary feasibility studies for any water or wastewater problem and are skilled in the operation and maintenance of water and waste-water infrastructure. This level of involvement, from inception to completion and commissioning, is a key factor differentiating UGL from the competition and guaranteeing clients great results, time after time. With award winning projects such as the Water Matters Alliance in Townsville and leading technology applications for waste-water treatment in places like North Head (Sydney) and Cleaner Seas in Cairns, experience in delivering alliance-based solutions successfully continues to be a driving force behind UGL’s success in this sector.

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TRANSPORT AND COMMUNICATIONS The Transport and Communications division is the leading provider of integrated systems for road and rail infrastructure, and for defence and communications. This specialisation ensures that UGL is a partner of choice in major mechanical and engineering projects around the FRXQWU\ ZKHUH WXQQHOV WUDIÀF management and control systems and telecommunications solutions are required. Acquisitions have strengthened design capability and today, UGL boasts a world-class communications business, exporting products across the globe. Innovative solutions - from steel smelting systems to level crossing solutions - are combined with proven delivery expertise in design, project management, procurement, system integration, commissioning and the application of advanced technologies. A maintenance and refurbishment capability completes the comprehensive service offering in this sector. UGL continues to demonstrate success in Transport and Communications with the TrackStar alliance and North South Bypass Tunnel in Queensland, where performance has resulted in further major project awards in the region, including the Brisbane Airport Link project.

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Subject here

And now back to the big picture… nation building after the GFC

The beguiling lure of the distant “vision on the hill” has seen many a traveller crash and burn along the road, laid low by unforeseen circumstances at their feet, while mesmerised by the vision of a bright shining future. The mother of all unforeseen circumstances, the global financial crisis, has seen many fellow travellers sustain a few injuries, whereas Australia has slipped through with just a bit of a stumble and a wobble. Indeed still the lucky country. Australia’s economy has performed better than the economies of most developed nations over the past 12 months. A report by global ratings agency Standard and Poor recognised the Australian economy’s resistance to recession, saying, “Australia has been the best performing developed economy in the world in recent years.” Australia was one of only three of the 33 IMF advanced economies that recorded growth in the year to September 2009. With the global dust storm settling, the big vision for Australia’s future may be getting a little clearer and perhaps looking a little different. In a world of rapidly shifting geopolitical realities, visionary nation building is now more needed than ever. We’ve done it before and it’s time to do it again. At the time of Federation, the most expensive capital works project in the new Commonwealth of Australia was to cost the nation more than 21 million pounds. The criticism from diverse quarters was unrelenting: it would never work, it would bankrupt the treasury, there would be corruption.

By Dan Stojanovich

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And now back to the big picture...nation building after the GFC

That project is still productive today. In the vastness that is Western Australia, engineer C. Y. O’Connor’s epic vision to pump water to the Kalgoorlie goldfields via a 600km pipeline from the Mundaring reservoir near Perth was considered by many to be a national folly. Even today there are people who would describe such a scheme as madness. It was the longest pipeline in the world at the time, with a series of steam-powered pumping stations pushing the water uphill to Coolgardie. Thereafter it flowed downhill to Kalgoorlie. The pipeline still operates today. The overland telegraph and the Snowy Mountains scheme were both projects where bold decision-makers took a stand and pressed the go button. Our engineers are up to the challenges, but the decisions to go ahead have to be made. And then ongoing political will is needed to ensure that it does

all keep happening. It requires a certain nation building social dynamic to make this sort of difference. While the government’s generally well-regarded stimulus package helped keep things afloat during the GFC, it also drew attention to the vital importance of infrastructure investment as an initiative with long-term consequences as well as immediate stimulatory benefits. The schools program has benefitted educational institutions across the country as well as many contractors and businesses. The National Broadband Network is a visionary nation building initiative that should be transformative, affecting every corner of the land. Extensive road and rail projects, social and defence housing, as well as community infrastructure have all received significant allocations with immediate benefits for employment and business. Importantly, these infrastructure initiatives will also have significant long-term social and economic benefits. The year 2010 should see the commencement and completion of many infrastructure projects. However, with Treasury’s Intergenerational Report projecting an Australian population of more than 35 million by 2050, there is more to be done, right across the board. To maintain our strong position in the global economy, a grand vision for infrastructure, continuously informed by a vigorous ongoing debate that results in real decisions, needs to take a place at front and centre of the national agenda. That agenda must respond to a global pressures as well as local imperatives. Plan as we might, there may be a future scenario where we can no longer control the situation, where the current political paradigms don’t quite cut it. History is full of surprises. For now, Australia is in a construction boom – recent figures suggest that the amount of work waiting to be done across residential, commercial and engineering sectors is worth around $133 billion, some three times that waiting to de done just five years ago.

The Overland Telegraph and The Snowy Mountains Scheme were both projects where bold decisionmakers took a stand... Our engineers are up to the challenges, but the decisions to go ahead have to be made... willpower is needed to ensure that it does all keep happening. It requires a certain nation building social dynamic to make this sort of difference.

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CLEM 7, Brisbane. (Image: Leighton)

But it is a little lopsided. Regions driven by the resource industry are where the action is. The Gorgon Gas project alone, in WA, is worth around $43 billion. We are again starting to see images in the media of hundreds of huge ships at anchor off Australian ports waiting to take on cargo, forced to wait as a result of local infrastructure incapacity. Resources industry-driven infrastructure is perhaps the easiest to tackle (if indeed “easiest” is a word that is at all appropriate in this context). The demand is certainly manifest. Although hardly simple or small, such infrastructure initiatives are often away from, or separate from major urban centres, they are often single purpose 48

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facilities, with clearly identifiable stakeholders with clear positions. Business cases are clear and the funding is generally easier to raise compared to major urban infrastructure projects. Not that these resources-driven projects are small and simple projects – the challenges are substantial, and the numbers are big – in terms of production, cost, and value. Just one of QR’s freight haulage contracts for yet another WA iron ore company, Gindalbie Metals, is estimated to run for 10 years at over 11 million tonnes per year, making it worth some $1.2 billion over the life of the contract. And that of course is just one of many projects. Beyond the resources industry, the list goes on. Significant transport projects like a second airport for Sydney and fast passenger and freight rail have been on the “to do” list for some time. There are also major national projects with national security implications – communications, transport, ports, defence – before we get to the notoriously complicated battleground of major urban centres, and all the challenges of a growing population. Inadequate public transport, congestion, pollution, water, power, public safety – there is a lot to be done. Funding is one challenge, and availability of labour is another, especially in the resources industry-driven states. Chamber of Commerce and Industry Western Australia (CCIWA) chief economist John Nicolaou told a conference in Perth recently that the biggest issue for business would be labour shortages. “The early signs are that labour scarcity will become a major issue for WA businesses,” he said, adding that three quarters of WA businesses already cited labour shortages as a concern, and that WA would need an additional 400,000 workers by 2017 to support huge projects such as Gorgon and Pluto, as well as the ongoing growth of the iron ore industry. About two-thirds of the growth was expected to come from overseas migration, but even so the state expects to be short about 150,000 workers. In February, federal Minister for Immigration and Citizenship, Chris Evans, announced that state- and territoryspecific migration plans would be developed as part of the changes to the skilled migration program. The CCIWA also wants government to prioritise the delivery of infrastructure projects so the public and private sectors are not competing for labour, or what it calls the “crowding out” effect. Timing public projects for when private activity eases would stabilise the economy and ensure that investment was maintained in the cases of activity in the private sector dropping off. There is much about Australian infrastructure and our standards of living that makes us very fortunate indeed to live in Australia. But the challenges we face are substantial. Having survived the GFC, long-term challenges remain. Better infrastructure will help us better meet those challenges. Infrastructure is and will remain a key marker of our civilisation. Creating it will both test the nation, and enhance it immeasurably.

By Pru Sanderson, Chief Executive Officer VicUrban

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Australia’s cities are growing and demographic profiles are changing. Victoria is responding with policies and initiatives aimed at maintaining its leadership in liveability and affordability. The Victorian Government’s centrepiece Melbourne @ 5 Million policy calls for 315,000 new dwellings in established areas and 280,000 in growth areas. As the Victorian Government’s sustainable urban development agency, VicUrban is responding to Melbourne’s housing needs by developing projects in existing and new suburbs that achieve higher average densities. Notwithstanding VicUrban’s activities to deliver these policy targets, achieving the required mix of new housing in both established and growth areas requires new development approaches. There is currently much discussion about how best to optimise the relationship between more efficient land use and transport services. Among others, two distinctive schools of thought have emerged. One argues that high-density development along transport corridors is the best option for accommodating population growth in our existing established suburb areas. Another school of thought is that a number of neighbourhood hubs distributed across our major cities will

VicUrban at Docklands.

major cities will provide nodes of higher density mixed use activity with a far better liveability outcome. This will result in the formation of population clusters that support highly patronised public transport services. Both models (linear and nodal) have points of merit and are appropriate in certain locations, however VicUrban cautions against city development that assumes proximity to transport is the only amenity benefit of value. Access to transport is only one of many ingredients that combine to determine a city’s liveability. As we build our cities to accommodate population growth we must find ways to deliver higher average densities without trading off space, convenience and amenity – the key drivers of liveability.

This requires a comprehensive planning approach. VicUrban’s particular point of interest is how best to achieve higher average densities by creating urban villages offering a variety of housing choices, jobs, services, transport and open space. Understanding the challenge The higher average density required under Melbourne @ 5 Million has not yet been widely adopted by private developers. VicUrban has a role to play in demonstrating how key infill sites and new suburbs can accommodate more homes, remain in tune with an area’s existing character and offer proximity to jobs, services and transport. Land use strategies and transport planning must be part of the same conversation; how do we accommodate

more people within existing suburbs serviced by existing infrastructure, without compromising our cherished liveability standards? Some are answering this question by calling for as-of-right medium to highdensity on sites fronting all transport corridors. There are said to be approximately 12,000 such sites along Melbourne’s tramlines and approximately 22,000 such sites along priority bus routes. This model would provide a very significant number of new dwellings and probably create viable conditions for colocated businesses. Unfortunately, this development model assumes that transport is the most important amenity benefit, more often than not at the exclusion of other place characteristics that define liveability. EDITION 1

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Row after row of medium to highrise apartment towers are doomed to fail because they leave no room for people to meet, interact and enjoy nearby amenities. This one size fits all development model would likely result in linear neighborhoods filled with new dwellings that become places to sleep rather than places to live. In our efforts to create more compact, sustainable and affordable cities we need to deliver places where people gather around things that matter; such as local jobs, community facilities, open space and transport. There are certainly some locations along existing transport corridors that suit medium to high-rise development. These locations are typically characterised by multiple sources of local amenity – of which transport is only one – fostering a diversity of residential tenure. Diversity of tenure is an important ingredient in the social fabric of our suburbs. A neighbourhood encompassing an interspersed mix of owner-occupiers and tenants is far more desirable than residential pockets exclusively comprising one or the other. Melbourne’s experience is that apartment-dwelling owner-occupiers are more prevalent in locations offering proximity to open space, as well as transport and other attributes. Conversely, apartments constructed on transport thoroughfares but lacking other nearby amenities are most often the domain of investors. Denser development in locations combining transport access with other place attributes will encourage more diverse and resilient communities. For these reasons VicUrban does not support as-of-right medium and highdensity development in a linear model along existing transport corridors. A more holistic approach is needed to deliver both a greater density of dwellings and a greater preparedness of owner-occupiers to live in these dwellings. 52

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Diversity of tenure is an important ingredient in the social fabric of our suburbs. A neighbourhood encompassing an interspersed mix of owner-occupiers and tenants is far more desirable than residential pockets exclusively comprising one or the other.

Achieving higher densities and delivering increased liveability

VicUrban at Maribyrnong.

Urban infill VicUrban believes a daisy chain of urban villages well served by transport infrastructure represents the optimal approach to accommodating growth within existing suburbs. These urban villages would centre on high-density nodes, encompassing job-creating retail, commercial and service offerings. The nodes would be surrounded by a loose ring of medium- to high-density townhouses and apartments, followed by more compact traditional homes. The advantage of the urban village approach – as opposed to the model of linear development along transport

corridors – is that it allows existing locations to accommodate more people while remaining responsive to the existing local character. It also leaves room for the spaces and places that will offset the reduction in private open space. In this way urban infill and redevelopment will deliver appropriately mixed densities, rather than the likely destruction of places people value under the linear development model. Within our existing cities, such as Melbourne, we already have nodes of high-density activity that are typically well serviced by retail, services, amenities and transport. These nodes and immediate

surrounds are logical locations for the creation of townhouse and apartment-style living options. There are some barriers to densification within existing suburbs, not least of which is the inconsistency in standards used by local governments and service authorities when assessing planning permit applications. These conflicting standards often result in permit assessment processes that are time consuming, overly complicated, costly and lead to uncertain outcomes. VicUrban, and no doubt many private developers, would welcome action to create greater consistency in the standards local governments and service authorities use to assess planning EDITION 1

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At the heart of successful place making is the understanding – to which VicUrban wholeheartedly subscribes that no single ingredient can create a great place... 54

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Urban growth In growth areas we need to emulate the urban villages that have formed in our cities’ inner and middle suburbs. This requires more efficient use of land by increasing average densities in line with our changing demographics. Large gardens will still be in the mix for people who want a big backyard, but so too will be an increasing presence of smaller housing types for people whose lifestyles don’t suit or require large private spaces. For example, it is anticipated that by 2049 only 27 per cent of Melbourne households will be occupied by twoparent families. More than half of future households will be home to only one or two people. Forecast household composition trends suggest we will see an increasing need for more compact and affordable lifestyle options that are well connected to transport, places of employment, public open space and community infrastructure. People are spending more time and creating more carbon pollution travelling from outer suburbs to places of employment. For example, the ratio of jobs to people in Melbourne’s southeast is 2:10 compared to the Melbourne average of 4:10. Greenhouse gas pollution is 35 per cent higher per trip in the outer suburbs than inner Melbourne suburbs. The solution to these growth area liveability and environmental challenges is to deliver new nodes of high-density mixeduse activity. Increasing the proximity of jobs to homes, combined with accessible public transport, will significantly reduce carbon pollution while increasing liveability in urban growth areas. The urban village model of growth area development, as opposed to ‘cut and carve’ residential subdivisions, will assist in consolidating commuter demand into key growth locations. This has the potential to improve transport efficiency as infrastructure and services in growth areas can then be planned to service areas of higher population concentration.

The place-making paradigm In responding to Australia’s growing population we must strive to create places that stand the test of time. This is the essence of place-making; an emerging discipline that draws together physical, social and economic ingredients to create places in which people will want to live, work, learn and socialise. At the heart of successful place making is the understanding – to which VicUrban wholeheartedly subscribes - that no single ingredient can create a great place. Linking transport planning and services with new infill and growth area population centres is both logical and commendable. We must however ensure that the practical delivery of this approach does not result in new homes that are connected to transport but barren of other valued place attributes. This is the likely outcome of development approaches that are predicated on the assumption that high-density living along transport corridors is the only answer to fitting more people into suburbs. A daisy chain of urban villages linked by transport will build on and create efficient hubs of jobs, homes and services within denser cities. This is the comprehensive approach we must take as we build our cities to accommodate a growing population.

COMPANY FOCUS

DEVELOPING SUSTAINABLE INFRASTRUCTURE: CHANGING THE GAME BY DR MICHAEL SHIRLEY Failure to address a future of fragile and inadequate urban infrastructure in the midst of global trends of population migration and climate change will impact the lives of billions of people. To avoid this outcome, an investment of US$40 trillion will be required over the next 20 years(1) to modernise and expand the water, electricity and transportation systems of cities around the world. In Australia, investment for the same purpose exceeds A$700 billion to 2020(2). Key to meeting this challenge is to work smarter and sooner. The strain on our cities is ever present. Massive urban migration is underway with 60% of our global population predicted to be urban dwellers by 2030. In Australia, populations of 7 million by the middle of this century are now predicted for Sydney and Melbourne. Clearly we must transform our cities, responding to immediate challenges like drought, and building resilience to climate change, while also achieving major improvements in sustainability. And as “hot spots” of consumption, production and waste generation, cities have an unparalleled potential to increase the energy efficiency and sustainability of our society as a whole. For Australia, our challenge is particularly complex including restraining urban sprawl, and in turn, responding to increased urban density and delivering essential services such as transport and social infrastructure. Immediate pressures that demand our attention are: • Maintaining the security of water supply for human consumption and environmental uses. • Integrating significant sources of renewable energy into existing networks. • Improving the energy efficiency of existing building stock. • Improving the effectiveness of urban public transport systems. Transforming cities into a sustainable condition – to provide the greatest benefit at least cost in the shortest possible time – requires new, fresh thinking.

Changing the game The central question in relation to the sustainability of cities is – can we adapt our thinking, relationships and behaviours to actually bring about what needs to be achieved? By this we mean: • Building on the collaboration within government and with the private sector and community. • Achieving inter-institutional and jurisdictional collaboration to integrate planning, infrastructure delivery and operations. • Testing and quantifying integrated design alternatives, particularly the macro infrastructure that shapes the form and function of cities. • Developing new ways of pricing, ﬁnancing, procuring and delivering infrastructure and public services. • Factoring the intrinsic value of the natural environment into these decisions so that core social needs are met in innovative, cost effective and convenient ways. • Streamlining and accelerating consultation and approvals for sustainable infrastructure. At Sinclair Knight Merz we are uniquely placed to work with government and the private sector in developing and delivering sustainable infrastructure for our cities. We possess a strong reputation across critical disciplines such as transport, water, power and buildings – the key elements that we now need to address together in a truly integrated way. SKM brings the fresh thinking needed in both advisory and planning assignments, and through innovative design solutions. Our collective task is signiﬁcant and we need to start now – time is a nonrenewable resource. Together we can achieve positive and enduring outcomes.

DR MICHAEL SHIRLEY General Manager, Buildings and Infrastructure, SKM

Dr Michael Shirley is General Manager, Buildings & Infrastructure at leading engineering, sciences and project delivery ﬁrm Sinclair Knight Merz.

[1] Booz+Co (2007) “Lights! Water! Motion!” (by V. Doshi, G. Schulman and D. Gabaldon), strategy+business, Issue 46, Spring 2007 [2] IPA, ACA, AiG (2008) Submission to Infrastructure Australia Discussion Paper 2: Public Private Partnerships, October 2008, Infrastructure Partnerships Australia, Australian Constructors Association, Australian Industry Group.

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It’s time to get serious about Australia’s cities Mark Birrell

Australia’s cities are at a crossroads. In May, a Mercer survey mentioned both Sydney and Melbourne among the world’s most desirable places to live. Yet it is apparent that without real reform toward targeted, sustained and well-planned investments in the next generation of infrastructure, the desirability of Australia’s major cities will be compromised. 58

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Our cities are under extraordinary pressure because of often inconsistent planning and an historic absence of integrated infrastructure delivery, twinned with unprecedented growth pressures. Treasury’s recent Intergenerational Report signals that Australia will need to house more than 36 million people in just 40 years’ time. Modelling by Infrastructure Partnerships Australia suggests that 72 per cent of national population growth by 2050 will occur in Australia’s capital cities. Meanwhile, Monash University’s Centre for Population and Urban Research finds that Australia is more likely to be looking at a population exceeding 42 million people, based on recent growth trends. Whichever figure proves to be most accurate, it is generally accepted that Australia is facing a record increase in its population. There is also a broad consensus that Australia’s capital cities will house the lion’s share of this growth. More people will inevitably mean more commuters, more freight and a greater demand on public services. If we are going to ensure a high quality of life for Australians and avoid endless urban sprawl or social disconnection, it will also mean enhanced planning that fully considers density, transport infrastructure and the delivery of social assets and community infrastructure – like schools, hospitals and cultural spaces – in a single, uniting, strategic infrastructure plan for each city.

It’s time to get serious about Australia’s cities

Modelling by Infrastructure Partnerships Australia suggests that 72 per cent of national population growth by 2050 will occur in Australia’s capital cities.

Capital cities such as Perth are predicted to undergo significant population growth. (Photo: Larry Pitt Photography)

Australia Population, 1850-2050 Source: IBISWorld (2008)

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Rail projects around the country are looking to increase freight and transport capacity.

These challenges come on top of an existing infrastructure shortfall estimated at more than $700 billion. Treasury Secretary Ken Henry recently told a Lowy Institute conference that “if we doubled the annual investment typically undertaken in economic and social infrastructure, it would still take over eight years to close these suggested infrastructure gaps”. Already, Australia faces mounting recurrent urban congestion costs of more than $10 billion a year. Demand across Australia’s road and freight networks will double over the next decade, and freight demand will treble to 1,540 billion tonne kilometres by 2050. These pressures mean we need to plan seriously now for the kinds of cities we want in the short, medium and longer term. It is time to consider new ways to make our cities more productive, efficient, liveable, connected and sustainable. Fortunately, Australia’s policymakers are awake to many of these challenges. 60

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Demand across Australia’s road and freight networks will double over the next decade, and freight demand will treble to 1,540 billion tonne kilometres by 2050.

Last year, Prime Minister Kevin Rudd and the nation’s premiers agreed to a new approach predicated on worldclass experience and global best practice in planning for the future of our urban domain. A cooperative COAG-led process that drives best practice planning will equip Australia to resolve many of its common national urban challenges. These moves are particularly welcome because they elevate the strategic planning of Australia’s major cities to a key focus of Australia’s first ministers. Currently, the quality of existing long-term infrastructure planning across the states is highly variable. National principles reflecting global and national best practice could help all of Australia’s states to start to get it right on infrastructure. Linking national infrastructure funding to nationally agreed reform presents a positive option which was successful in the context of the National Competition Policies in the 1990s.

It’s time to get serious about Australia’s cities

Of course Canberra must limit itself to high-level planning principles. States will always have the primary responsibility for state infrastructure and planning decisions – but common principles are a sensible step forward. A nationally agreed set of principles that begin to integrally link land use, urban density and environmental outcomes to the development of supporting transport, utilities and social infrastructure will be very important to address growth pressures. But recognition of the scale of the problem will only get us part of the way there. This focus from governments of all levels must be matched by a willingness to drive hard decisions and undertake sustained investment. The 2009/10 federal budget made landmark investments in urban rail projects. Done well, this rail renaissance will deliver important and transformational effects on the functionality of Australia’s cities. South East Queensland is enjoying new investment in rail infrastructure. Soon, the Gold Coast will be home to a new light rail network, linking Helensvale in the north with Broadbeach through Surfers Paradise. The project – supported by local, state and federal governments – will eventually reach as far south as Coolangatta Airport. Plans for a major expansion of Brisbane’s metropolitan rail system are underway, with detailed feasibility planning well advanced for the important Cross River Rail project, a new northsouth rail line for the inner city, including a tunnel under the Brisbane River and new underground inner city stations. Melbourne too is planning for its Metro rail tunnel project, which would massively increase capacity and offer the capacity to evolve the operation of that city’s urban rail network, while Perth is soon to enjoy the fruits of a nationally funded project to sink the rail line and connect the Northbridge precinct to the CBD.

But recognition of the scale of the problem will only get us part of the way there. This focus from governments of all levels must be matched by a willingness to drive hard decisions and undertake sustained investment. With state balance sheets heavily impacted by the global financial crisis, there is a significant role for the Commonwealth in helping to deliver the next generation in public transport projects. Put simply, the scale of many of the most important projects is now beyond the budget of any state – much in the same way that the many costs of urban congestion also extend across state boundaries. But while the 2009-10 budget set aside nearly half its entire infrastructure allocation of $8.4 billion for urban rail projects, this year’s budget was strikingly modest by comparison. In a federal election year, industry and governments alike hope for more detail about how the Commonwealth will partner with the states for better cities, what investment will be available for Infrastructure Australia’s national priority projects, and how Australia can adapt its infrastructure market to better harness the knowledge and capital of the private sector. After all, our productivity and liveability are at stake. Mark Birrell, a lawyer and company director, is the Chairman of Infrastructure Partnerships Australia and the national leader of Minter Ellison’s infrastructure practice.

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COMPANY FOCUS

CAPELLA CAPITAL – PARTNERING TO DELIVER QUALITY INFRASTRUCTURE PROJECTS

The past decade has seen a signiﬁcant increase in the number of infrastructure projects being delivered through Public Private Partnerships (PPPs) and Australia has been at the forefront of this curve. Australian Infrastructure Review’s editorial team sat down with John Bowyer, CEO of Capella Capital, a partnership with Lend Lease and one of Australia’s most experienced PPP origination businesses, to understand the value of this delivery model and Capella Capital’s unique offering to this sector.

Why do you think PPPs are an increasingly popular delivery model for Australian public projects? PPPs have delivered more reliable infrastructure assets, both in terms of construction and service delivery, providing Governments with better value for money than projects delivered by traditional procurement methods. Governments also like the more rigorous procurement process and the certainty of cashﬂow that PPPs deliver. PPPs have been successfully delivered in almost all states and territories in Australia and we are now seeing one of the largest pipelines since PPP programmes began. The delivery model can be adapted to suit the differing needs of Governments in various asset classes from social infrastructure such as schools and hospitals to roads, rail, rolling stock and water.

debt and equity arrangement, project development and into long term ownership and asset management. We also provide high quality strategic and ﬁnancial advice to select clients. Our initial focus will primarily be on the PPP infrastructure sector but we will also look to promote our strong track record in other infrastructure areas such as transport, water and renewables. The team has recently closed the $323 million South Australian New Schools PPP Project as part of the Pinnacle Education Consortium. We are pleased with our initial successes and we look forward to more in the coming year or so.

What are the beneﬁts of the Lend Lease relationship? Lend Lease’s support of Capella Capital, a cornerstone of which is the provision of equity to our projects, allows us to sponsor and arrange PPP projects across Australasia. Lend Lease is a highly respected global property solutions provider with a strong reputation as an equity investor, fund manager and asset manager – they are in this business for the long term. For Lend Lease, Capella Capital is an important strategic step in broadening its existing global PPP infrastructure platform and funds management capability.

What is Capella Capital’s focus?

In your experience, what is the most important factor contributing to the success of PPPs?

Capella Capital provides a fully integrated solution – from project inception and ﬁnancial and legal structuring, through to

The Capella Capital team has partnered with most governments, market leading construction contractors, facilities managers

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JOHN BOWYER CEO, Capella Capital Pty Limited

and debt and equity providers in Australia over the last 10 years that the team has been together. Strong relationships are the foundation of our business and the PPP model. It is through the strength of these partnerships that successful projects are able to be delivered. The best evidence of our success is the support Capella Capital has received from all sectors of the market as it continues to establish its business. In particular, the support from governments and our key consortium partners has been greatly appreciated, and we are committed to delivering many successful projects with our partners over the coming years. www.capellacapital.com.au

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Australia’s 2050 challenge: what Intergenerational Report Three (IGR3) means for infrastructure in Australia By Brian Haratsis, CEO Macroplan Australia, Fellow of the Victorian Planning & Environment Law Association

Australia’s 2050 challenge: what Intergenerational Report Three (IGR3) means for infrastructure in Australia

Over recent decades, investment in infrastructure-related industries has closely correlated with population growth. Table A: Infrastructure and population growth 7.0

Per cent

Per cent of GDP

2.5

6.0

2.1

5.0

1.7

4.0

1.3

3.0

0.9

0.5 2.0 1972-73 1976-77 1980-81 1984-85 1988-89 1992-93 1996-97 2000-01 2004-05 2008-09 Investment in infrastructure-related industries (LHS) Working age (15-64) population growth (RHS) Population growth (RHS) Note: Excludes inventory investment. Infrastructure-related industries are electricity, gas, water and waste services, transport, postal and warehousing and information media and telecommunications. Sourec: ABS cat. no. 3201.0 and ABS cat. no. 5204.0.

Cities require less fixed infrastructure per capita relative to rural areas because of the economies of scale that accompany infrastructure networks in cities. Still, increasing population density can lead to significant congestion costs that offset the benefits of these economies of scale. The population projections in the IGR3 are no cause for concern. Over the past 40 years, the population of Australia has increased by 78 per cent. Between 1970 to 2010, big-ticket infrastructure included new international airports, freeway networks virtually built from scratch, new ports, major secondary and tertiary education expansion plus major new hospitals or extensions in every state.

Table B: Infrastructure and population growth

Age range 1970 2010 Population as at 30 June (millions of people) 0-14 3.6 4.2 15-64 7.9 15.0 65-84 1.0 2.6 85 and over 0.1 0.4 Total 12.5 22.2 Percentage of total population 0-14 28.8 19.1 15-64 62.8 67.4 65-84 7.8 11.7 85 and over 0.5 1.8 Source: ABS cat. no. 3105.0.65.001 (2008) and Treasury projections.

2020

2030

2040

2050

4.9 16.6 3.7 0.5 25.7

5.4 18.2 4.8 0.8 29.2

5.7 20.0 5.6 1.3 32.6

6.2 21.6 6.3 1.8 35.9

19.0 64.7 14.3 2.1

18.3 62.4 16.6 2.7

17.4 61.3 17.2 4.0

17.2 60.2 17.6 5.1

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Australia’s 2050 challenge: what Intergenerational Report Three (IGR3) means for infrastructure in Australia

The big difference between the past 40 years and the next 40 is that the number of people aged 65 and over will increase by 5.1 million, where between 1970 to 2010 this group increased by only 1.9 million. The increase in the number of people aged 65 years and over is enough to fill an entire Sydney metropolitan area (current population of 4.5 million). IG3 argues that the key reason to invest in and reform infrastructure markets is to drive productivity. In particular the report points out that: - An International Monetary Fund study found that increasing public infrastructure stock by one per cent increases output by around 0.2 per cent; and - OECD research indicates that investment in physical infrastructure can increase long-term economic output more than other types of development; - The Productivity Commission estimated that achieving best practice in energy and transport infrastructure could increase the size of Australia’s GDP by around two per cent. So, what are we waiting for? Why insist that infrastructure spend should be substantially increased? What are the hurdles? The Rudd Government is spending money but not on the scale required. The government invested $22 billion in the 2009-10 budget to improve Australia’s core infrastructure. This included $8.5 billion on expanding Australia’s land transport networks targeting roads, rail and ports, including: - $4.6 billion on improving metropolitan rail networks in six major cities: Melbourne, Sydney, Brisbane, Perth, Adelaide and the Gold Coast; - $3.4 billion on improving the quality and efficiency of Australia’s road network, including a number of strategic investments in Network 1 – 66

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Australia’s busiest freight route stretching along the eastern seaboard between Melbourne and Cairns; $389 million towards developing, constructing and expanding critical port infrastructure in Western Australia and the Northern Territory. This investment in Australia’s gateways will play an important role in driving economic growth into the future – improving access for Australia’s mineral resources and commodities to global markets; the National Broadband Network (NBN), which will provide high speed broadband to meet the growing need for advanced telecommunications services over the long term, and aid in the delivery of services in areas such as education and health.

Reform is required on infrastructure planning (through COAG), town planning, financial regulation, and by adopting a national approach to public private partnerships. There is still no effective national market for energy and water, which have limited investment appeal. The proposed Emissions Trading Scheme has been a major source of uncertainty for energy investors. COAG’s proposed seamless National Economy National Partnership Agreement, seeking a more efficient system of environmental assessment and approval, has gained little real traction. Conclusion The IGR3 set out a clear case for major infrastructure investment but is likely to have understated the required rate of growth in expenditure significantly due to the infrastructure cost of health and ageing, and also the size of the economy in 2050. The regulatory framework shaping and guiding infrastructure investment is outmoded.

Combining commercial know-how with a deep service ethos. We improve services by managing people, processes, technology and assets more effectively. Our strategic advice comes from hands-on experience. We advise policy makers, design innovative solutions, integrate systems and – most of all – deliver front-line services that make a positive difference to customers and communities. Advise | Design | Integrate | Deliver

www.serco-ap.com.au

COMPANY FOCUS

TRANSFIELD SERVICES – MANAGING INFRASTRUCTURE IN AUSTRALIA The Australian Rail Track Corporation’s (ARTC) Parkes to Cootamundra rail line running through central west NSW is relatively small (only 201 kilometres) but it is an essential asset for the companies and towns that rely on it. In early 2009, the ARTC was given the funding as part of the Federal Government’s Stimulus Plan to replace wooden sleepers with 301,000 concrete sleepers. The project would deliver a more reliable line with a faster track speed as concrete sleepers hold rail in place during extremely hot days, unlike wooden sleepers which tend to buckle. The project was fast-tracked and scheduled for completion in just nine months after the contract was awarded to Transfield Services. The team was given three months to mobilise before starting a six-month period of laying 3,000 sleepers a day. In December 2009, the last sleeper was laid ahead of time and within budget. The ‘Transfield’ name dates back to 1956 and is synonymous with projects such as the Sydney Harbour Tunnel and Sydney and Brisbane airport rail links. Transfield Services was originally Transfield Holdings’ operations and maintenance division before it was listed on the Australian Securities Exchange in 2001. Transfield Services Chairman and Transfield alumni, Tony Shepherd, received the Australian Constructors Association’s Services to Construction Award late last year. Transfield Services CEO Australia and New Zealand, Mr Bruce James, said: “We are an operations and maintenance company at our

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core but we have a strong reputation for being involved in infrastructure projects from start-up to long-term asset management.” “As managing contractor or alliance contractor for major public sector funded infrastructure, we focus on the long-term operations and maintenance from the very beginning of the project.” In Australia, Transﬁeld Services operates and maintains more than 4,500 kilometres of rail infrastructure, provides services to more than 6,000 kilometres of irrigation infrastructure and operates and maintains major tollways, tunnels and road networks in NSW, Tasmania, Western Australia and Victoria. “Our water business is involved in projects such as the world’s largest and fastest constructed channel automation project the Northern Victorian Irrigation Renewal Project (NVIRP). “As part of the FutureFlow alliance with Comdain, Sinclair Knight Merz and Goulburn-Murray Water, we installed 1,516 FlumeGates within one winter works period when the previous largest number in Australia was 271.” The entire project was delivered in 18 months, with the team working along a channel network, that if laid out end-to-end, would run from Sydney to Perth and half way back again. The alliance recently won the Engineers Australia Award in Victoria 2009 for Infrastructure Projects over $20 million and the Australian Water Association Victorian Division’s Infrastructure Innovation Award for their work on NVIRP. For more information go to www.transﬁeldservices.com

You might not see everything that we do, but you would know if we stopped doing them... water

oil and gas

power

public transport

transport infrastructure

defence

social infrastructure

telecommunications

mining and process

...and more.

...because we deliver essential services and manage infrastructure globally Go to

www.transfieldservices.com

Long Term Forecast predicts build-up to boom later this decade The Australian economy is on the threshold of a major cyclical upswing. Growth will pick up speed over the next two years and build into a boom later this decade, driven by rolling investment cycles, says leading economic forecaster and industry analyst, BIS Shrapnel. BIS Shrapnel’s Long Term Forecasts, February 2010 update reports that the economy currently has enough spare capacity and slack in the labour markets to cater for the initial phase of the upswing without exciting either demand or costside pressures. However, the forecaster warns that problems will occur in three to four years’ time when all the major construction cycles synchronise and inflationary pressures re-emerge, leading to higher interest rates. BIS Shrapnel was one of the few forecasters who, in the first six months of last year, consistently predicted that Australia would not suffer a recession. “We are now well and truly into recovery from what turned out to be a modest downturn – and not a recession as other forecasters predicted at this time last year,” says BIS Shrapnel senior economist Richard Robinson. “But it’s now time to look forward, not backward. We’re into a rebuild phase, rather than a rebound. “Two years is a long time in investment markets. I know the Global Financial Crisis (GFC) is still front of mind, but it won’t take long before we forget,” he adds. “Remember the ‘disastrous’ sharemarket crash of October 1987, which was quickly followed by the property boom of 1989, which preceded the recession ‘we 70

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had to have’. The build up this time will be slower, but it’s the current caution in risk averse debt and equity markets that is setting us up for the stock and capacity shortages that will underwrite the next boom later this decade.” Initially, housing upswing to become the key driver of growth “Investment, particularly the construction side of it, is the primary driver of growth in the economy. The next phase of investment will underwrite growth in the economy, but the timing and logic of each construction cycle is different, with varying knock-on effects to different sectors and across the states,” says Robinson. Currently public sector investment is the strongest of the investment sectors, offsetting further declines in business investment over 2010, but activity will peak this year. The schools program has probably already peaked, health-related construction is still increasing, while the social housing program is behind schedule. The infrastructure works under the ‘nation building’ program will ramp up this year, but this will only partially replace a number of large state-funded projects finishing soon. After 2010, BIS Shrapnel forecasts that public investment will decline as the federal and state governments attempt to rein in deficits, but the real cuts to government expenditure won’t occur until after the federal election due later this year.

Long Term Forecast predicts boom

By 2012/13 BIS Shrapnel expects overall business investment and housing investment to be booming, partially offset by further steep declines in public investment. declines in public investment,” says Robinson. “Although public investment probably needs to ease back to make room for private sector spending, we still need to build a lot more infrastructure. The cutbacks to infrastructure and education spending over the decade to the mid-2000s caused severe bottlenecks, capacity constraints and lowered productivity growth. We fear that the really worthwhile public infrastructure – that is, the capital works that underwrite longrun productivity and the economy’s growth potential – will again be cut now, ultimately realising the same problems that occurred pre-GFC. With this likely to happen, then the government’s two per cent productivity target just looks like a vain hope.”

“From 2010, housing construction will take over from waning public spending as the key driver of growth. Initially spurred on by a combination of first home owner/ builder grants and low interest rates, this upswing will gather momentum into a boom by 2012. Despite lingering affordability problems, healthy consumer confidence, high rents, a chronic undersupply and rising immigration will continue to boost first home owner, investor and upgrader demand. But the question is: how long will the housing boom continue in the face of rising interest rates?” asks Robinson. Business investment booming by 2012/13, but we still need more public infrastructure Next year, BIS Shrapnel expects the next round of mining projects to get underway, with the rebound in commodity prices and a rosier outlook for the global economy

providing the impetus. Plant and equipment investment should also pick up later this year, as businesses, increasingly confident about the outlook and able to access finance, take advantage of the high Australian dollar to buy ‘cheap’ imported equipment. Then, sector-by-sector, private nonresidential building and infrastructure construction will increase as equity and debt finance recover alongside leasing markets. Indeed, there may be some upside to both business equipment and construction capital expenditure in 2010/11, particularly if finance becomes available and a number of projects – which were in an advanced state of pre-construction prior to the GFC – are fasttracked. By 2012/13 BIS Shrapnel expects overall business investment and housing investment to be booming, partially offset by further steep declines in public investment. “We have an issue with the expected

Consumer spending slower to ramp up, and no tax cuts means only moderate growth In the near term, consumer spending will be constrained by slow growth in household disposable income, due to less full-time work, weaker growth in wages, dismal profits and dividends, a lack of tax cuts this year and higher interest rates pushing up mortgage repayments. Consumer confidence is high, but households still remain cautious about increasing personal debt. But as the recovery builds, employees will increasingly switch back to full-time work, wages growth will accelerate and households will again start to use credit to fuel spending. Nevertheless, BIS Shrapnel says Australia won’t see retail spending growth return to the pre-GFC levels. Tax cuts will be off the agenda until the budget returns to surplus, and this will tend to moderate household spending for a few years, according to the forecaster.

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Long Term Forecast predicts boom

But the higher dollar is damaging tradeables sectors and overall GDP “It’s not all good news,” warns Robinson. “The high Australian dollar is damaging the competitiveness and viability of domestically produced tradeables industries, particularly manufacturing, tourism and other tradeable services. This not only acts as a constraint on those exports, but more significantly sucks in more imports. With import volumes forecast to outpace stronger export volumes in the medium term, there will be a negative external contribution to GDP. This will act to keep GDP below four per cent in 2011/12 and 2012/13, despite booming domestic demand.” On the other hand, the mining sector and many of the non-tradeable sectors such as retailing, wholesale trade, transport, health and financial and professional services, are already starting to strengthen and have good prospects over the medium term. Inflation not a problem now, but will be later, and that means further rate rises The strengthening in total investment, exports and the overall economy is expected to lead to a marked strengthening in employment and consumer spending

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from 2011/12. With the economy in fullswing, BIS expects capacity constraints and skilled labour shortages to emerge, eventually fuelling inflationary pressure. The 2008/09 downturn led to a sharp drop in capacity utilisation, excess production capacity and considerable slack in labour markets as employees switched from full-time to part-time. In the initial stages of the upswing, much of the increase in the output of goods and services will come from higher utilisation of spare production capacity and currently underutilised labour. “This will be the golden age – rising capacity utilisation will realise a cyclical increase in productivity, lower unit costs, lower inflation and higher profits and real wages,” says Robinson. “However, because the Australian economy entered the downturn with little excess capacity and then only experienced a shallow downturn, it will take less time for capacity constraints and inflationary pressures to re-emerge,” the author says. “We will then see the Reserve Bank hike rates from neutral to contractionary, meaning a cash rate over six per cent and the housing variable toward nine per cent before the next episode is over.” (source: BIS Shrapnel)

This will be the golden age – rising capacity utilisation will realise a cyclical increase in productivity, lower unit costs, lower inflation and higher profits and real wages...

COMPANY FOCUS

PICTURED: 6-Star Green Star Durack II Ofﬁce Complex Perth Australia

AECOM At AECOM, we thrive on doing things differently wherever we are across Australia, New Zealand and around the world in over 100 countries. In Australia and New Zealand, we are 3,800 people in over 20 ofﬁces. Globally, we are 45,000. Together we bring projects to life in the cities, communities and places that connect us, the industries that support us and the major infrastructure that moves us. This takes vision and insight blended with pragmatism. Maunsell, EDAW, ENSR and Bassett evolving to AECOM helps us to think more innovatively and design more intelligently to bring clients’ projects to life more reliably. As one AECOM, it’s easier for clients to connect to more specialists delivering more services and resources across more projects in more places. Working together and drawing on local and global teams we collaborate, innovate and create structures, places and spaces that enhance and sustain the world’s built, natural and social environments to create a better world in which to work and live. Our teams in Australia and New Zealand work in partnership with clients and AECOM engineers, architects, scientists and project managers to ﬁnd and deliver answers that work across: • Architecture • Building Engineering • Design + Planning • Economics • Energy • Environment • Government • Infrastructure Services • Mining • Program Management • Transportation • Water

Together, we work to drive continued client success during and after project completion. With more than 80 years of experience in Australia and New Zealand, we have developed a strong track record that includes: • The Inner Northern Busway (Brisbane, Australia) • Rail Electriﬁcation (Auckland, New Zealand) • Port River Expressway (Adelaide, Australia) • North Parkes Mine (Parkes, Australia) • 2 Victoria Avenue (Perth, Western Australia) • Padma Bridge (Dhaka, Bangladesh) • Wayang Windu Geothermal Project (West Java, Indonesia) • Browse LNG Precinct Environment Assessment (James Price Point, Western Australia) • Garnaut Climate Change Review (Canberra, Australia) • Desalination Plant (Sydney, Australia) • Pipeline Alliance (Toowoomba, Australia) • Broadwater Parklands (Southport, Australia) • Hunter Economic Zone (Hunter Valley, Australia) • Royal Women’s Hospital (Melbourne, Australia) • Tauranga Hospital (Tauranga, New Zealand) AECOM is a global provider of professional technical and management support services and a leader in all of the key markets that it serves. We provide a blend of global reach, local knowledge, innovation, and collaborative technical excellence in delivering solutions to clients’ challenges. A Fortune 500 company, AECOM had annual revenue in excess of US$6.1 billion during its ﬁscal year 2009. As your world faces more complex challenges, the AECOM world has your solution.

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BRIFEN WIRE ROPE SAFETY FENCE UP TO THE CHALLENGE (This article courtesy Anthony Schmidt of EPC, originally appeared in ‘Highway Engineering in Australia’)

Building on its success throughout Australia and internationally, Brifen’s high performance TL4 Wire Rope Safety Fence (WRSF) continues to go from strength to strength, following a number of major fence installations along the newly upgraded Bruce Highway at Caboolture north of Brisbane. Incorporating 40 new verge and median fences, totalling some 29,000 metres in length, the new Bruce Highway fences represent the latest chapter in Brifen’s remarkable Australian success story. Interestingly, while the majority of safety barrier installations tend to focus on one primary safety issue – such as protecting vehicles from a steep batter verge, preventing collisions with objects near the carriageway, preventing ‘run off road’ incidents, or preventing median crossover incidents – the safety barrier challenge along the newly upgraded Bruce Highway at Caboolture must surely be considered as ‘…one with the lot’. Together with the challenge of steep non-transversable batters (with slopes of up to 1V:3H) along the outside edge of sections of both carriageways, the Bruce Highway design also incorporates a deep ‘Vshaped’ median with batter slopes of up to 1V:3H for drainage requirements. In addition, the fact that the major project section between Uhlmann Road and Caboolture involves widening the highway from four to six lanes in a transport corridor with a limited width meant that in several sections, the large concrete noise abatement walls had to be constructed in close proximity to the carriageway. As such, the design also called for the installation of protective barrier fencing to prevent vehicular impacts with the concrete noise abatement walls along both the north- and southbound carriageways. The Bruce Highway upgrade projects represent the ﬁnal stages of the Federal Government’s $362 million commitment to upgrade the highway from four to six lanes from the Gateway Bridge through to Caboolture, some 40 kilometres north of Brisbane. The works at Caboolture incorporate two separate contracts; the $8.5 million Boundary Road to Uhlmann Road contract – which was awarded to CMC – and the $183 million Uhlmann Road to Caboolture section, which was awarded to Leighton Contractors. Stretching some 9.8 kilometres, the Boundary Road to Uhlmann Road contract section incorporated widening the median shoulder on both the north- and south-bound lanes of the existing 6-lane highway, together with the installation of 18 Brifen TL4 WRSF sections. The larger Uhlmann Road to Caboolture contract section incorporated an upgrade of the existing 4-lane highway to a motorway standard 6-lane

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highway, including: upgrades to bridges, interchanges and improvements to bicycle and pedestrian infrastructure, together with the installation of noise abatement walls and a total of 22 new Brifen TL4 WRSF sections along the verge and median of both carriageways. Needless to say, when it came to selecting an appropriate safety barrier system for the Bruce Highway upgrade projects, engineers and designers not only focused on ‘containment capabilities’ and performance in sloping batter installations, they also placed a significant emphasis on the amount of fence deflection during an impact. Indeed, for the fences that were to be constructed adjacent to the sound walls, engineers specified a maximum fence deflection of 2

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The national freight challenge By Dan Stojanovich

If only the world would stand still, one could design the perfect transport system – for a few seconds at least. But our national freight network is complex and ever evolving. It is a highly interactive system that reflects a multiplicity of stakeholder interests as well as global considerations, all laid over a legacy of what has gone before – the infrastructure as well as administrative and regulatory systems. No wonder it may sometimes feel like juggling endless bottlenecks.

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Industry growth projections emphasise the need for effective strategies and policies to best serve the national interest. ..

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According to Brendan Lyon, executive director of Infrastructure Partnerships Australia, Australia’s freight market is significantly fragmented, with a range of bodies at a Commonwealth level - and dozens more at a state level - responsible for regulating and planning different parts of the freight task. What is needed is a single body charged with looking at the entirety of the national task. The national significance of the transport and logistics industry is clearly identified in Meeting the 2050 Freight Challenge, a report prepared by Infrastructure Partnerships Australia and PricewaterhouseCoopers, where the industry is described as “a critical part of the Australian economy, responsible for generating 14.5 per cent of national GDP, with Australia’s supply chain worth an estimated $150 billion every year”, providing “more than one million jobs across some 165,000 companies”. Industry growth projections emphasise the need for effective strategies and policies to best serve the national interest. These projections are partly driven by forecasts for Australian population growth to more than 35 million people by 2050, according to a recent Treasury Intergenerational Report. Forecasts by IBISWorld in the “Meeting the 2050 Freight Challenge” report have shown that Australia is looking at an unprecedented growth in freight volumes; doubling to 2020 and tripling to 2050, increasing from 503 billion tonne kilometres in 2008 to 1,540 billion tonne kilometres in 2050. Quantifying the economic consequences, the report asserts that “Every one per cent increase in efficiency will save the economy around $1.5 billion in costs associated with transport and logistics (based on current values)”.

Without a fit-for-purpose supply chain, productivity will suffer and congestion will cost us all plenty, as well as making us less competitive and our living environments less pleasant and sustainable. The distances of freight travel and the volumes of freight, as well as the complexity of the freight task, will change markedly, pushed by consumer demand in major urban and regional centres, as well as the global demand for resources. The pressure is certainly on to dramatically improve infrastructure as well as regulatory regimes and operating systems in order to keep pace with both technological developments and growth in demand. No wonder the report announces that “The reform agenda must be bold,” pointing to the need for “radical reform of the current framework of governance, planning and regulation.” Its key recommendation is the establishment by the Commonwealth Government of a national freight coordination body with responsibility for developing a national freight plan which: • Provides clear, national leadership to develop a new long-term vision for the freight sector; • Develops and delivers a national freight policy, identifying key policy reforms; and • Identifies key priority projects for investment and has strategic control of ongoing funding. The national freight challenge can be divided into two basic areas: 1) Getting goods into and out of the country. 2) Distributing goods throughout the country. We have challenges in both areas.

The national freight challenge

The 280 metre long vessel, Xin Yan Tai, is the largest container ship to ever call at the Port of Melbourne. Its visit in March at the declared draught depth would not have been possible without completion of the Channel Deepening Project. (Image: Peter Harry, Port of Melbourne Corporation.)

Imports and Exports An island nation, Australia plugs into the world through its air and sea ports – vital gateways to the globe. But even despite our distance, and although our ports are largely determined by local issues of geography, economy, culture and history, the ports we build are also influenced by what the rest of the world is doing – port systems and equipment need a degree of compatibility with what is going on in the rest of the world. Containerisation is but one manifestation of this. Several of our international airports recently spent considerable sums to upgrade both runways and terminals in order to prepare for the arrival of the Airbus A380. Our 22 federal airports are grappling with competing land uses, air and ground traffic control systems and surrounding development. The federal government’s Flight Path To The Future white paper report is an attempt to address the diversity of airport related infrastructure issues at all levels of planning – national to local. New ships and cargo management systems are also continually being developed. Millions of dollars have been spent dredging harbours like Port Phillip Bay in Melbourne and Port Botany in Sydney to increase channel depths to 14m and 16.5m respectively, to accommodate some of the world’s biggest ships. Our international competitiveness is partly defined by the capabilities of our ports. Now that we seem to be emerging from the worst of the GFC, the pressure

is back on our export industries. So how many ships were anchored offshore from our nine main resource industry ports around the nation in early April 2010, waiting to get a turn to load? There were around 200 and these were hardly your little 5m “tinnies” – this is serious money being incinerated at an impressive rate. And someone is paying for it. The world is literally queuing for our mineral exports, and the challenge of improving our resource industry ports is substantial to say the least. The same applies to container and general cargo ports around the nation. Our biggest container ports (Port of Melbourne followed by Port Botany in Sydney) not only have maritime access issues, but are located in the middle of intensive and complex urban environments and face challenges across many fronts. Not least of these is integration into the greater multi modal freight network and this is where the going gets very complicated indeed. Competition for scarce land is intense, there are economic considerations, environmental and safety concerns, issues of social amenity, political acceptability and the list goes on. This is a challenging policy environment. At a national level, the new National Ports Strategy will attempt to somehow address all the issues and suggest ways forward. There are also initiatives at a state level. In NSW for example, a new policy was announced in 2009 in an endeavour to integrate zonings at Port Botany, Newcastle and Port Kembla. In Victoria,

the Port Futures strategy was also released in 2009, which endeavoured to better integrate the state’s four major and 14 local ports. The Port Phillip Bay channel deepening (also completed in 2009) to 14m has extended the life of Melbourne as the nation’s leading container port. Just how serious limited channel depth was before dredging is indicated by the fact that over 50 per cent of ships using the Port of Melbourne in the September 2009 quarter had not been able to load to full capacity. This constraint has been “completely removed” according to Port of Melbourne Corporation CEO Stephen Bradford. Both air and sea ports need to look well beyond being only access points for air and sea craft, to being part of an integrated multi modal system, part of a logistics chain that stretches endlessly around the globe as well as across the nation. The Port of Darwin is strategically a very important asset, and traffic through the port is booming. Darwin Port Corporation’s export volumes should increase by some 50 per cent in 20092010 over previous tonnages, due largely to resource projects coming on-stream. And that in an area where the tidal range can be 8m. New sea port developments are underway or being assessed along the coasts of WA, Queensland and South Australia as well. All these need to be effectively integrated with the national freight network.

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The National Transport Network

Across the nation, intermodal issues

redundancies is important. There are

A truly integrated, freight focused,

are critical as we address the challenges

potential bottlenecks lurking everywhere,

fast national freight rail system has

of getting items from one end of the nation

and they keep changing.

been talked about for decades. Progress

to the other, as well as getting them from

Good freight systems are vital, as

on this appears to be proceeding at a

one suburb into the next. These complex

emphasised in the report: “The operation

similar pace to the long-awaited national

and ever changing supply chain issues

of the national freight sector is integral to

high-speed passenger rail system. It

are not challenges that are at all easy to

the wellbeing of all Australians – and its

is one thing for yet another breathless

optimise, and they have to be addressed

efficiency has a direct impact on national

government media release to announce

in a holistic, system-wide way. Access,

and individual prosperity. However, the

a regional “fast” train initiative, but it’s a

integrated planning and regulation are

importance of an efficient freight system

long way from the 300kph now achieved

all essential parts of the solution.

is not always appreciated.”

in countries like China.

Grand national highways as well as

Infrastructure 101 is not an “easy

Nation building requires vision – but

narrow service laneways in the middle of

pass” subject – far from it in fact. We

not much happens without lots of real-

intensely populated CBDs are all part of

need a national perspective and the

world follow-through. Infrastructure is

a roads network that is required to make

dedicated attention of some of the best

at last starting to grab headlines, but it

sure that all manner of freight gets to

and brightest in the land, now and for a

needs more attention still. It is absolutely

where it is needed.

good time to come.

fundamental to how well this nation

Our national freight system is only

survives and prospers in a volatile

as good as its weakest link – which is

world.

why developing a system with inbuilt

Delivering a Better Network.

At the end of 2008 the Australian Government announced that over the next two years, it will inject $1.2 billion into Australian Rail Track Corporation (ARTC) in a range of projects to upgrade the nation’s rail freight network. ARTC will supplement the $580 million of equity through debt raising to expand capacity along the rail corridors connecting Hunter Valley coal mines to the Port of Newcastle. This $1 billion project will more than double the amount of coal being transported to export markets from 97 to 200 million tonnes per year.

www.artc.com.au

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The announcement by the Australian Government continues ARTC’s work in upgrading Australia’s freight rail system. ARTC has embarked on a $2.6 billion improvement programme to upgrade the North South and Hunter Valley rail corridors. Key projects have already been completed and many others are now under way. The investment in rail infrastructure will deliver reduced transit times, increased track capacity and greatly improved reliability over the networks.

Transurban is one of the world’s leading toll road owners and operators, and we’re focused on keeping cities moving.

POCAHONTAS–US

In Melbourne and Sydney, we’re working with government on major projects to improve trafﬁc ﬂow and safety on our roads, CityLink and Hills M2—with plans for the M5 not far behind. Overseas we’re in an alliance developing High Occupancy Toll (HOT) lanes on part of the ring road around Washington DC—an innovative solution for one of the most congested corridors in the US. For us, partnerships are the key that unlocks the potential for better urban road networks—for customers, for communities and for our economies.

KEEPING CITIES MOVING CITYLINK–MELBOURNE

CAPITAL BELTWAY–US

M5–SYDNEY EASTERN DISTRIBUTOR–SYDNEY M2–SYDNEY

M7–SYDNEY

WWW.TRANSURBAN.COM

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DOWNER EDI – PROVIDING INTEGRATED INNOVATIVE INFRASTRUCTURE SOLUTIONS Downer EDI is an ASX top-100 company providing comprehensive engineering, design, construction, maintenance and management services to the infrastructure sector. With more than 24,000 people working across forty countries, we offer integrated and innovative solutions in: roads, rail, water, health and education facilities, airports, ports, telecommunications, utilities, and oil and gas infrastructure. We work with all levels of government and public and private companies that own key infrastructure assets and this experience, combined with the diverse range of expertise within our Group, allows us to offer design, installation, maintenance and management solutions to clients across Australia, New Zealand, Asia, the United Kingdom and the Americas.

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Rail Capability As Australia’s leading provider of innovative and efﬁcient rolling stock asset management solutions, we are the partner of choice for freight and passenger rail operators as we provide design, construction and maintenance of railway infrastructure (including signalling and electriﬁcation), freight and passenger rolling stock, communications and ticketing systems. Our capabilities include: rail signalling; security and safety solutions for passenger cars; freight wagons; locomotives and light rail; master-planning and development; planning for roads, rail, bus and pedestrian networks; intelligent transport systems; rail network planning for metro and light rail systems; station and system designs; rail line alignment; rail line structures; rail maintenance and

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Managing waste INTO THE FUTURE W

ASTE DISPOSAL IS RAPIDLY

transforming into waste processing as local governments, their communities and business demand solutions that divert waste from landfill and recover valuable resources. In Australia, as landfill space diminishes, and is not viewed as a sustainable option, essential waste infrastructure is being built and many challenges met by government and private enterprise. It is interesting to see how other countries, such as the United Kingdom, is integrating waste infrastructure into the big picture. Gone are the days when waste was simply a one-bin garbage collection service where all materials were buried in a hole in the ground. Waste is increasingly being treated as a valuable resource and councils are demanding more sustainable solutions for their residents’ domestic waste. Demand is also coming from the commercial and industrial (C&I) sector, with business becoming more responsible for its ecological footprint. The first step toward sustainable waste infrastructure was building Materials Recycling Facilities (MRFs), which process recyclable materials that are collected through kerbside collection services. MRF’s separate materials like plastic, paper, metal and glass so manufacturers can use them to produce new products. More recently, alternative waste processing technologies (AWT’s) for mixed, or household, waste have been contracted and built in some capital cities. An example is the $60 million Macarthur Resource Recovery Park, owned and operated by leading Sydney recycling company WSN Environmental Solutions. This facility sorts household waste and recovers resources which generate green energy, used to power the facility’s operations or exported to the NSW Energy Grid. Australia is likely to need around 70 AWT’s in various forms, new MRF’s and processing plants for additional diversion of organics from landfill — this could represent an investment of

up to $7 to $11 billion. NSW has led the way in waste infrastructure investment with around 20% of Sydney’s waste being processed through AWT’s and MRF’s. There are also exciting waste infrastructure initiatives happening in other countries. The United Kingdom has recently developed a co-ordinated approach to the development of waste infrastructure. For example, it has established the Waste Infrastructure Development Program to accelerate the construction of infrastructure needed to treat waste and comply with European Union (EU) Landﬁll Directive targets. It is also designed to stimulate investment in the supply side of the industry, building capacity

… as landﬁll space diminishes, and is not viewed as a sustainable option, essential waste infrastructure is being built and many challenges met by government and private enterprise.

in product off-take markets, such as Refuse Derived Fuel (RDF) markets. This Division maintains a national overview of existing and planned waste infrastructure and allocates funding in waves rather than by piecemeal funding of projects. The UK has projected that a substantial investment program, in the order of £11 billion, will be necessary to meet landfill targets. Government financial support for this program is through PFI (private finance initiative) credits, grants and consultancy. Approximately 2.48 billion pounds of PFI credits relating to 37 projects have been committed with a further 800 million in PFI credits expected to be allocated during the 2009–2010 financial year. In order for councils to gain the PFI credits, they need to follow a predetermined procurement procedure and use an industry standard contract that has been road tested and approved by bankers and contractors. Such a process reduces both cost and risk for the bidders and helps limit the potential for failed projects. Councils can remain responsible for contracting industry to deliver projects, but they do so with a centralised, well developed model, along with funding and professional support from central government. The program also engages with other government departments to resolve particular policy issues that impede progress and threaten the delivery of infrastructure projects. The UK model is considered a good model for public private partnerships — it supports a new industry to grow and deliver the necessary projects. In Australia there is an innovative and emerging industry focused on developing world best practice waste facilities. Waste infrastructure is increasingly on the agenda to support the states’ waste diversion targets. Great in-roads have already been made; we continue to learn from our own experience, as well as that from other regions, on how we can effectively meet the infrastructure needs to manage our waste.

The changing climate of risk allocation in infrastructure projects By Owen Hayford, Clayton Utz

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The changing climate of risk allocation in infrastructure projects

Whether you’re a climate change believer or sceptic, it is undeniable that there are real risks—not just weather-related, but regulatory and market risks—that prudent participants in the infrastructure sector must consider. Weather-related risks Weather-related risks refer to conditions including rising sea levels and severe weather events that directly and physically impact infrastructure projects. Severe weather events include heatwaves, frosts, heavy rainfall, droughts, floods, hail, thunderstorms, tropical cyclones, bushfires and extreme winds. It seems that infrastructure located around our coastal fringes will be particularly exposed to these risks. A recent report by the Commonwealth Department of Climate Change suggests that a predicted 1.1m rise in sea levels by 2100 will threaten 250,000 houses, 120 ports, 1,800 bridges, five power stations/substations and a number of water treatment plants, airports and industrial zones within 200m of the coastline. As the number and severity of these events increase due to climate change, owners and operators of infrastructure will incur greater repair costs as well as business interruption costs. The industry is likely to respond to weather-related risks in several ways: 1. Investors in infrastructure projects will require more detailed risk assessments to be conducted on the impacts that climate change will have on the project. 2. Design consultants will be expected to adequately consider weather-related risks as part of the design process in order to discharge their duty of care. The standard of care expected of a reasonably competent designer of infrastructure will extend to the consideration of foreseeable climate change risks. Even so, owners are likely to impose express obligations on designers to consider such risks. We are also likely to see greater prescription in technical specifications for projects on the weather-related events that the facility must be capable of withstanding. 3. In the same vein, designers and builders will find that the content of “fitness for purpose” warranties will become more onerous going forward as the foreseeability of more severe weather events increases. 4. It is also likely that there will be a greater focus on weatherrelated events in force majeure, extension of time and relief event clauses, during the construction, operation and maintenance of infrastructure projects. For example, will damage caused by storms be covered? How violent must a storm be to fall within the definition of a covered event? Would a power outage during the operation phase be covered under one of these clauses? In this regard, it is likely there will be greater alignment between these sorts of relief provisions and the design requirements of a project. For example, if the design requirements require an alternative energy power supply to be provided, one would not expect force majeure relief to extend to power outages. 86

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Infrastructure located around our coastal fringes will be particularly exposed to severe weather events.

5. Finally, owners and operators of infrastructure will increasingly focus on weather-related risks in operating and maintenance plans and will seek alternative sources of power and other inputs needed to ensure continued operation of an infrastructure facility. Regulatory-related risks Regulatory-related risk is the possibility that government responses to climate change will negatively impact upon a piece of infrastructure. The Rudd Government’s proposed Carbon Pollution Reduction Scheme (CPRS) is an example of a government’s response to climate change. Other examples include the recently enacted mandatory renewable energy targets and the introduction of new efficiency and energy use standards. It is clear that the CPRS will produce winners and losers. One of the greatest concerns of the CPRS is that it will increase the cost of doing business in Australia. In particular, the CPRS is likely to cause the price of emissions-intensive raw materials, such as cement and aluminium, to increase. Price increases are also expected for transport and power costs as businesses seek to pass on the cost of emissions permits. Parties seeking to protect themselves in this regard may wish to include tailored “rise and fall” clauses in the contracts that entitle them to additional money on account of such price movements. However, one potential complication is the extent to which a change in law clause coupled with a rise and fall provision might give rise to double recovery.

The changing climate of risk allocation in infrastructure projects

regulatory changes arising from climate change. When negotiating change in law provisions, consideration will need to be given to whether increased costs should be passed through in their entirety, or whether there should be some “pain-share” arrangement to motivate both parties to minimise the additional cost. Market-related risks Market risks arise from the market’s response to weather and regulatory risks, including: • higher costs for property damage and business interruption insurance; and • higher costs for certain goods and services as businesses seek to pass on the costs caused by government regulation.

The allocation of risk arising from a change in law is likely to assume greater importance. It is also likely that there will be attempts to allocate or share risks contractually, and attempts to pass on the costs associated with climate change regulations. Owners and operators of facilities requiring the purchase of permits under the CPRS will want to clearly allocate responsibility between themselves for the purchase and surrender of these permits. The party responsible for purchasing and surrendering the permits will want the other to cooperate to the greatest extent possible to minimise emissions and, hence, the number of permits which must be purchased. Owners and purchasers of facilities may require warranties from their contractors and manufacturers in relation to the emissions that the facility or equipment will produce. Owners and purchasers may also want indemnities in respect of excess emissions or performance guarantees. The allocation of risk arising from a change in law is likely to assume greater importance. Most operators of emissions-intensive facilities have already reviewed their sale contracts to assess their ability to pass to their customers the additional costs associated with the government’s proposed CPRS. Parties will want to ensure that new contracts clearly allocate the risk of increased cost due to

Demand for more comprehensive property damage and business interruption insurance will increase. Expect greater detail in infrastructure contracts on these weather-related events that the property damage and business interruption insurances must cover. The issue of liability for insurance cost increases is also likely to assume greater attention, together with provisions entitling relief from insurance obligations where insurance ceases to be available on commercial terms. The infrastructure industry is likely to undertake more detailed risk assessment of the impact that climate change may have on a project’s revenue and costs. For example, parties considering whether to invest in a port facility may want to consider the impact which climate change might have on demand for the goods that are expected to pass through the port. Finally, it is likely that a scheme similar to the Green Star Scheme for buildings will be developed in relation to infrastructure. If this occurs, we will see similar issues in relation to contractual allocation of responsibility for achieving a particular rating, as we presently see within the commercial building industry. This is because no single party in the contractual structure is likely to have the ability to guarantee a particular rating without the cooperation of the other parties involved in the design, construction, operation and maintenance of the facility. Conclusion Climate change creates new risk for infrastructure projects and as a result of these different risks, industry practice and contractual risk allocations will evolve. It is important that the infrastructure sector starts to consider these risks. Only then can it begin to protect itself against the serious financial and commercial consequences that may flow as a result of climate change. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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AURECON – DELIVERING WORLD CLASS INFRASTRUCTURE ACROSS AUSTRALIA Aurecon provides world class engineering, management and specialist technical services for public and private sector clients globally. In a significant endorsement from our clients, Aurecon has been named a finalist in the 2010 Business Review Weekly (BRW) Client Choice Awards. We believe that infrastructure development over the next decade will underpin a strong economic future for Australia. As professional consultants, we are committed to working with our clients to create world leading infrastructure that enables our nation to compete sustainably in a global economy. We partner closely with our clients to improve asset design and optimise client investment in a project while maintaining a focus on reliability, safety and sustainability. We also work closely with many clients in reviews and strategic assessments of existing infrastructure and assets, delivering significant cost savings and operational and process improvements.

Our sectors and our expertise Aurecon has over 6,000 professionals providing technical expertise and innovative solutions on projects in more than 70 countries. We deliver expert project design and management across six key sectors: • Community development and infrastructure • Energy • Mining and industrial • Property • Transport • Water We provide a full business consultancy on infrastructure planning, design, development and operation across all areas of infrastructure. Whether we are designing major transport hubs, modelling people movement for public spaces, designing vital energy supplies for the economy or developing water assets that address future needs, Aurecon seeks to foster human achievement in all aspects of our work.

Cost effective asset management With extensive ‘end to end’ project experience, Aurecon supports clients with every stage of the project lifecycle – from

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modelling, planning and design, to project delivery, operation and maintenance. Our expertise in advanced 3D modelling and simulation means we maximise clients’ investment spend and reduce timelines on infrastructure planning. Aurecon’s front-end modelling capabilities include detailed supply and demand forecasts for strategic planning, route and site selection, operational costs and project design solutions. This reduces costs and project lifecycle delivery time and provides clients with ﬂexible, cost effective future asset management and expansion planning options.

Delivering smart infrastructure solutions Aurecon combines multiple talents to successfully execute urban transport projects. In urban environments, Aurecon offers more than just transport infrastructure – we deliver wholly integrated community solutions. Roads and bridges, transport systems for vehicles, passenger and light rail, busways, airports and marine infrastructure are covered under the transport sector. Our mining and industrial business includes designing pit infrastructure, materials handling, seaboard facilities, heavy haul rail, oil and gas, agriculture, processing, transport warehousing and sales/distribution. This capability is complemented by the Aurecon Hatch joint venture, established in 2002 to focus on the delivery of infrastructure for coal export. In the energy sector, Aurecon is known for delivering energy civil infrastructure construction, power generation, transmission and distribution systems, traction power and renewable systems. Services range from inception through development, commissioning and operation, with the group geared to delivering “whole of project” services to the market. In the water market, Aurecon has extensive project management, design expertise and turnkey capability for projects of any size. Our water group delivers specialist services including water and wastewater management, water resource planning, tunnelling, geotechnical surveys and river, coastal and environmental engineering.

ANTHONY BARRY Chief Executive, Asia Paciﬁc Aurecon

Aurecon has been named a ﬁnalist in the 2010 BRW Client Choice Awards in the ‘Best consulting engineering ﬁrm, revenue over $200m’ category. These awards recognise professional services providers that are perceived as outstanding service providers by their clients.

Smarter infrastructure solutions

EastLink Project

Aurecon delivers engineering, management, and specialist technical services on some of the world’s most complex and vital infrastructure projects.

Community Development and Infrastructure Energy Mining and Industrial Property Transport Water

From rail and road transport networks to major resources and energy projects, Aurecon brings the experience, skills and expertise to create smarter infrastructure solutions. We bring world-class expertise from professionals in over 40 disciplines to deliver the planning, project delivery, maintenance and design, and ongoing operation of infrastructure assets. Our business consultancy and modelling capabilities minimise project delivery time and costs, increase RSHUDWLRQDO HIIHFWLYHQHVV DQG DOORZ pH[LELOLW\ WR meet future demands. Aurecon’s specialist knowledge enables smarter infrastructure asset planning and management. Our commitment to best practice, safety in design, and sustainability is proven. 7R oQG RXW KRZ RXU H[SHUWLVH FDQ VXSSRUW \RXU infrastructure project visit aurecongroup.com

By Dan Stojanovich

Images at top L-R: Aerial view of site with artist’s impression of plant; Victorian water Minister, Tim Holding, inspecting a section of pipe; close up of completed plant – artist’s impression.

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The GFC put a few people and institutions to the test, including Australian infrastructure projects. Securing finance for Victoria’s new desalination plant to help ‘droughtproof’ Melbourne was a case study in how the funding could be achieved in a very negative climate by a well structured and argued business case. Receiving the ‘Financial Excellence’ award* at the Australian National Infrastructure Awards in March 2010 was due recognition for a lot of clever work done by the AquaSure Consortium and colleagues to get over the line. “The sheer size and complexity of this landmark transaction (close to $4 billion of debt and $800 million of equity) made it noteworthy,” said Chris Herbert, CEO of the AquaSure consortium that included Thiess and Degrémont, financial adviser Macquarie Capital, and the Department of Sustainability and Environment (DSE) Capital Projects division on behalf of the State of Victoria. “But the big unknown challenge was the extraordinarily difficult market conditions at the time.” The start of the transaction in September 2008 was less than fortuitously timed - coinciding with the collapse of Lehman Brothers and the ensuing big chill across international debt and equity markets. To raise the bar just a little higher, the first bid had to be submitted in March 2009 – pretty well the height of the GFC. Despite these unprecedented difficulties, consortium members worked collaboratively with the DSE and State Treasury officials to arrange a competitive financing package for not only one of the world’s largest desalination plants, but also the largest PPP financing and PPP debt package in the world since the start of the GFC in August 2007. To add extra context, there was also competition from significant projects in India and China for rapidly diminishing funds. No one knew where it was all headed. According to Jim Miller, executive director, head of infrastructure and utilities, Australia and NZ, Macquarie Capital Advisers Limited, “Financial markets significantly deteriorated as the bid progressed, with debt spreads and equity premiums increasing significantly and liquidity evaporating as every week went by”.

International financiers started favouring projects ‘back home’ with more and more of them retreating from the Australian market, increasing the likelihood of there being a potential funding gap for the project. Macquarie had foreseen the potential downturn and acted early to access a large and diverse bank and equity group, an approach which helped AquaSure maintain a strong investor base despite many original financiers dropping out during the course of the bid. A crucial part of the success of the package was the very close working relationship AquaSure enjoyed with the State of Victoria. The State provided a vital contingent guarantee to act in the role of ‘lender of last resort’ to ensure the project did not stall. According to Mr Miller, “There was simply not enough liquidity in the market at the time to finance two competitive bids, which resulted in the possibility of the State acting as potential lender of last resort. The State of Victoria was very responsive and was able to not only read the markets and competitive bid dynamics, but adapt well to the changing market conditions. As a result, the state was able to provide a contingent facility in case not all of the debt underwritten by AquaSure was syndicated.” The state’s lender of last resort status did not have to be called. Shortly after financial close, the combined efforts of Macquarie Capital, the book runners (National Australia Bank and Westpac), the DSE as the state’s representative and other project sponsors, resulted in oversubscriptions of more than 50 per cent. This was a significant step towards improving market sentiment in Australia and overseas for infrastructure financing and renewing confidence in the private sector’s ability to complete large transactions. The intention had always been to structure a financing package with project risks allocated to the private sector, while seeking an interim solution to address the liquidity gap during the bid phase. “We saw oversubscription in the syndication process as a strong market testament to a sound infrastructure initiative and a vote of confidence in a project with experienced sponsors and a fundamentally strong financial proposition underpinned by availability payments from a AAA-rated government entity,” said Mr Miller.

The role of the Victorian Government was critical. While its guarantee was not actually called upon, the financial confidence it created in the project was fundamental. “This allowed us to get a head-start on the project despite the tough conditions of the GFC,” said AquaSure’s chairman, Chloe Munro. “The remarkable success of the syndication process showed both the strength and soundness of the project and great investor confidence in the Victorian economy and the PPP model adopted by the Victorian Government.” The successful outcome refuted claims by opponents of the modern PPP procurement approach that the model would be rendered unviable by changes in global capital markets. The success of this financing arrangement should give other Australian states confidence that they can go to the market to deliver their backlog of infrastructure projects. “The successful selection of a preferred tenderer shows governments in NSW, Queensland and South Australia that they too can continue to deliver projects in the aftermath of the GFC,” says Infrastructure Partnerships Australia’s executive director, Brendan Lyon. In his keynote speech at the National Infrastructure Awards, Sir Rod Eddington said underlying changes to the demands on government revenues meant that the infrastructure investment landscape was permanently changed away from financing from government revenue or government debt. He said that it has become increasingly difficult for state and federal governments to pay for ‘hard infrastructure’, as ‘soft infrastructure’ - such as health and education – is taking up a larger share of the budget. In 1972, social infrastructure was just under 30 per cent of total government spending - it is now 60 per cent. He added that the private sector needed to take a larger role in building infrastructure. The use of the PPP model is therefore likely to become an enduring mechanism for infrastructure investment in the coming decades. According to Mr Lyon, “Wonthaggi was the world’s largest PPP since the GFC and the successful partnership between the Victorian Government and the private sector showed the maturity and world class skills operating in the Australian public and private sectors. The use of a PPP allows Victoria to transfer significant risk away from taxpayers, protecting the state against cost and time blowouts.

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Australian infrastructure potential shines amidst GFC chaos

“Independent research has shown that PPPs save governments more than 11 per cent in cost blow outs, because of the discipline and risk transfer delivered by PPPs. On a project with an initial spend of $3.5 billion, the potential cost saving is very significant,” he says. Perhaps another appealing feature about the Wonthaggi project, as far as its ability to attract investment is concerned, is that it is based on a sound underlying need – the requirement to guarantee water supplies to a major city. Traditional water supplies – land capture in dams – are now no longer reliable given the uncertainties about climate change. The Wonthaggi plant will come onstream by the end of 2011, providing an important new source of water not dependent on variable rainfall for Australia’s second-largest city. This will droughtproof Melbourne. The success of the plan was aided by the consortium’s attention to other considerations such as sustainability concerns, for example energy usage. The use of wind power to fully offset the plant’s fossil fuel footprint was important in addressing this and gaining community acceptance. AquaSure’s Chris Herbert concludes, “The fact that we were able to succeed in putting together the financing arrangements at the time that we did - to secure one of the largest PPP projects in the world – is testimony to DSE’s ability to structure a sound economic infrastructure project. It also says a lot about global confidence in Victorian and Australian infrastructure, and the ongoing relevance of and appetite for PPPs regardless of the financial climate.”

Welding of pipe sections that will eventually span 84km to Melbourne.

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Perhaps another appealing feature about the Wonthaggi project, as far as its ability to attract investment is concerned, is that it is based on a sound underlying need – the requirement to guarantee water supplies to a major city. * The ‘Financial Excellence’ award recognises the distinct efforts, achievements and collaborative approach of the AquaSure consortium members (Thiess and Degrémont, and its financial adviser Macquarie Capital) and the Department of Sustainability and Environment (DSE) Capital Projects division on behalf of the State of Victoria.

Australian infrastructure potential shines amidst GFC chaos

Project snapshot Construction commenced: Late August 2009. Projected completion date: “Desalinated water by the end of 2011,” says Chris Herbert, chief executive of AquaSure Project cost: Initial cost - $3.5 billion. Net cost over the contract term of 30 years is $5.7 billion. Capacity: Planned at 150 billion litres pa over 27.75 years. The inlet and outlet marine structures and the underground pipeline and power cable have all been developed to accommodate a rapid expansion to 200 billion litres annually. Pipeline: The water will be delivered to Melbourne via an 84 kilometre underground pipeline. Power requirements: The plant will use 90 megawatts of power when operating at capacity. The cables to supply the power will be underground adjacent to the water transfer pipeline. Carbon credits: To be achieved with 100 per cent renewable energy credits. Site preparation: The construction plan requires earthworks involving 1.1 million cubic metres of earth. Footprint: The plant itself takes up 32 hectares of a 263-hectare site. The remaining 225 hectares will be used in an environmental restoration program. Three million indigenous plants and shrubs, including 150,000 trees, will be planted to restore natural vegetation cleared in the earthmoving and construction process. AquaSure: AquaSure is the project’s private investor. AquaSure’s members include Suez Environnement, Degrémont, Thiess, Macquarie Capital and 20 international investors.

Central reasons for success A range of key factors contributed to the success of the package, including: - Quality sponsors with extensive PPP experience meant that the consortium was able to adapt to the needs of the State and changing markets to deliver a competitive bid - Best-of-breed contractors with a strong track record in large-scale civil and desalination projects gave financiers confidence around the tight construction timeframe - The responsiveness and interactive approach with the State to implement the contingent support to address the financial crisis impact on market liquidity - The diverse and global relationships of Macquarie, and project co-sponsors Degrémont/Suez Environnement and Thiess, which proved vital in arranging the wide investor group - Robust contractual framework and financing documents to ensure best practice in corporate governance, equilibrium of power, and risk allocation appropriate for the environment meant financiers were comfortable that material risk was appropriately managed and mitigated during the bid process - Strong project fundamentals, with availability based payments from a AAA-rated government entity - Macquarie Capital’s extensive experience in arranging large infrastructure financing packages, deep understanding of the PPP framework, strong reading of global financial markets trends and variables, extensive and global pool of resources and key debt and equity investor relationships worldwide was central to the success of the consortium’s finance arrangements.

Infrastructure flow-on from Wonthaggi One hundred per cent of the energy used by the Wonthaggi plant and pipeline will be offset through the purchase of renewable energy credits via a competitive 30-year fixed price agreement with AGL. To help fulfil this commitment, AGL will be constructing a new wind farm at Oaklands Hills in southwest Victoria “The wind farm project alone will create some 200 jobs,” says Chris Herbert. “It will consist of 32 turbines at a total development cost of approximately $200 million.” Of course the economic flow-on effects will go a long way further than just the construction of the wind farm. In addition to approximately 1,700 onsite jobs that will be created during the plant’s construction, it is anticipated that local industry and jobs will be further boosted by a commitment to a high level of local industry participation. “It has been estimated that some 4,750 full time equivalent jobs, both direct and indirect, will be created during the construction of the project,” says Herbert. “The infrastructure flow-on effects will not be confined to just the capacity of the plant we are currently building,” he says. “If, at some stage in the future, the fresh water production of the plant is increased, our renewable energy contract requires AGL to lift its renewable energy production as well.” Both sides of the contract are scalable.

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By Clare Corke, Senior Foreign Associate Blake Dawson

With the collapse of the financial markets in 2007, many opponents of PPPs in Australia took the opportunity to question the future viability of PPPs and whether there would ever be an appetite for banks to fund these kinds of transactions again. In particular, fingers were pointed at projects that had experienced problems, such as Sydney’s Lane Cove Tunnel and Brisbane Airport Link, as reasons why the PPP model was in serious trouble – if not dead. Strangely, however, the problems that beset both Lane Cove Tunnel and Brisbane Airport Link were rooted not in the financial markets’ collapse, but in the over-enthusiasm of sponsors relying on flawed traffic forecasts (in the case of Lane Cove Tunnel) and inexperienced retail investors (in the case of Brisbane Airport Link). However, in both instances, the funding model used in these projects will probably not be seen in the same guise for many years. Drilling deeper into the funding issue, for a number of years prior to the financial markets collapse, Australia’s PPP funding model relied heavily on bonds being sold into the market, with little reliance being placed on bank debt or other forms of debt financing (like asset financing or export credit financing). Even though today it is recognised that the bond market will recover over time, it is unlikely that it will bounce back fast enough or vigorously enough to provide debt funding for PPP projects of over $1 billion in the immediate future. It is more likely that it will re-emerge gradually through the taking up initially of a minority of the funding tranches. It is also likely that the placing of debt with unsophisticated investors will be actively discouraged by the government agency procuring the infrastructure; senior debt providers; rating agencies; or regulators like ASIC. Perhaps the place to start looking at bond financing is when current projects start refinancing, as by that stage the project will be fully constructed, the operators will have proven themselves and the project should be on a steady path for the remaining operating term. In the meantime, the latest projects in Victoria indicate that there has been a significant swing back to bank debt, with the Peninsula

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Link (a 25-kilometre road link between EastLink in Carrum Downs and the Mornington Peninsula Freeway in Mount Martha) being completely bank-debt funded, and the Victorian Desalination Plant being bank-debt funded, subject to government support initiatives like an underwriting of the syndication of the debt facilities by the state, and refinancing support. Market perception appears to be that bank underwriting without government support is available for projects not in excess of $1 billion. For larger projects in excess of $1 billion, it is positive to note that the State underwritten portion of the syndication of the Victorian Desalination Plant debt was placed within two months of a three-month syndication process, and the State’s support is no longer required. State underwriting or some other form of government support is definitely an appealing proposition to banks and other financial institutions, particularly in a climate where lenders are nervous to underwrite amounts in excess of $300 million, and the management of large bank syndicates during the negotiation phase of a project is difficult. Time will tell whether the consortia bidding for the New Royal Adelaide Hospital (with a capital component of $2 billion), and Stage 1 of the Sydney Metro (with a capital component of $3 billion) will be able to fully fund their bids without the assistance of government support. Market capacity would become even more acutely felt if the $1.7 billion Gold Coast Rapid Transit rail project and the $1 billion Parkville Consolidated Cancer Centre in Victoria also reach financial close at a similar time. With the bond market remaining in the doldrums, it is suspected that state funding will remain in demand for the rest of this year, although it is likely that in each instance the funding shortfall on bid submission will be taken up by the unsuccessful bidder’s financiers within a relatively short time after financial close. This bodes well for PPPs in general and sends a clear message to the markets that there is an appetite for PPP debt. Hopefully the state and federal governments in Australia agree.

Funding of PPP projects – where to from here?

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CBUS: INVESTING IN OUR MEMBER’S FUTURE The Federal Government’s 2009-10 budget announcement of a $22 billion spend on Australian infrastructure as part of its “Nation Building” program was welcome news for Cbus and its members, particularly as it is estimated that more than 15,000 jobs will be created each year. Cbus is closely connected to infrastructure as Cbus is the industry superannuation fund for the building, construction and allied industries. With close to $14 billion in funds under management, more than 580,000 members and 66,000 participating employers, Cbus is one of Australia’s largest national super funds. Cbus is also a ‘public offer’ fund, which means that anyone, in any industry, can join. In early February the Government released the Intergenerational Report 2010. This report calls for extensive nation building infrastructure in order for the country’s economy to cope with the impact of an aging population, population expansion and the impact of climate change. This is of great interest to Cbus – as any increase in infrastructure development leads to potential growth in our membership and funds under management. We have a long history of investing back into the construction and building industry. With high positive cash flows Cbus can actively invest for the long term. We are not constrained by liquidity considerations as some retail funds may be. We invest in infrastructure because its long term nature suits our members’ long term superannuation profiles; it offers strong long term investment yields with potential for capital growth and it provides diversification and inflation protection benefits. Importantly, infrastructure helps to boost our economy and create jobs for our members. In turn, growth in our membership enables Cbus to invest more back into the construction and building industry, securing even more jobs. Cbus currently invests around $1.6 billion in Australian and international infrastructure. Of this, around $890 million is invested in Australian infrastructure, in trust vehicles managed by our investment managers Industry Funds Management and Hastings Funds Management. Through our managers’ investment vehicles we have significant holdings in

Australian infrastructure across a range of sectors. In transport, this includes holdings in the Perth, Darwin, Melbourne and Brisbane airports; roads (Sydney’s M4 and M5) and the Port of Portland. Our social infrastructure includes Melbourne’s Southern Cross Station, the development of the Perth CBD Courts, an aged care facility and the first schools public private partnership in Australia – Axiom Education Holdings. One of our large utilities holdings is Electranet (South Australian electricity transmission). We have exposure to clean technology/energy through Pacific Hydro and Ecogen. Pacific Hydro is an Australian developer and operator of renewable energy generation in Australia and overseas. They are currently developing a large wind power project near Portland, Victoria. Ecogen operates gas fired power plants. Cbus is serious about addressing the impacts of climate change. Cbus Property, our wholly owned property development and investment arm, concentrates on developing five and six-star energy-efficient buildings. Across our whole portfolio Cbus is addressing climate change, as a part of our approach to environment, social and governance issues (ESG). Among other steps, we have signed the United Nations’ Principles for Responsible Investments and David Atkin, Cbus’ CEO, is an international director on its Board. We have also appointed an environmental, social and corporate governance manager to our investment team to encourage our fund managers to act in accordance with these principles. We recognise that superannuation represents a large proportion of the nation’s savings and plays an important role in infrastructure funding. However, investing in infrastructure must deliver more than jobs. Like all regulated funds, Cbus must ensure that the primary driver of all our investment decisions is delivering the best possible returns for our members. Above all, it is our members’ future that drives us. For further information visit www.cbussuper.com.au or call 1300 361 784.

This information is general in nature. It doesn’t take into account your specific needs, so you should look at your own financial position, objectives and requirements before making any financial decisions. Past performance is not a reliable indicator of future performance. Cbus’ Trustee is United Super Pty Ltd ABN 96 006 261 623 AFSL 233 792 Cbus ABN 75 493 363 262.

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Build your super on a strong foundation Cbus is the industry super fund for everyone in the construction, building and allied industries. Cbus:

has a history of strong, long-term returns* has low fees pays no commissions, and is run only to benefit members.

Importantly, Cbus boosts the industry and creates jobs by investing in property developments across Australia.

YEARS

Read the relevant Cbus Product Disclosure Statement to decide whether Cbus is right for you. *Past performance is not a reliable indicator of future performance. Cbus’ Trustee is United Super Pty Ltd ABN 46 006 261 623 AFSL 233792 Cbus ABN 75 493 363 262.

Call Cbus on 1300 361 784 or visit www.cbussuper.com.au

COMPANY FOCUS

PICTURED: A major milestone in the construction of Brisbane’s second Gateway Bridge was reached in October 2009 when the main river span was joined.

DIVERSE OPERATIONS UNDERPIN ABIGROUP’S ONGOING STRENGTH Abigroup, one of Australia’s leading and most diverse national contractors, is playing a major role in building Australia’s infrastructure. The company has successfully delivered some of the country’s largest and most important infrastructure projects and in 2010 is continuing its work with a number of key projects. One of the biggest projects is the construction of Brisbane’s second Gateway Bridge as part of the Gateway Upgrade Project. Work on the 1.63km bridge is progressing ahead of schedule and when it opens to trafﬁc in mid 2010 the bridge will connect a new 7km section of Gateway Motorway north of Brisbane River with a 12km Gateway Motorway upgrade south of the river. Abigroup is delivering the $1.88 billion project as part of a joint venture for Queensland Motorways.

Desalination plant Abigroup, as part of the AdelaideAqua consortium, is currently working on the construction of one of the largest desalination plants in the world at Port Stanvac in South Australia. The $1.14 billion Adelaide Desalination Plant will have a capacity of 100GL of desalinated water per year which will be sufﬁcient to provide up to 50 per cent of

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Adelaide’s annual water requirements. Work started in February 2009 and the ﬁrst water from the plant is expected in December 2010.

New roads

Melbourne, Latrobe Valley and Mornington Peninsula areas. Also in Victoria, Abigroup, as part of the Axiom Education Victoria consortium, is delivering 11 schools in a PPP arrangement.

Abigroup is involved in a number of road projects all over Australia. In January 2010 the Victorian Government announced that the company, as part of the Southern Way consortium, had been appointed to design and construct the new $759 million Peninsula Link. The project involves the construction of 27km of motorway between the EastLink toll road in Melbourne’s eastern suburbs and the Mornington Peninsula Freeway at Mt Martha. This Public Private Partnership is the ﬁrst road PPP in Australia which will be toll-free and based on an availability charge.

Engineering Projects

Schools

Telecommunications

Abigroup is currently delivering schools packages in three states worth over $400 million under the Federal Government’s Building the Education Revolution program. In NSW the company is the managing contractor for upgrades to 175 schools in the Sydney area, in Queensland Abigroup is upgrading 40 schools in the Greater Brisbane and Fitzroy-Central West regions and in Victoria the company is working on providing multi-purpose halls to 24 schools in the

Also in WA, Abigroup Telecommunications is working with vividwireless to construct Perth’s new WiMax wireless network. The work includes installing rooftop antennas, cabling and the equipment that process data signals enabling customers to access the internet wirelessly. The project is scheduled to be completed in March 2010.

Abigroup, as part of the Bulk Water Alliance, is constructing one of Australia’s largest dams. The Enlarged Cotter Dam in the ACT will be 80 metres high, contain 400,000 cubic metres of Roller Compacted Concrete and will be Australia’s third largest concrete gravity dam. The company is also working on a marine, civil and associated works project for the construction of the Australian Marine Complex Service and Supply Base at Cockburn Sound designed to support the growing number of oil and gas developments in Western Australia.

For more information about Abigroup visit www.abigroup.com.au

Where next for the global PPP market? By Alex Guy, Partner DLA Phillips Fox

The last two years have seen a significant change in the global PPP market. The GFC has led to a shortage of long-term, limited recourse debt, requiring governments to take urgent action to engender sufficient confidence to enable deals to close. As the global financial markets have started to settle, deals have reached financial close but on significantly more stringent terms, including considerably higher margins. At the same time, governments have been under the competing pressures of reduced tax revenues and the desire to stimulate their economies through public spending. In a number of countries including Australia, spending on infrastructure has become a key focus as part of governments’ individual stimulus packages. Support for PPP Support among governments for the use of PPP to deliver public infrastructure has remained strong in most countries already using PPP as a significant part of their infrastructure delivery programs, and interest is spreading across national boundaries to countries such as Thailand, Vietnam and New Zealand. Clear and positive evidence of the benefits of PPPs from those countries

On average, cost escalation on PPP projects was only 4.3 per cent compared to 18 per cent for traditional projects over the same period. m

with experience of employing it across a range of sectors over a number of years abounds. A benchmarking study published by the University of Melbourne in December 2008, for example, which analysed 25 PPP projects and 42 traditional projects in seven Australian jurisdictions found PPPs deliver assets for a price that is far closer to the original expected cost than traditional projects. On average, cost escalation on PPP projects was only 4.3 per cent compared to 18 per cent for traditional projects over the same period. While PPP projects generally took longer in procurement than anticipated, once they reached financial close, the average further delay was only 2.6 per cent (compared to an average delay of 25.9 per cent during the construction phase of traditional contracts). EDITION 1

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Where next for the global PPP market?

A more recent paper produced at the end of last year by the UK National Audit Office (NAO) for the Economic Affairs Committee of the House of Lords paints a similar picture. The paper draws on the NAO’s independent analysis of more than 100 PPP projects over 12 years, including its 72 earlier “value for money” reports. It concluded that most PPPs are built close to the agreed time, price and specification, and that public bodies using a PPP are normally satisfied with the services provided by contractors. In the NAO’s sample, 69 per cent of PPP projects between 2003 and 2008 were delivered on time, and of those delivered late, 42 per cent were delivered within 6 months of the agreed time. 65 per cent were delivered at the agreed price. The majority of price increases were due to changes requested by the public sector during construction. Against this background, many governments continue to wish to employ PPPs as one of a range of procurement methods which enables them to deliver on time and on budget, in a way that promotes an output-based service culture (rather than an undue focus on construction and engineering at the cost of other aspects) and which provides increased innovation, competition and whole of life cost benefits. For example, the European Commission’s recent Communication on PPPs encourages their use as an economic tool, making it more likely that European countries will significantly step up PPP programs or commence major PPP programs for the first time. In the Asia Pacific region, we can expect to see more PPPs in the coming years, with a number of governments showing real interest for the first time in PPPs, not just for one deal but for a significant pipeline of deals over an extended period. The current climate While the opportunities look set to increase, the PPP industry now faces a challenge in overcoming the difficulties that have arisen in recent years. The problems we now face include: • A continued lack of liquidity amongst commercial banks and the virtual closure of debt capital markets. • A reduction in long-term lending for larger PPP projects and, in some jurisdictions, for any PPP projects at all. • Reliance on government-provided debt or guarantees to engender sufficient confidence to enable deals to close. • Increased margins on debt highlighting the cost differential between private sector borrowing and state borrowing, adversely impacting the value for money case for PPP. • Greater risk aversion on all sides of the negotiating table, challenging previously accepted risk allocation models.

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...many governments continue to wish to employ PPP as one of a range of procurement methods which enables them to deliver on time and on budget, in a way promotes an output-based service culture ...and which provides increased innovation, competition and whole of life cost benefits.

Where Where next next for for the the global global PPP PPP market? market?

Governments can further help both the industry and themselves by encouraging competition, both by making efforts to keep “at risk” bid costs down and removing unnecessary barriers to cross-border participation in their economies. Moving forward There is an expectation that these problems will go away on their own as the world economy recovers and that it will be back to business as usual. However, if PPPs are to continue to provide governments with a good value procurement method for major infrastructure projects, the method needs to evolve to meet the challenges it faces head on. Governments have acted quickly and effectively to boost confidence in the market, with the UK lending program through the Treasury’s Infrastructure Finance Unit, the French government’s policy for guarantees and the Victorian Government’s debt underwriting support offered for its desalination project being just a few examples. In some cases these government measures have meant that there has been sufficient confidence for some of the deals that the measures were intended to assist to be oversubscribed and close without the need for that assistance. Where that assistance has been provided, it has been provided short-term with an expectation that it will be replaced with commercial finance as soon as practicable. In this context, it must be recognised that governments are likely to cease offering such support in the near future and the industry needs to be ready to stand on its own two feet without relying on that support. The evidence is that the industry is already starting to do so, with the $759m Peninsula Link deal reaching financial close without any such support in February this year. Governments can further help both the industry and themselves by encouraging competition, both by making efforts to keep “at risk” bid costs down and removing unnecessary barriers to cross-border participation in their economies. There are many jurisdictions in which the local PPP market is still dominated by local contractors and local funders, despite the best efforts to penetrate those markets with major international players. Such protectionism can lead to lower value for money and reduced innovation (both in terms of design and construction, and the availability of financing products which enable better risk allocation). Ultimately, such protectionism can stifle economic growth, discouraging foreign investment, increasing risk for government and causing projects to fail. With an open market that encourages competition, local economic objectives can nonetheless be achieved through appropriate project selection and contractual requirements.

While increased competition should lead to better outcomes, if PPPs are to continue to offer good value for money, both public and private sectors also need to be flexible and adapt tried and tested PPP models to the new economic environment. The Peninsula Link project is a good example of this happening in practice with the state government recognising the need for a shift away from tollbased projects towards availability payments in uncertain times. Another area where a better balance can be struck going forward is refinancing risk/reward, particularly in those jurisdictions where long-term debt finance remains unavailable for PPP projects. In developing better risk allocation, jurisdictions will need to look to each other to identify the best ways in which risks can be managed. The old adage, “risks should be borne by the party best able to manage them,” is a good one but, in practice, there will always be some risks that neither party is particularly well placed to manage and which nonetheless need to be dealt with. In this context, there may be something to be said for the concession model employed in Spain and Portugal, which allows a rebalancing of the economics of the concession if unforeseen events occur. Conclusion The PPP model has proved its adaptability and, whatever the next few years hold, we can be sure that PPPs will be a key part of governments’ infrastructure delivery programs and that we all stand to benefit from continued flexibility along with increased competition. Alex Guy is a partner of DLA Phillips Fox. DLA Phillips Fox is a member of DLA Piper Group, an alliance of independent legal practices. Alex is admitted as a Solicitor in England & Wales and is an Australian Registered Foreign Lawyer. He is restricted in Australia to the practice of foreign law only. He is entitled to undertake work in connection with Australian law only (i) to the extent permitted by s167(3) of the Legal Profession Act 2007 (Qld) where such work is necessary and incidental to the practice of foreign law or (ii) as a lay associate under the supervision and authority of an Australian legal practitioner.

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Future Building 2010

Articles inside

Where next for the global PPP market? By Alex Guy, Partner, DLA Phillips Fox

Funding of PPP projects – where to from here? By Clare Corke, Senior Foreign Associate, Blake Dawson

Long Term Forecast predicts build-up to boom later this decade

The changing climate of risk allocation in infrastructure projects By Owen Hayford, Clayton Utz

Australian infrastructure potential shines amidst GFC chaos By Dan Stojanovich

It’s time to get serious about Australia’s Cities By Mark Birrell, Chairman, IPA

Australia’s 2050 challenge: what Intergenerational Report Three (IGR3 means for infrastructure in Australia | By Brian Haratsis, Chief Executive Offi ce, Macroplan Australia

The national freight challenge By Dan Stojanovich

Achieving higher densities and delivering increased liveability By Pru Sanderson, Chief Executive Offi cer, VicUrban

Foreword By the Hon Mark Birrell, Chairman, IPA

The oracle of Australian infrastructure An interview with Sir Rod Eddington

And now back to the big picture… nation building after the GFC By Dan Stojanovich

Realising our broadband future Presentation by Mike Quigley, Executive Chairman, NBN Co

Embracing Australia’s infrastructure challenges An interview with the Minister Anthony Albanese

Rollout of the National Broadband Network

More support needed to better skill Australia By Heather Ridout, Chief Executive, Australian Industry Group

IPA National Infrastructure Awards