Future Building 2012 V3 N1 by Infrastructure Partnerships Australia

The Australian Infrastructure Review Volume 3 Number 1

1778_Future Building v301.indd 1

11/9/12 11:14 AM

Infrastructure. Look closely and you will see a future in it too.

Large-scale urbanisation and industrialisation are set to continue driving an unprecedented era of demand for both hard and soft commodities in many fast-growing Asian economies. Australia is well placed to capture the opportunity to support this growth in Asia – an opportunity to create additional employment in trade-related and support services and output equivalent to more than 20% of GDP. To realise the growth potential Australia will need to significantly increase its investment

in the expansion of mining, agriculture and supporting infrastructure capacity to the sum of up to $1.8trn over the next 20 years*. As a leading provider of capital** and advice to the infrastructure industry, ANZ is uniquely positioned to help clients and investors build Australia’s future. David Byrne Head of Utilities and Infrastructure, Australia T: +61 3 9273 4852 E: David.Byrne2@anz.com

anz.com *Earth, Fire, Wind and Water, an ANZ client report prepared by Port Jackson Partners, Aug 2011 - available on anz.com/insight. **No.1 MLA for Infrastructure Project Financing in the Asia-Pacific region, 2010, Infrastructure Journal. Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. ANZ’s colour blue is a trade mark of ANZ. Item No. 85931 05.2012 W274792

1778_Future Building v301.indd 2

11/9/12 11:14 AM

The Australian Infrastructure Review

Edited by: Gemma Peckham Contributors: Mark Birrell, Michael Bruce, Domini Stuart, Jeff Hutton.

Contents

Future Building is published by:

Foreword | By the Hon Mark Birrell, Chairman, Infrastructure Partnerships Australia

Abbott presents his infrastructure vision

From missiles to motorways | By Domini Stuart

New South Wales plots transport revolution

Capturing value: an option for funding the future | By the Hon Mark Birrell

Back on the reform horse | By Domini Stuart

IPA National Infrastructure Awards 2012

PPPs in good health | By Jeff Hutton

Balancing act key to Queensland’s infrastructure investment | By Domini Stuart

Between a rock and a hard place |

Executive Media Pty Ltd ABN 30 007 224 204 430 William Street Melbourne VIC 3000 Tel: +613 9274 4200 Fax: +613 9329 5295 E: media@executivemedia.com.au W: www.executivemedia.com.au Business Development Manager: David Haratsis Tel: +61 3 9274 4214 E: david.haratsis@executivemedia.com.au Cover image: Gateway Motorway Queensland. Image courtesy of: Gateway Upgrade Project, Queensland Motorways and Leighton Abigroup Joint Venture.

By Jeff Hutton

DISCLAIMER: The editor, publisher, printer and their staff and agents are not responsible for the accuracy or correctness of the text of contributions contained in this publication or for the consequences of any use made of the products, and the information referred to in this publication. The editor, publisher, printer and their staff and agents expressly disclaim all liability of whatsoever nature for any consequences arising from any errors or omissions contained in this publication whether caused to a purchaser of this publication or otherwise. The views expressed in the articles and other material published herein do not necessarily reflect the views of the editor and publisher or their staff or agents. The responsibility for the accuracy of information is that of the individual contributors and neither the publisher nor editor can accept responsibility for the accuracy of information that is supplied by others. It is impossible for the publisher and editors to ensure that the advertisements and other material herein comply with the Trade Practices Act 1974 (Cth). Readers should make their own inquiries in making any decisions and, where necessary, seek professional advice. © 2012 Executive Media Pty Ltd. All rights reserved. Reproduction in whole or in part, without written permission, is strictly prohibited.

1778_Future Building v301.indd 1

Volume 3 Number 1

futurebuilding

11/9/12 11:14 AM

SHARING OUR KNOWLEDGE ON INFRASTRUCTURE Transfield Services will help you design, construct, operate, maintain and upgrade your infrastructure assets innovatively, by sharing knowledge of our 27,000 people across 20 industries in 12 countries. Our years of leadership in asset management across diverse industries, whether it is rail and road transport networks, water, or electrical services, helps us provide tailored and innovative solutions for your infrastructure needs.

CONSULTING

UPGRADES

ENGINEERING

ASSET MANAGEMENT MAINTENANCE

CONSTRUCTION

OPERATIONS

1778_Future Building v301.indd 2

transfieldservices.com

11/9/12 11:14 AM

Foreword 2012 continues to pose substantial challenges to policymakers and the industry, with difficult budget positions frustrating the capacity of governments to fund the pace of infrastructure investment expected by the community, and demanded by the economy. IPA recently released the first edition of its Civil Infrastructure Metric, in partnership with BIS Shrapnel. The Metric showed in stark relief what every company in the sector is experiencing firsthand: a sustained slowdown in the number and value of projects coming to the market. This slowdown reflects uncertainty about decision-making for new investment and shows how government procurement has tightened following falls in GST, stamp duties and other transaction-based revenues. But challenges also bring opportunities. Already, we are seeing governments begin to respond through far-reaching inquiries into the cost, scope and model of government service delivery, together with an accelerating process of asset sales. In this edition of Future Building, Tony Abbott outlines his plans to engage with – and invest in – urban infrastructure if elected to government. I am very pleased that the new Queensland Transport Minister, Scott Emerson, shares his views on the substantial challenges facing that government in funding new projects, while reforming a very difficult budgetary position. This edition also looks at the changing and evolving roles of government and the private sector in the delivery of public health services – the largest area of expenditure by Australia’s states – and features an article on the South Australian budget, and one on opportunities to capture value from new investments to increase revenues and funding capacity for new projects. We also bring you an interview with Transurban’s new Chief Executive, Scott Charlton, who sheds light on his career to date, and his directions and drive at the helm of Australia’s largest tollway operator.

Future Building also explores the transport reforms underway in New South Wales, and the growing appetite for governments to partner with the private sector on major healthcare projects. I trust you will enjoy Future Building, and invite any feedback that you may have.

The Hon Mark Birrell Chairman, Infrastructure Partnerships Australia

Volume 3 Number 1

1778_Future Building v301.indd 3

futurebuilding

11/9/12 11:14 AM

Abbott presents his infrastructure vision Greater rigour around the selection and prioritisation of infrastructure projects will be a central focus for the Coalition, should it win the next federal election.

futurebuilding

1778_Future Building v301.indd 4

Volume 3 Number 1

11/9/12 11:14 AM

Abbott presents his infrastructure vision

The lengthy lead time approaching the federal election ensures sustained scrutiny on the government and opposition from all quarters: the general public, the media and their own political parties. Such an intense spotlight can make or break politicians’ careers, with one misstep derailing entire election campaigns. Tony Abbott has been under that microscope for years, particularly in the wake of the 2010 federal election. For a man once described as a ‘maverick’ and an ‘attack dog’, in recent years voters have witnessed a more measured approach from the man many believe will be Australia’s next prime minister. Abbott’s biographer, Michael Duffy, provided an insight into Abbott in the Fairfax press earlier this year: ‘At some point before the next election, people will become more interested in who Tony Abbott really is. Many in the Labor Party hope for that day, believing that when the mask drops, the sight of the conservative Catholic ogre will be so horrific it will mark the end of his successful run. ‘Yet it’s possible what people will find will be – even more than in the 2010 election – a fairly ordinary bloke. This will be partly because he has always been more ordinary than others thought, and partly because he seems to have worked in recent years to make himself more so, in order to achieve the goal of prime minister. That discovery could be another surprise, for his foes and maybe for some of his friends.’ With those in the infrastructure sector, Abbott enjoys a strong reputation, with his deregulation of labour markets playing a huge role in Australia’s productivity supercycle, particularly in the construction arena. More specifically, his commissioning of the Cole Royal Commission in 2001 into the construction sector was a defining moment, leading to the creation of the Australian Building and Construction Commission (ABCC), and driving productivity improvements at work sites across the country. The ABCC has since been abolished by the Gillard Government and replaced by an inspectorate within the Fair Work system; a controversial move that has drawn the ire of business groups and raised concerns about productivity and the pace of major project delivery.

The problem, he said, was that the federal government had lost sight of its role in helping the country build the infrastructure it needs Australia’s ability to deliver on its infrastructure commitment was a key focus of Abbott’s address to more than 250 senior infrastructure leaders at Sydney’s Westin Hotel earlier this year. He explained that Australia had not kept pace with the demands of a growing population. ‘By any standard, Australia’s infrastructure is inadequate,’ Abbott said. ‘Our trains are no faster than 100 years ago. Our big cities are still linked by twolane highways. No major dams have been built for 20 years. Our urban motorways mostly start and end in suburban streets. We often give the impression of being much better at arguing about big developments than getting them built.’ The problem, he said, was that the federal government had lost sight of its role in helping the country build the infrastructure it needs. While state governments will always have the principal responsibility for infrastructure provision, Abbott said the onus is on the Commonwealth to have the right frameworks in place to encourage investment. He cited the lengthening queues of ships outside Australia’s major export ports and the lack of sufficient investment in roads and rail as major constraints on the country’s economic growth. ‘The result has been frustrated commuters, more expensive goods and services, and an economy less able to compete against rivals that have planned ahead.’ Of course many of these criticisms are not new. With Australia’s infrastructure backlog estimated at up to $770 billion, Abbott said the solutions lie in the ability of governments to develop long-term plans that outlast electoral cycles and are free of political bias.

Volume 3 Number 1

1778_Future Building v301.indd 5

futurebuilding

11/9/12 11:14 AM

Abbott presents his infrastructure vision

‘This matters because inadequate infrastructure and the convoluted regulatory systems that make new infrastructure more expensive lead to higher costs, longer travel times and millions of working hours lost in frustrating traffic jams or waiting for trains that never arrive,’ he said. Should the Coalition be successful at the next federal election, Abbott said the focus would be on ensuring infrastructure spending has a strong economic outcome, and isn’t just ‘building for building’s sake’. Expanded ports, better railways, more roads and larger air terminals were the ‘visible signs of a stronger economy and greater prosperity,’ Abbott said. Within 12 months of taking office, Abbott said a Coalition government would declare its infrastructure priorities and, in consultation with the states, announce construction timetables. Infrastructure Australia would also be tasked with preparing a rolling 15-year national infrastructure plan with designated priorities based on published cost-benefit analyses. These analyses would extend to any infrastructure project to which a Coalition government commits $100 million or more. Infrastructure Australia would then recommend an order of priority for Commonwealth funding. ‘If the government varied Infrastructure Australia’s priorities, it would need to argue a national interest case for doing so against the yardstick of what makes the most economic sense,’ Abbott said. Provided that it’s responsibly funded and done with the best available cost-benefit analyses, infrastructure spending remains one of the strongest contributors to productivity growth, Abbott explained. With governments facing their own budgetary pressures, they simply do not have the capacity to fund Australia’s infrastructure deficit on their own. Abbott said broader consideration has to be given to encouraging more private sector investment in infrastructure.

Environmental standards should be clear, assessment processes should be swift, and decisions should be unambiguous 6

futurebuilding

1778_Future Building v301.indd 6

Under a Coalition government, the Productivity Commission would be tasked with examining ways to leverage further private funding for priority infrastructure projects, stating that the Commission remains the ‘best source of policy advice’ in this regard. Abbott reaffirmed the Coalition’s commitment from the last federal election to have the Office of Financial Management consider the provision of infrastructure bonds to unlock up to $20 billion for private infrastructure investment with wider public benefit. These tax concessions have been used in the past to fund privately owned infrastructure, such as Sydney’s Eastern Distributor. ‘Especially in the wake of commercially unsuccessful projects, such as the Cross City Tunnel, what’s needed is the best contemporary way to renew private sector investment in vital projects at the lowest cost to taxpayers,’ he explained.

Building for the future Australia is facing a significant infrastructure backlog, with scores of critical transport, utilities and social infrastructure projects needed if Australia is to see real improvements in the nation’s productivity. Abbott said all of the major capital cities need sustained investment, particularly in transport. ‘There’s no doubt that Sydney, Melbourne, Brisbane and Perth each need an integrated motorway network and improved urban rail systems under comprehensive metropolitan transport plans,’ he said. Other priorities include the continued upgrade of the Bruce Highway; the highway linking Perth to the Pilbara; the highway between Hobart and Launceston; and an inland railway from Melbourne to Brisbane within a decade. ‘I want to see cranes in the sky and bulldozers on the ground because that means economic growth,’ Abbott said. He’s backed the talk up with real plans. At the Liberal Party’s Federal Council in Melbourne in late June, Abbott announced that the Coalition would commit $4 billion towards three major road projects in Sydney, Melbourne and Brisbane should it win the next election. The commitments include $1.5 billion for the East West Link road tunnel in Melbourne – a recommendation of Sir Rod Eddington’s East West continued on page 8

Volume 3 Number 1

11/9/12 11:14 AM

Defence Health Consulting Every day, millions of customers entrust Serco to deliver mission critical services within the private and public sectors. We deliver innovative solutions that enhance the value and sustainability of our customers’ businesses. We partner with our customers to remove bureaucracy, enhance processes, instill our values and free people to deliver their best.

Advise | Design | Integrate | Deliver

1778_Future Building v301.indd 7

Infrastructure Justice Immigration Transport www.serco-ap.com.au

11/9/12 11:14 AM

Abbott presents his infrastructure vision

continued from page 6 RIGHT (TOP): Opposition leader Tony Abbott addresses the media. RIGHT (BOTTOM): The Hon Mark Birrell, Chairman of Infrastructure Partnerships Australia; Tony Abbott; and Dr Kerry Schott.

futurebuilding

1778_Future Building v301.indd 8

Link Needs Assessment Study from 2008; $1.5 billion for the M4 East in New South Wales; and $1 billion for the Gateway Motorway North Upgrade, from Nudgee to the Bruce Highway in Queensland. Abbott said federal funding commitments should allow these vital projects to move swiftly, with support from the private sector and the states. It was an important announcement because it signalled growing recognition from federal policymakers about the need to play a greater role in helping to bring major projects to market. That commitment to major project delivery has been backed by a pledge to streamline infrastructure delivery by easing the regulatory burden on states and businesses. Driving down the cost of major infrastructure will only enhance Australia’s global competitiveness, and Abbott explained that the proliferation of federal, state and local environmental approvals had added to the complexity, cost and uncertainty of infrastructure investment. A Coalition government has pledged to create a ‘one-stop shop’ for environmental approvals, addressing what Abbott described as the ‘indecision, imprecision and inconsistency which is killing new projects’. The proposal would see states and territories administer a single approvals process, including approvals under Commonwealth legislation, such as the Environment Protection and Biodiversity Conservation (EPBC) Act. A streamlined assessment would be supported by a single lodgement and documentation process, Abbott explained. States and territories would also have the flexibility to defer to the Commonwealth as the sole, designated assessor for major offshore developments. ‘Environmental standards should be clear, assessment processes should be swift, and decisions should be unambiguous,’ Abbott said. He pointed to the proposed Bell Bay pulp mill in Tasmania as one of the most notorious examples of a large, job-creating investment that has been bogged down by an approvals process that has taken years instead of months. Under current arrangements, federal and state regimes regularly overlap when it comes to approval under the EPBC Act, particularly in the case of threatened species. This has led to situations in which the Commonwealth and states have taken

a different view of whether a project should be approved, resulting in significant project delays and unnecessary cost increases. The message from the Coalition is simple: the hurdles involved in getting major projects off the ground need to be lowered, ensuring that the right projects can proceed without delay. In the words of Abbott: ‘Approvals have to be final, subject to an equally clear and consistent formal review mechanism. They can’t be at the mercy of last-minute lobbying by campaigners lest Australia start to lose the investment, the jobs and the wealth upon which lasting and sustainable environmental outcomes depend.’ Much has been made of Australia’s declining productivity, which has seen the country fall from the fifth to the 20th most competitive economy in the world. Yet we’ve seen little progress on the underlying causes. Australia’s global competitiveness will be underpinned by reforms that reduce the input costs for the production of goods and services. Abbott’s appetite for change, and his recent statements around the proper role for the Commonwealth, states and private investors in terms of funding, financing and operating the nation’s infrastructure, have the infrastructure sector and the broader business community enthused. Maintaining that momentum will be paramount.

Volume 3 Number 1

11/9/12 11:14 AM

•

• • • • • • •

NSW AU 16007 Head Office

1778_Future Building v301.indd 9

11/9/12 11:14 AM

COMPANY FOCUS

HELPING BUILD AUSTRALIA’S INFRASTRUCTURE

Milka McNamara

The Commonwealth Bank of Australia is leaning on in-house expertise and hefty capital reserves to build on its infrastructure business as European debt woes prompt overseas rivals to scale back appetite. In 2011 Commonwealth Bank was a mandated lead arranger for loans totalling US$16.2 billion. Milka McNamara, CBA’s Head of Infrastructure, Institutional Banking and Markets tells us about the bank’s priorities in the segment and where it sees growth in the coming years.

10X

What parts of your infrastructure business are most active?

How are you active in tapping into those infrastructure priorities?

The business is evenly busy between economic and social infrastructure such as hospitals. Over the past year we’ve been busy in public private partnerships but we’ve also done financing in the toll roads, airports and ports space. The Bank also increased its presence in the resources infrastructure space through its financing of the Abbot Point Coal Terminal (which was acquired by India’s Adani Group for $1.8 billion during Queensland’s recent sale of key assets).

We have good relations with government and private sector. It’s about being tapped into the market to know what projects are coming. We can play in this space on many different levels. This bank was one of the original owners of a key piece of infrastructure: the M5 motorway in Sydney. It’s also been a shareholder in airports: Brisbane Airport when that was privatised. So this bank has a long history of not only being a financier but also an equity participant.

How does activity in Australia stack up against opportunities overseas?

What role will PPPs play when it comes to planning infrastructure?

Since the early 1980s CBA has had a specialised Infrastructure unit. We have a leading position in the Australian market. When it comes to growth opportunities we see them overseas, particularly in the United Kingdom and Europe. One of the consequences of the financial crisis in Europe is that a number of European banks have perhaps pulled back their appetite. CBA is a well-funded, strong institution. We’re in a good position to make the most of that situation.

Can you give us some examples? We recognise infrastructure is a global business. We’ve made a concerted effort to reach out to overseas clients and capital markets, such as with Anglian Water for example. Anglian is a water utility in the United Kingdom. We, as an Australian bank, on a sole basis undertook a $US550 million raising in the United States private placement market for Anglian Water. That’s an Aussie bank, taking a United Kingdom client to a United States capital market. It doesn’t get more global than that.

What are Australia’s infrastructure priorities as CBA sees them? Each State has infrastructure priorities. In the key capital cities – Sydney and Melbourne – the main priorities are the transport network for both private travel and freight. Sydney is a good example. The port and airport are close together. That’s great, but the road network servicing them at the precinct is very poor and congested. This is a priority for New South Wales.

PPPs have delivered high-quality projects to tax payers. Where the private sector has made the wrong call; it has been on patronage risk. The failed projects have stopped the private sector from investing in greenfield toll road projects for example. We believe there is a model of successful participation for the private sector, but what that requires is a level of support from government to perhaps share patronage risk, particularly in the early years of the project. We also believe that if the government is going to share in the downside, it needs to benefit from the upside.

How does the future look for you in this business? We are very skilled at what we do. We take calculated risks. Our growth strategy is led by what we are good at. We have a disciplined approach to growth. We see a healthy pipeline of transactions in the sector. Population growth, urbanisation and ageing of existing infrastructure assets are driving the demand for new infrastructure. Budget and taxation restraints are increasing the gap between required infrastructure and the capacity public sector finance. Public sector constraints will mean that we will also see an increased level of asset sales by governments. In the past 18 months we have seen the sale of two ports, a rail business and most recently a desalination plant. Finally, in Australia, there will be increasing opportunities to finance common user infrastructure that services the mining sector.

future building Volume Volume 3 Number1 1 3 Number future building

1778_Future v301.indd 10 Bank | 1778.indd 24 323612E LHSBuilding Pg12_Commonwealth

11/9/12 11:14 AM 28/06/12 2:16 PM

seNTinel Northern Territory Secure Facilities PPP A$495 Million Club Facility Financial Advisor, Bid Sponsor, Equity Investor and Mandated Lead Arranger October 2011

Wiggins Island Coal Export Terminal Stage 1 Project Financing US$2,850 Million & A$150 Million Senior Debt Facilities Mandated Lead Arranger and Bookrunner September 2011

Newcastle Coal Infrastructure Group Stage 2F Project Financing US$1,050 Million Senior Term Debt Facilities Mandated Lead Arranger and Bookrunner August 2011

AMT M1 A$520 Million Club Facility Mandated Lead Arranger July 2011

North Queensland Airports A$529 Million Club Facility Mandated Lead Arranger July 2011

Flinders Ports Undisclosed Club Facility Mandated Lead Arranger July 2011

We can tackle the big jobs. Just look at our CV. As you can see, we’ve got an excellent track record when it comes to the infrastructure industry. Besides having the right connections and a strong portfolio, our customers also benefit from our years of experience and expertise. To find out how we can help your business, contact Commonwealth Bank’s Institutional team today. Call Milka McNamara on +61 2 9118 4296 or visit commbank.com.au/institutional

Commonwealth Bank of Australia ABN 48 123 123 124. CLA1539

1778_Future Building v301.indd 11

11/9/12 11:14 AM

From missiles to motorways Scott Charlton had no intention of leaving Lend Lease, until he got an offer he couldn’t refuse, writes Domini Stuart.

ABOVE: Transurban Chief Executive Officer, Scott Charlton.

futurebuilding

1778_Future Building v301.indd 12

Head-hunters often ask Scott Charlton if he can recommend someone for a position they’re trying to fill. Recently, he listened to another list of desirable qualities and said sorry; he couldn’t help. But this time it wasn’t his recommendation the head-hunter was after, it was him. The job was Chief Executive Officer of Transurban. ‘The fit hadn’t clicked because I wasn’t looking for a new role,’ he says. ‘I was very happy at Lend Lease – it’s a great company, they were very good to me, and I hadn’t accomplished everything I set out to do there. But Transurban presented such a great opportunity; it was as if my whole career in Australia had been leading up to this role.’

Charlton was born in Houston and raised just outside Dallas. His first ambition, to become an architect, had one fatal flaw – he couldn’t draw. Instead, his skills in maths and problem solving led to a degree in electrical engineering and a job with Texas Instruments, designing laser-guided systems for bombs. He soon realised that he didn’t want to design circuits for the rest of his life, so he studied for an MBA and moved into finance. When the savings and loan crisis blew up in the 1980s, Charlton worked on restructuring bank portfolios. As some included infrastructure, this was his first step on the path that would eventually lead to senior executive roles in Australia. In the meantime, he took a year off to go backpacking and, in New Zealand, met his Englishborn future wife. They both enjoyed Australia and, in 1992, decided to come back – though the original plan was to stay just for a year or two. ‘Ironically, my first major assignment in Australia was to model the Melbourne CityLink bid for the competitor who lost out to Transfield-Macquarie, which eventually became Transurban,’ he says. ‘I was working for a consortium called CHART – Clough Engineering, John Holland, Roche Brothers and Thiess Contractors – and one of the reasons we lost out was that our contractors didn’t want to do the deep tunnel under the Yarra.’

Complementary experiences If Charlton has come full circle, it is by way of three defining roles that allowed him to strengthen complementary skills. They also taught him about the demands of different time frames – from the fast turnaround of investment banking through to the longer cycles in construction and property development. As an investment banker at Deutsche Bank, Charlton cut his teeth during the 1990s, when there was a wave of privatisation of infrastructure assets.

Volume 3 Number 1

11/9/12 11:14 AM

From missiles to motorways

‘It was a crucible of activity – particularly in Victoria where there was a pipeline of deals being done. I learned a lot in a short time about dealmaking and what constitutes a good deal.’ When he joined Leighton Holdings as Executive General Manager of Finance, the company was turning over around $5 billion a year and looking for ways to go forward. By the time he left, just over six years later, he had been Chief Financial Officer for two years and turnover had jumped to $19 billion. ‘At Leighton I learned a lot about strategy and discipline,’ he says. ‘Developing a sound strategy and having the discipline to follow it through produced some great results over the years that I was there.’ Then came the opportunity at Lend Lease, where Charlton was appointed Director of Operations in 2010. He led the company through cultural change, restructuring and resetting the agenda. ‘I had a lot to do with the people side of the equation there, and that really taught me a lot about people and passion.’ The result is a management style that he describes as collaborative – he enjoys working in teams and is always interested in what his team has to say – to a point. ‘I’m also very decisive,’ he says. ‘I believe what they say about a good decision being the best outcome, a bad decision being the second best outcome because it can always be changed. The worst outcome has to be no decision at all.’ While the contrasts gave Charlton breadth of experience, there was also a useful common thread. ‘One way or another, my whole career has been around toll roads,’ he says. ‘I have roads experience overseas – and I think I’ve worked on all but one of the toll roads in Australia.’

A company in great shape Charlton’s predecessor at Transurban, Chris Lynch, has been credited with doing the job he was asked to do by restoring the balance sheet and putting the company on a sustainable path. ‘I have to give Chris and his team credit for what they’ve achieved,’ says Charlton. ‘It’s very rare for an outside CEO to come into a company that’s in great

In the past, the process was a bit combative – here’s a tender, bid it, build it – and the result was often a piece of infrastructure that sat out there by itself shape and really well positioned to go forward – usually you’re brought in because there’s a problem or the company wants a huge change of direction.’ Charlton has no plans to shift from Lynch’s strategic focus on core assets, value-based growth and cost setting; however, he does see significant opportunities over the next decade for Transurban to work more closely with governments and communities to help them find solutions. ‘In the past, the process was a bit combative – here’s a tender, bid it, build it – and the result was often a piece of infrastructure that sat out there by itself,’ he says. ‘I think the days are coming when the private sector will be working more collaboratively with the government to find broader-range solutions. In Sydney and Melbourne in particular, we need to take the whole network of road, rail, bus and ferry into consideration. We should be thinking about how we can use the infrastructure we have more efficiently, and how best to build out the missing parts of the puzzles to provide a better outcome for our customers who, at the end of the day, are the drivers.’ That closer engagement with governments has already seen Transurban announce in July that it has made an unsolicited proposal to the New South Wales Government for a possible F3-M2 Motorway Tunnel link underneath Pennant Hills Road. Charlton says that Transurban needs to adopt a much longer-term focus moving forward. ‘Transurban is in a very privileged position; we can’t lose sight of our responsibility and the licence to operate given to us by the public. You can always Volume 3 Number 1

1778_Future Building v301.indd 13

futurebuilding

11/9/12 11:14 AM

From missiles to motorways

take advantage of a short-term position to jeopardise the long-term outlook, but I like to look at the bigger picture.’ Charlton is impressed by the way the governments of countries like Singapore and Hong Kong create value by investing in infrastructure that won’t be needed for 10 or 20 years. ‘Australia seems more focused on trying to keep up with historical lack of spending,’ he says. ‘When the bidding was on for the M5 East tunnel, the whole industry predicted that it would be full from day one. At the time, we could have added another lane for a few hundred million dollars, but the governments argued that that would be over budget and they didn’t have the money. Now an extra lane is going to cost billions of dollars and, in the meantime, commuters and the whole economy have had to suffer. It’s a shame.’

A range of solutions Australia’s capital cities are straining under chronic congestion, which is stripping billions from the nation’s economy each year and compounding the decade-long productivity slump. Charlton said that solutions will lie in wellconsidered, well-executed reforms, including broader consideration of user-pays concepts. In America, Transurban has built high-occupancy toll lanes – known as HOT lanes. HOT lanes generally run next to existing freeway lanes and, unlike standard toll roads, they give drivers the choice of paying for a faster trip. ‘HOT lanes don’t work everywhere – they’re most effective on congested routes used by people who are both time-sensitive and conscious of the value of their time,’ says Charlton. ‘They could be useful in some Australian situations, but I see them as just one of a possible range of options. There is always more than one solution to a problem, and they all need to be taken into account if you’re going to come up with the most efficient outcome.’ Australians are less comfortable with paying to use infrastructure than Americans; there are still people who, on principle, will drive kilometres out of their way to avoid paying a toll. While it is a politically complex issue, Charlton said it’s up to policymakers to lead the debate about the benefits of road pricing mechanisms. ‘It’s a difficult subject for politicians and bureaucrats, but the public needs to understand the 14

futurebuilding

1778_Future Building v301.indd 14

benefits user-pays can bring to whole communities, as well as individuals,’ Charlton continues. ‘The M7, for instance, brought a great deal of economic value to communities in western Sydney.’ Few people think of buying petrol as a way to pay for infrastructure but, as tax makes up two-thirds of the price, the more you drive the more petrol you use and the more you contribute to the upkeep of our roads. ‘In some ways, I think this model is more disingenuous because some of that tax goes to general revenue rather than roads,’ says Charlton. ‘I’d be interested to see what would happen if we made user-pays systems more transparent.’ Many Australians are also uncomfortable with the idea of raising funds through privatisation. ‘There does seem to be a mindset that infrastructure needs to be owned by government – and it’s one you don’t tend to see in the United States or elsewhere,’ he says. ‘As long as the money made from a sale is put back into creating new infrastructure, it’s just recycling capital. The process can be very difficult politically, but I do think governments are getting better at it.’ When it comes to other forms of finance, Charlton sees a good deal as a good deal, whatever the model. ‘The government needs the maturity to balance the risk profile and take the efficiency of the wider network into account when these deals are done,’ he says. ‘Whether you’re looking at a road or a stretch of rail or a port, if you do a discreet deal with no alignment of interests between the ultimate regulatory or government authority and the people who own the asset, you’re always going to have either a combative relationship or a focus on just one link in the chain. ‘There needs to be an alignment of interests so that, if you do need to adjust one of the links to make the chain more efficient, there’s a way of doing that. I think a lack of incentive for that alignment could explain some of the high-profile failures in public private partnerships (PPPs) we’ve seen in recent times.’

The challenges in Australia Charlton identifies the high cost of delivering infrastructure as a major challenge for the sector. ‘The cost of tendering and bidding for major projects is higher in Australia than anywhere else in the world,’ he says. ‘Government preference is for far more detailed documentation, funding and design continued on page 16

Volume 3 Number 1

11/9/12 11:14 AM

1778_Future Building v301.indd 15

11/9/12 11:14 AM

From missiles to motorways

continued from page 14

The mining boom is creating a pull on certain skills, but Charlton believes that Australia still has the capability to deliver. He says that getting the right productivity and incentives around the workforce is a central issue than is required elsewhere. They say, “if companies didn’t want to bid they wouldn’t.” But the industry response would be that the costs are embedded – they have to be recovered somehow. That cost burden also inhibits smaller players and so, to some extent, limits competition.’ Governments are also eager to push as many risks as possible onto the private sector, including those associated with approvals. ‘When companies in the private sector embark on major infrastructure projects, they have to liaise with myriad government and regulatory authorities who will often see this as an opportunity to plug holes in their own budget,’ he says. ‘They inevitably want to add something or change something that puts on another $10 million here or $20 million there, continually pushing up the final cost.’ The mining boom is creating a pull on certain skills, but Charlton believes that Australia still has the capability to deliver. He says that getting the right productivity and incentives around the workforce is a central issue. ‘It’s not just one aspect causing a problem,’ he says. ‘We have to pay much more for the whole rolled-up process of delivering infrastructure than any of our trading partners.’ Despite the challenges, Charlton believes that many of our assets are as good as any in the world. ‘Australia may be a small market, but it is home to some very capable players,’ he says. And, for someone who spends so much time on the move, a small market also brings personal rewards. ‘I like the fact that everyone knows everyone else,’ he says. ‘Travelling is a lot more fun when you can’t go to the airport without running into at least one friend from the industry.’ 16

futurebuilding

1778_Future Building v301.indd 16

Volume 3 Number 1

11/9/12 11:14 AM

• •

• • •

1778_Future Building v301.indd 17

11/9/12 11:14 AM

COMPANY FOCUS

BUS RAPId TRAnSIT – nEW SOLUTIOnS Bus networks provide the ‘backbone’ of city transport systems worldwide. Buses are an incredibly efficient mode of transport – comparatively cheap, flexible and effective. Even cities with highly developed Mass Rapid Transit systems rely heavily on buses for short and medium journey services. In London, buses take 3.7 million trips per day compared to 2.1 million trips on the city’s 13 underground lines. The primary limitation on bus-centric public transport systems is road congestion because buses have to share road space with other vehicles and commuters. In addition to overcoming congestion to achieve greater speed and reliability, buses also face challenges around traveller perception of the quality of services and in improving integration with other transport modes. Bus operators have made significant steps forward in the quality of bus transport with leading bus systems featuring modern low-floor, multi-door buses with high standards of vehicle age, cleanliness and passenger amenity. Combined with preticketing and smart card technology, queuing at the bus stop is poised to become a thing of the past. Speed and reliability of services is being achieved predominantly through enabling bus priority over other vehicles, with measures such as dedicated bus lanes, and prioritised traffic signalling. While these measures create improvements in high-density cities such as London, more dispersed cities, such as Brisbane, are taking a further step to achieve an optimal balance between the convenience of localised bus services with the efficiency of medium haul commuter transport through development of advanced Bus Rapid Transport (BRT). BRTs use busways that are gradeseparated, highly visible dedicated corridors constructed through built-up urban environments. Combining the speed of rapid transit or light rail lines with the flexibility of buses, BRT targets the same segment of transit requirements as light rail transit. A BRT system is based on the concept of using dedicated right-of-way in areas where competition with highway traffic would be greatest, but using existing highways and roadways in less congested areas wherever possible to reduce costs. Optimal BRTs include: • Bus-only, grade-separated right-ofway • Low-cost infrastructure elements that increase the speed and reliability of bus services (e.g. bus turnouts, bus boarding islands, and curb realignments) • Comprehensive coverage

futurebuilding

1778_Future v301.indd 18 322223E LHSBuilding Pg22_SKM | 1778.indd 2

•

Servicing of a diverse market with a high-frequency all day service • Bus priority / bus lanes • Pre-ticketing of patrons at secure, highly visible busway stations to allow all-door boarding. BRTs are often linked with Intelligent Transportation Systems (ITS), and can involve bus controlled traffic signals, smart card systems, Automatic Vehicle Locating (AVL) bus tracking, dynamic message signs, and automatically guided buses. They often feature purpose-built busway stations with 24-hour security, ‘real-time’ electronic timetable information and full accessibility for all hearing, visually and mobility impaired people. A high-functioning BRT can offer a ‘single-seat journey’ – suburban buses are able to access busways at key locations, providing a point-to-point journey from a local bus stop – and also create new and improved travel opportunities through increased connectivity with other modes of transport. Busway stations facilitate the movement of people and vehicles simply and logically. They use applied design elements to improve accessibility, mobility and safety to include visual consistency, accessible lifts, emergency help points, public telephones, food and beverage kiosks, or vending machines. Importantly, busway stations significantly reduce bus dwell times for pick-up and setdown through platforms at grade with bus doorways and the potential for passengers to pay their fare upon entering the busway station rather than when boarding their bus. Busways and busway stations have positive impacts on land use patterns. Many studies (including SKM Colin Buchanan’s Crossrail Business Case) prove there is a direct and strong correlation between the availability of mass transit and clustering of high value employment. The strength of Light Rail Rapid Transit is that it inspires development around stations because of perceived permanence. Traditionally, no one invests in a development around a bus stop because the bus may simply change its route. Busways and busway station infrastructure counter this traditional thinking. Of course, ultimately BRTs are not the panacea to solving a city’s increasing transport needs. Ultimately even the most sophisticated BRT system cannot deliver the capacity of a dedicated rail system and it is impossible for major cities such as Hong Kong or London, or ultimately Sydney or Melbourne, to operate without them. Planning and implementation of new rail systems in cities needs to be occurring now. Simultaneously, in an environment where

PAUL BUCHANAN

available capital for new infrastructure is constrained, bus system enhancements and BRTs provide an opportunity to meet the community’s need for effective transport solutions – especially in the expanding fringes of our cities. ABOUT SINCLAIR KNIGHT MERZ Sinclair Knight Merz (SKM) works with clients globally to address their unique infrastructure requirements. SKM has extensive experience in providing city leaders with the strategic transport advice on enhancing bus systems and BRT investments, and has a track record in the successful engineering and delivery of BRT infrastructure. THE AUTHOR – PAUL BUCHANAN Paul Buchanan is an economist with many years experience in the planning, economic and financial appraisal of public and private sector transport investments and policies. He has specialist skills in the appraisal of transport projects in the United Kingdom and overseas.

Volume 3 Number 1

11/9/12 11:14 24/05/12 11:07 AM

We are committed to helping our clients achieve. Developing innovative transport design solutions like Brisbane’s Eastern Busway is just one of the roles we play.

1778_Future Building v301.indd 19

11/9/12 11:14 AM

COMPANY FOCUS

CUBIC’S VISIONfor FORthe THE FUTURE Cubic’s vision futureOFof transpor TRANSPORT AUSTRALIA, Australia, andINthe world AND THE WORLD

Every year nearly 10 billion rides on public transport Nextcity: the future of transport are paid for worldwide using Cubic Transportation Every year nearly 10 billion rides on public transport are paid for worldwide using Cubic Systems’ (Cubic) payment and information systems. Working in partnership with the world’s principa Transportation Systems’ (Cubic) payment and information systems. operators and authorities has given us a clea Cubic’s operations in in Australia – and howCities quickly - the of urban Geographically, the new system how for is changing. are growing fast inworld the Cubic’s operations Australia greater Sydney will be a world leader, with developed and developing world, and Over the last decade, Cubic has experienced is changing. Cities are growing fast in the d a footprint of more than 40,000 square infrastructure must respond for economic strong regional growth and is emerging as Over the alast decade Cubic has strong and developing world,Constraints and infrastructure mus kilometres stretching north of Newcastle, growth to be sustained. of all major provider of transport payment and experienced south of Wollongong and west across the kinds mean that unlimited development information systems and services for the regional growth and is emerging as a major provider of for economic growth to be sustained. Constra Blue Mountains. cannot be the answer – stations cannot be Australian market. transport payment information and services thattunnels unlimited development cann made larger, cannot be expanded, In several major cities around thekinds mean Cubic nowand has more than 300 highly systems globe, new technologies for payments and and city roads are not going to get much skilled staff at multiple facilities based in for the Australian market. answer –wider. stations cannot be made larger, tunne information are being pioneered by Cubic, A means of making more intelligent Brisbane, Sydney (regional HQ) and Perth. be expanded, city roads including systems that will enable customers use of that infrastructure has to beare found.not going to In Brisbane, Cubic installed and operates to pay for their travel by contactless credit/ the go card public transport payments Cubic nowsystem has more than 300 highlydebit skilled staff at wider. ACubic’s means visionof for making the future ofmore intelligent u cards (EMV) or NFC-equipped mobile – recently named by the Tourism and transporthas in Australia, the world phones – the smart phones can gain infrastructure Transport Forum (TTF) as ‘the smartcard multiple facilities based in best Brisbane, Sydney (regional to beand found. Cubic’s Nextcity vision provides the further utility through specialised transport ticketing system in Australia.’ HQ) and Perth. platform for a truly intelligent transport applications (‘apps’) – all of which will be In Sydney, the Cubic-led Pearl It willfor lead the to a world where of transport in available in Australia in the near future. Consortium is now building and installing Cubic’ssystem. vision future technology is harnessed and focused to the Opal card public transport payments In Brisbane, Cubic installed and thethego card world Nextcity: future of transport and theprovide the optimum balance of benefits system, which will be progressively rolledoperates Working in partnership with the world’s for operators and travellers. It is founded on out to ferry,payments train and bus fleets from the end public transport system – recently named by principal transport operators and authorities our recognition of the need to handle urban of 2012. The technology behind the Opal has given a clear view of how – and The Tourism and Transport Forum (TTF) as us“the best Cubic’s growth Nextcity vision along with clear andprovides undeniable the platform card is based on the world’s most iconic how quickly – the world of urban transport trends: public transport smartcard, London’s Oyster. smartcard ticketing system in Australia.” intelligent transport system. It will lead to a wo technology is harnessed and focused to pr future building Volume Volume 3 Number1 1 3 Number future building 20X In Sydney, the Cubic-lead Pearl Consortium is now optimum balance of benefits for operators and building and installing the Opal card public transport It is founded on our recognition of the need payments system, which will be progressively rolled out urban growth along with clear and6/06/12 undeniable 1778_Future v301.indd 20 11/9/12 12:59 11:14 PM AM 323613E LHSBuilding Pg1of2_Cubic | 1778.indd 24

Nextcity is how Cubic will help infrastructure operators and users realise the benefits that can be delivered by connecting and infrastructure across all modes C O M P Atravellers NY FO CU S of transport.

Over more than 30 years, Cubic has built a solid track record of delivering increasingly complex integrated solutions that help transport operators manage their operations and services more effectively, whille giving passengers convenient and reliable ways to pay for In reality, this will deliver benefits for transport operators transport related charges. Cubic specialises in the • Rapid advances in be able to understand information travel patterns, customer and authorities who will how,about when ‘What we can supply, do design, development, manufacture, installation telecommunication technology behaviour, mode selection and its relationship and where people are travelling, where the bottlenecks and integration of systems and information, backed by together is far better and infrastructure globally are to the time of day, toll and fare levels, are (or will be) and what the impacts of specific incidents world-class service and support. driving people and devices to be incident occurrence and passenger volumes. than what either of us or conditions are. connected It will enable them to communicate continuously or ‘always Network planning, regulation and policy couldordo if weback didn’t on’and – making it feasible to collect and will be better informed with data analytics effectively rapidly, keeping their customers informed Services include on-site hosted office system distribute huge amounts of real-time provided by Nextcity. and positively influencing their travel behaviour. operations, management and support; information and collaborate. I think that Nextcity is how Cubic will help infrastructure operators Over more than 30 years, Cubic has built a solid track data. This means people andauthorities devices Government and transport will have the communication technology; web/IVR/ “live” operator is not a theoretical conceptby of and users the benefits that can be delivered record delivering increasingly our of relationship with complex integrated can be updated in real-time with realise Nextcity capability to change changes customer behaviour through across customer services and support; distribution andmanage their travellers and infrastructure all modes solutions that helpretail transport operators a future utopia. information to directconnecting in their Cubic is one of the most incentives, rewards and, in particular, variable tolls and network management; business intelligence; customised of transport. operations and services more effectively, whille giving Cubic is working with some of the world’s travel behaviour; fruitful commercial fares •– potentially in real-time – to maximise beneficial reporting; maintenance, repair overhaul passengers convenient andand reliable ways to pay for leading cities – London, Chicago, Sydneyfield/shop and That same ‘always on’ connectivity Vancouver – to deliver integrated solutions reality, thistheir will deliver benefits for transport operators transport related charges. Cubic specialises in the integration of In payments and use of allallows modes of transport within jurisdiction. services. The majority of systems and services delivered relationships that TfL to will enable our vision to optimise information authorities who be able to understand how, when information across alland modes of design, development, manufacture, supply, installation by Cubic are administered under service level agreements to become reality in the near transport, and the optimisation of the and where peopleand aretransport travelling, where athe andhas.’ integration Increasing the level of mobility infrastructure utilisation thatbottlenecks provide our customers (and of thesystems peopleand whoinformation, use their backed by future. travel experience andare infrastructure (or will be) and what the impacts of specific incidents world-class service -and support. Peter Hendy has been characterised as “sweating the assets” and with guaranteed levels of performance. usage for an entire mobility network –are. It will enable them tonetworks) or conditions communicate Comissioner Transport Nextcity not willjust bea asingle positive enabler. mode of transport. effectively and rapidly, keeping their customers informed Services include on-site or hosted back office system Regional Systems and Services Around thesupport; World information and and operations, management and for London. Nextcity is how Cubic will help positively influencing their travel behaviour. Nextcity will operators allow customers to be with infrastructure and users realise thekept Government and up-to-date transport authorities will have the communication technology; web/IVR/ “live” operator benefits that can delivered by connecting information thatbe they have askedtoto change receive customer regarding behaviour capability customer and support; Atlantathrough • Washington, D.C.services • Los Angeles • Sanretail distribution and travellers and infrastructure all modes incentives, rewards particular, tolls and network management; business intelligence; customised their options for travel,across whether that be and, via in public or variable Diego • San Francisco Maryland Northern Virginia level agreements that•provide our customers of transport. faresreceive – potentially in real-time – to maximise beneficial reporting; field/shop maintenance, repair and overhaul private modes. They can rewards for making • New York • New(and Jersey • Philadelphia Edmonton the people who use their networks) with In reality, this will deliver benefits of allfor modes of transport within services. The majority of systems and services delivered best use of the transportuse network to spread demand, andtheir jurisdiction. guaranteed levels of performance. • Minneapolis/St.by Paul • Chicago • Vancouver • transport operators and authorities who will Cubic are administered under service level agreements avoid causing or adding to congestion. Brisbane, Australia • provide London Miami • Southern be able to understand how, when and where Increasing the level of mobility infrastructure utilisation that our• customers (andAround the people who use their Regional Systems and Services Transportation Systems people are travelling, where the Sweden Modena, Italy • Sydney Australia hasbottlenecks been characterised as “sweating the assets”•and networks) with guaranteed levels of performance. the World Cubic Transportation are (or will be) and what impacts ofwill and Customers receive allthethe benefits of a Systems is a unit Nextcity be a convenience positive enabler. (NYSE:CUB), the of Cubic Corporation specific incidents or conditions are. It will • SydneySystems • Brisbane single travel account covering any use of transport. Regional and Services Around the World world’s foremost integrator of payment and enable them to communicate effectively and Nextcity will allow customers to be kept up-to-date with • Atlanta • Washington, D.C. information technology and services that we can do together is far better rapidly, keeping their customers informed and information that they have asked to receive“What regarding Nextcity authorities governments access Atlanta • Washington, D.C. • Los Angeles • San provide to intelligent travel solutions to the positivelyallows influencing their travel and behaviour. • Los Angeles • San Diego what of ifMaryland we didn’t their options for travel travel, whether that be viathat public or either and understand information about patterns, Diegoof• us Sancould Francisco • Northern Virginia world’s largest cities and most demanding Government and transport authorities will • San Francisco • Maryland private modes. They can receive rewards for making collaborate. I think that our relationship with Edmonton • New York • New Jersey • Philadelphia customer behaviour, mode selection andtransport its relationship operators. have the capability to change customer of the transport network demand, and ••of Minneapolis/St. Paul••commercial Chicago Cubic is one the most fruitful Foroccurrence more thanto30spread years, Cubic has built a rewards and, inincident Northern Virginia New York• Vancouver • tobehaviour the timethrough of day,incentives, toll andbest fareuse levels, avoid– potentially causing or adding to congestion. Brisbane, Australia • London • Miami • Southern solid track record of delivering increasingly particular, variable tolls and fares relationships•that has.” and passenger volumes. Network planning, regulation NewTfL Jersey • Philadelphia complex integrated solutions that help Sweden • Modena, Italy • Sydney Australia in real-time – to maximise beneficial use of all and policy will be better informed with all data Customers the analytics benefits manage and convenience of a • Edmonton • Minneapolis/St. Paul transport operators their operations modes of transport within their jurisdiction.receive provided by Nextcity. single travel account any effectively, use of transport. Peter Hendy - Comissioner andcovering services more while giving Increasing the level of mobility • Chicago • Vancouver passengers convenient and reliable ways infrastructure utilisation has been Transport of London “What we can do together is far better • London • Miami allows of authorities and governments to access to pay for transport-related charges. Cubic characterised as ‘sweating theNextcity assets’, and Nextcity is not a theoretical concept a future utopia. that what either of us could of if we didn’t and understand information patterns, specialises in theabout design, travel development, Nextcity be a positive enabler. Cubic iswill working with some of the world’s leading • Southern Sweden • Modena, Italy collaborate. I think that our relationship with manufacture, supply, installation and Nextcity will allow customers to be kept customer behaviour, mode selection and its relationship cities - London, Chicago, Sydney and Vancouver – Cubic is one of the most fruitful commercial integration of levels, systemsincident and information, up-to-date with information that theytime haveof day, toll to the and fare occurrence toasked deliver integrated solutions to enable ourworld-class vision service and support. backed byNetwork to receive regarding their for Cubic Transportationthat Systems relationships TfL has.” andoptions passenger volumes. planning, regulation totravel, optimise information and transport to become a on-site Services include or hosted back whether that be via public privatewill be better (Australasia) Pty Limited and or policy informed with data analytics reality thecan near future. office system operations, management and modes.in They receive rewards for making LevelPeter 23, 219 -227 Elizabeth Street provided by Nextcity. Hendy - Comissioner support; information and communication best use of the transport network to spread Sydney, NSW 2000, Australia Transport of London technology; concept web/IVR/ customer demand, avoid adding tois not a (NYSE:CUB), P: 61 2 9275 9900 |F: 61 2 9275 9950 Cubic is and a unit ofcausing Cubicor Corporation the ’live’ Nextcity theoretical of a operator future utopia. Cubic Transportation Systems (Australia) Pty Limited and support; retail distribution and congestion. E: nextcity-au@cubic.com Cubic workingservices withinformation some of the world’s leading world’s foremost integrator of is payment and network management; business intelligence; Customers receive all the benefits and Level 23, 227 Elizabeth Street cities London, intelligent Chicago, Sydney and Vancouver – technology services that- provide travel and customised reporting; field/shop NSW 2000, Australia convenience and of a single travel account Sydney, to deliver integrated solutions to enable our vision solutions to the largest cities and most demanding maintenance, repair and overhaul services. covering any use world’s of transport. to optimise information and transport61-2-9275-9900 to become a transport operators. The majority of systems and services delivered Nextcity allows authorities and reality in the nearby future. 61-2-9275 cts.cubic.com Cubic are administered under service 9950 Fax governments to access and understand Cubic is a unit of Cubic Corporation (NYSE:CUB), the world’s foremost integrator of payment and information technology and services that provide intelligent travel solutions to the world’s largest cities and most demanding transport operators.

Cubic Transportation Systems (Australia) Pty Limited Level 23, 227 Elizabeth Street Sydney, NSW 2000, Australia 61-2-9275-9900 61-2-9275 9950 Fax cts.cubic.com

Volume 1 1 Volume3 3Number Number

1778_Future v301.indd 21 323613E RHSBuilding Pg2of2_Cubic | 1778.indd 25

future building future building

Y21

11/9/12 12:21 11:14 PM AM 7/06/12

New South Wales plots transport revolution Around four years ago, then New South Wales Premier, Nathan Rees, was asked about Sydney’s debilitating – and mounting – congestion crisis.

futurebuilding

1778_Future Building v301.indd 22

Volume 3 Number 1

11/9/12 11:14 AM

New South Wales plots transport revolution

‘Congestion is a concern for all Sydneysiders, and if you think you are in traffic, you are in traffic. It’s not a relative concept,’ said Rees. ‘It’s no good for me saying, “Oh, it’s much worse in New York or Paris.” ‘It’s like being in love. If you think you are in love, you are in love. If you think you are in traffic, you are in traffic.’ While it was a curious metaphor, the point, Rees later explained, was that Sydney’s commuters don’t care about the fact that congestion is worse around the world; they only care how it affects them.

Voters demanded change, and the subsequent election win by the Coalition was accompanied by a strong mandate for reform

The project’s axing was a financial disaster, costing the state more than $400 million and resulting in severe public and industry backlash from which the government never recovered. Voters demanded change, and the subsequent election win by the Coalition was accompanied by a strong mandate for reform. The message from voters was clear: fix the mess and start to deliver real plans, backed by real projects. The government’s response has been a suite of governance and operational reforms to remedy the state’s ailing transport networks and finally start to deliver commuters more efficient, reliable services. One of the most significant reforms was the creation of Transport for NSW (TfNSW) to integrate planning across modes and agencies to deliver a single, statewide transport plan. The creation of TfNSW saw the Roads and Traffic Authority (RTA) and NSW Maritime replaced by Roads and Maritime Services (RMS), and the Country Rail Infrastructure Authority and the Transport Construction Authority brought together under Transport for NSW. And in a first for the state’s transport sector, strategy, planning and policy functions were taken away from transport providers such as RailCorp, leaving them to concentrate on service delivery and network management.

BELOW: Sydney Ferries have been a target for reform

Unfortunately for many Sydneysiders, the task of simply getting to and from work each day has been laborious. Crippling congestion on major motorways, inefficient freight networks and decades of underinvestment in the state’s railways have all played a major role in New South Wales’s stuttering productivity performance over the past decade. And while all sides of politics agree that transport networks in New South Wales are inadequate for a growing population, there remains a lack of consensus on appropriate solutions. Just days after Rees spoke of Sydney’s congestion woes, he announced a multi-billion dollar plan for a CBD metro service. The flagship project, which would have consisted of a nine-kilometre railway running from Rozelle to the CBD, was later delayed, and then ultimately scrapped in 2010 by Rees’s successor, Kristina Keneally.

Volume 3 Number 1

1778_Future Building v301.indd 23

futurebuilding

11/9/12 11:14 AM

New South Wales plots transport revolution

BELOW: The proposed three-tier network structure for the New South Wales rail network.

Importantly, the new structure allows for timetabling for buses, ferries and rail to be done concurrently, ensuring that public transport services are properly interconnected, and creating a more efficient service for commuters. Notably, the reform also establishes a framework that allows for impartial judgements to be made on the best mode of transport along different corridors, ensuring that road and rail projects are not being planned in isolation. Bolder structural reform of RailCorp followed. In February, Transport Minister Gladys Berejiklian announced an all-encompassing review of the organisation, stating that the government department was no longer fit for purpose, and was costing taxpayers around $10 million a day to run. Berejiklian said that as fares and running costs continue to rise, they are not being matched by service improvements. A research paper by Infrastructure Partnerships Australia, ‘Franchising Passenger Rail Services in New South Wales: Options for Reform’, found that in 2005/06, every passenger journey on the RailCorp network required a taxpayer contribution of $6.77, on top of the fare paid by the commuter. By 2009/10,

the level of taxpayer subsidy had surged to $8.33 for every passenger journey, stripping $2.3 billion from the state’s budget. The overhaul of RailCorp will eventually see the establishment of two specialist organisations: Sydney Trains, servicing the greater Sydney suburban area; and NSW Trains, focusing on intercity, regional and country passengers. The new structure – which will take 12 to 18 months to bed down – will see assets remain in the government-owned organisation, but removed from the Sydney Trains and NSW Trains operating entities, leaving those delivery units to focus on operation and maintenance of trains. Reform of the state’s railways has continued. In June, almost four years after Rees tabled his plans for a CBD Metro, the government announced one of the most substantial modernisations in the history of Australia’s suburban railways. The long-term rail strategy, titled ‘Sydney’s Rail Future: Modernising Sydney’s Trains’, outlines a fivestage approach to solving Sydney’s rail problems, including Australia’s first ‘metro’-style high-frequency network – albeit in a different incarnation to that proposed by Rees in 2008. Broadly, the five stages include: • improving operational efficiency through the introduction of a new, standardised timetable and a reduction in dwell times • improving network efficiency through the introduction of Automatic Train Operations, which improve the way trains accelerate and brake at stations, enabling increased capacity • introducing single-deck trains operating on a metro-style timetable between the North West and Chatswood, following the completion of the North West Rail Link (NWRL) • constructing a second harbour crossing and new CBD line, allowing services from the NWRL to extend directly to Sydney’s CBD • extending single-deck rapid transit services to the Bankstown and Hurstville lines, thus completing plans for a three-tiered rail network comprising single-deck rapid transit, double-deck suburban, and intercity regional networks. The government confirmed that the $8.5 billion North West Rail Link will be procured and delivered under three separate contracts, including the Operations, Trains and Systems (OTS) package being delivered as a public private partnership (PPP). continued on page 26

futurebuilding

1778_Future Building v301.indd 24

Volume 3 Number 1

11/9/12 11:14 AM

3M Traffic Safety Systems Road Safety Solutions

Keeping people safer

with 3M Reflective Technology ™

3M’s new technologies deliver better visibility of signage, road markings and vehicles for motorists than ever before. As a global leader in reflective technology, 3M is committed to delivering innovative safety solutions designed to maximise visibility and safety on the road, in the workplace and general community.

High Visibility Signage 3M™ Diamond Grade™ DG3 Reflective Sheeting delivers outstanding wide angle reflectivity – ideal for compromised sign positions and dangerous roads.

High Visibility, Wet-Reflective Road Markings

High Visibility Vehicle & Equipment Markings

3M™ Stamark™ Tapes and All-Weather Paint make road markings especially visible when road users need them most – in the wet.

3M™ Diamond Grade™ Reflective Tapes keep work vehicles and equipment of all sizes clearly visible, even when not in use.

For more information on how we can improve road safety, please contact your 3M Traffic Safety Systems Representative or 3M on 136 136. 3M, Stamark and Diamond Grade are trademarks of 3M Company. © 3M 2011. All rights reserved. PB4908/0111

1778_Future Building v301.indd 25

11/9/12 11:15 AM

New South Wales plots transport revolution

continued from page 24 RIGHT: New South Wales Premier Barry O’Farrell

futurebuilding

1778_Future Building v301.indd 26

The $8.5 billion NWRL will be the first segment of the network to run the high-frequency single-deck services, with the line to be operated by the private sector. The decision to bring in the private sector is important, as it breaks a century-long public monopoly on passenger rail services in New South Wales. By opening the North West sector up to a private operator through a competitive bidding process, the government is ensuring that globally experienced private operators will come back with smart and innovative bids to increase comfort and quality, and drive down the costs of passenger rail services. The metro-style operation planned for the North West will see services terminate at Chatswood, with passengers interchanging for services to the CBD. Eventually, the plan is to build a second harbour crossing, with trains from the NWRL running through to the CBD, and joining a wider Sydney highfrequency metro-style network. Sydney is one of the only major cities in the world without a single-deck, high-frequency metro service. Even more unbelievably, with the Algiers Metro beginning operation in November last year, Australia is now the only inhabited continent without a completely driverless metro train service. With Sydney’s population expected to swell to six million by 2031, and to 7.5 million by 2050, the government has made it clear that it needs to find solutions to the structure and operation of an ageing rail network already plagued by bottlenecks. On a ‘no-change basis’, the CBD, Western, Northern, North Shore, Bankstown, East Hills and Airport Lines – and the North West Rail Link – would reach or exceed maximum capacity limits by 2031. But under the government’s plan, Sydney’s rail network would be able to carry an additional 90,000 to 100,000 passengers per hour, with the construction of new train stations relieving pressure on crowded CBD platforms. The use of the private sector to help deliver the state’s public transport services has been a central focus for the O’Farrell Government. Earlier this year, Harbour City Ferries – a 50/50 consortium of Transfield Services Australia and Veolia Transdev Australasia – was granted the contract to operate Sydney’s ferry network under a franchise agreement.

That contract sees the New South Wales Government retain ownership of the fleet and maintain control over fares and timetabling, with Harbour City Ferries taking over the delivery of services. The shift to franchising completed a process that began with a 2007 report by Bret Walker SC, which recommended franchising through competitive tendering to drive up service quality and apply downward pressure on the cost of provision. The focus on service delivery has extended to the state’s bus sector, with Transport Minister Gladys Berejiklian confirming in May that private sector bus operating contracts in metropolitan Sydney will be competitively tendered as they expire. While change has been incremental, it has been rapid and far-reaching. The reform to buses is expected to be followed by the franchising of rail services, lowering the cost of public subsidies. Above all else, the reforms across the transport space signify recognition that the status quo will not sustain the state’s transport networks through the coming decade. Of course, the improved planning of new projects – and better operation of existing transport services – will need to be accompanied by a step-change in funding capacity. Asset sales, tolling and the application of value-capture methods will all have to be canvassed, debated and ultimately implemented if the state is going to fund its very ambitious plans for new motorways, rail links and light rail projects. The public sector unions have been quick to point to the structural reforms across the transport portfolio – and particularly the outsourcing of the ferries – as the ‘thin end of the wedge’. Every taxpayer and commuter in New South Wales should be hoping they are right.

Volume 3 Number 1

11/9/12 11:15 AM

Major Projects. Great Outcomes.

SMEC is a professional services firm with Australian origins and a global footprint that provides high-quality consultancy services for major infrastructure projects. SMEC has over 4,000 employees and a network of over 55 offices throughout Australia, Africa, Asia, the Middle East, the Pacific, North America and South America. SMEC has extensive experience in the Australian Transport sector, with a proven track record in delivering large-scale and complex infrastructure projects, including the $1.5 billion Westlink M7 project in New South Wales, whereby SMEC completed detailed designs. For Victoria’s largest ever single road project, EastLink ($2.5 billion), SMEC acted as the proof engineer. On the multi-award winning $1.88 billion Gateway Upgrade project in Queensland, SMEC provided detailed design services which involved the duplication of the Gateway Bridge and the upgrade of 20km of the Gateway Motorway. In South Australia, SMEC completed detailed design services for the $564 million Northern Expressway. SMEC provides cost-effective, practical project outcomes to private and public sector clients in a wide range of transport disciplines, including: roads and highways, bridges and structures, rail infrastructure, traffic and transport planning, ports and airports.

ACT | NSW | NT | QLD | SA | VIC | WA 1778_Future Building v301.indd 27

www.smec.com 11/9/12 11:15 AM

1778_Future Building v301.indd 28

11/9/12 11:15 AM

1778_Future Building v301.indd 29

11/9/12 11:15 AM

COMPANY FOCUS

CONSTRUCTING AUSTRALIA’S FUTURE Since its establishment in 1961, Abigroup has played a major role in building Australia’s infrastructure and has successfully delivered some of the country’s largest and most important projects. This year, Abigroup has already secured a number of important new projects in key sectors and also has achieved a number of key milestones.

consists of an upgrade to the plant’s odour management system and to the existing civil, mechanical and electrical infrastructure to improve life and operability.

Water

Roads

Abigroup Water had a very successful start to 2012. In May, the company was awarded a project by the Hunter Water Corporation to build a new water recycling plant as part of the Hunter Treatment Alliance program of works. In April Abigroup started work on the construction of new water treatment plants in Bowen and Proserpine in North Queensland for Whitsunday Regional Council. The project forms part of the Council’s $85-million water and sewerage future development scheme and involves the construction of a 16.5-megalitre plant in Bowen on the Proserpine River downstream of the Peter Faust Dam, and a 14.5-megalitre plant in Proserpine on the old pound site on Pound Yard Road. Also in April Abigroup Water was awarded a new scope of works by Sydney Water for a wastewater treatment plant in Sydney’s south as part of the ongoing Odour Management Program (OMP) Alliance of works. The work to be carried out at Cronulla Wastewater Treatment Plant (WWTP)

In early 2012 an Abigroup joint venture started major work on the design and construction of the $407.5 million Southern Expressway Duplication project in Adelaide for the South Australian Department of Planning, Transport and Infrastructure. The project involves building a new road alongside the existing expressway carriageway to provide a two-way 18.5-kilometre road from Darlington to Old Noarlunga to the south of Adelaide. Also in early 2012, Abigroup, as part of the Southern Way Consortium, completed the first bridge over the 27-kilometres $759-million Peninsula Link motorway project in Victoria.

Resources Abigroup continued to secure an increasing amount of the resource infrastructure work in 2012. In May, Abigroup secured a $210-million contract to carry out bulk earthworks for Bechtel at the BHP Billiton Mitsubishi Alliance (BMA) Caval Ridge Mine in central Queensland. The contract covers the Southern Package of Bulk Earthworks for the

infrastructure of the coal mine, which is located in the Bowen Basin approximately 18 kilometres south-east of Moranbah. Earlier in the year, Abigroup completed a $116-million contract to design and construct the seawall bund and haul road for the Port of Gladstone Western Basin expansion in Queensland. The project, which was completed ahead of schedule, is part of Gladstone Ports Corporation’s infrastructure expansion to cater for the increased shipping requirements from the new Liquefied Natural Gas plants on Curtis Island.

Rail In April, it was announced that Abigroup had been awarded a multi-million dollar slice of the design and construct contract for the Hurstbridge Line Upgrade, a $60.8-million project funded by the Victorian Government. The project includes reconfiguring the Eltham stabling yard to add two extra train storage roads, and an upgrade of signalling on the rail line, in Melbourne’s outer northeast. In February, Abigroup, as part of the Lawson Alliance, successfully completed, commissioned and handed over a new 600metre section of the Main Western Railway. The Alliance’s scope in the rail corridor during this possession included trackwork, overhead wiring and signalling. This was the first major section of mainline rail track that Abigroup has constructed in the Sydney network and an integral part of our upgrade of a 2.9-kilometre section of the Great Western Highway from a two-lane roadway to a fourlane divided road.

Building In May, it was announced that Abigroup had been selected by Griffith University to design and construct their new G42 Business School on the Gold Coast campus. The project, which is valued at $27.6 million, involves a seven-level building that will house teaching and learning facilities, including a simulated trading room, offices for academics and support staff, a lecture theatre and seminar rooms. In early 2012, Abigroup completed work on the $14.3-million refurbishment of Queensland Museum at Brisbane’s South Bank Cultural Centre. The works were designed to create better access to the Museum and exhibitions, and to improve general facilities. The completed seawall bund for the Port of Gladstone Western Basin expansion in Queensland.

30X

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

Volume 3 Number1 1 future building Volume 3 Number future building

1778_Future Building v301.indd 30 24 322205E LHS_Abigroup | 1778.indd

11/9/12 11:15 AM 12/06/12 3:50 PM

R oa d s · B u i l d i n g · B R i d g e s · R a i l · T u n n e l s · WaT e R · M i n i n g s e R v i c e s · T e l e co M M u n i c aT i o n s · e n e R g y · M a R i n e W o R k s

Strong. Innovative. Diverse. It’s Abigroup. Supporting our rise as one of Australia’s leading contractors is one core principle: We are a hands-on contractor. We always have been. The benefit of this for our clients is that Abigroup retains control over quality, delivery, cost and timing of our projects, ensuring clients are provided the high quality end result they expect—on time, every time.

A driving force in Australian construction and infrastructure delivery for 50 years

www.abigroup.com.au

1778_Future Building v301.indd 31

11/9/12 11:15 AM

Capturing value: an option for funding the future By Mark Birrell, Chairman, Infrastructure Partnerships Australia

Australia’s transport infrastructure is straining under the pressure of mounting demand, imposing substantial costs from congestion and delays across the economy. But funding the new projects needed to deal effectively with Australia’s growth will require fresh thinking from policymakers and industry about how we can break the back of the transport funding challenge.

futurebuilding

1778_Future Building v301.indd 32

Volume 3 Number 1

11/9/12 11:15 AM

Capturing value: an option for funding the future

Funding for major transport projects is extremely tight. On current arrangements, all of Australia’s state and territory governments are up against their debt ceilings. That means that there will be insufficient funding to support many projects, unless governments can increase their revenues and decrease their costs. Understandably, policy-makers are cautious about new broad-based taxation changes – but there are creative funding options. One interesting opportunity revolves around sharing some of the substantial private property value created when taxpayers fund a major new transport project. Creating new structures that see both project beneficiaries and taxpayers share in this value needs to be at the forefront of the public infrastructure debate. A high premium is placed on proximity and access to efficient and reliable transport infrastructure, meaning when a project is completed, the land surrounding the new infrastructure will increase in value. For example, when taxpayers invest in a new rail line, a bus rapid transit or motorway spine, they unlock substantial land value increases.

Value capture is an umbrella term covering an array of policy options, all of which are designed to capture a portion of the property uplift created by new infrastructure

“For over four decades, Arup has been designing more responsible infrastructure, taking projects from planning to implementation. Our work, such as the Nowra CBD urban design masterplan, will benefit coming generations and make a positive contribution to the future.”

Project: Nowra CBD Masterplan, NSW

David Singleton Arup’s Global Planning Leader and Chairman of AGIC

Nowra Masterplan © Arup

Visit www.arup.com for more information or contact sustainable-infrastructure@arup.com

Volume 3 Number 1

1778_Future Building v301.indd 33

futurebuilding

11/9/12 11:15 AM

Capturing value: an option for funding the future

Currently, the wider community benefits through faster travel times and improved functionality across the broader network; and a small group of landowners adjacent to the asset will receive a disproportionate financial benefit resulting from the broader public investment. ‘Value capture’ models allow taxpayers to access a proportion of this new value, in turn creating a new source of revenue to be dedicated to bridging the transport infrastructure funding gap. Value capture is not a silver bullet. But this concept is an important part of the suite of options that Australia’s governments need to consider if we are going to increase the capacity of all governments to renew and expand Australia’s transport infrastructure base.

Value capture mechanisms Value capture is an umbrella term covering an array of policy options, all of which are designed to capture a portion of the property uplift created by new infrastructure. While there are scores of different models, the three most commonly applied are Joint Development; Benefit Assessment Districts (BAD); and Tax Increment Financing (TIF). Of the three, Joint Development is the simplest model. Essentially, Joint Development models are applied where the public sector already holds (or can acquire at pre-infrastructure prices) substantial property around a planned project. The public sector is then able to sell, lease or grant development rights to capitalise on the increased value resulting from the new project.

Where the public sector does not retain large landholdings, then consideration should be given to targeted taxation measures to realise a fair share of the uplift. TIF and BAD are both taxation measures. TIF is a partial financing mechanism that allows governments to take tax revenues derived from future increases in property values within a prescribed geographic precinct, and use those ‘incremental’ tax revenue increases to access the financing required to fund the transport infrastructure projects that will lead to (or at least significantly contribute to) this property value appreciation. In contrast, a BAD is a geographically discrete area in which a tax is levied on landowners who will derive windfall property value increases from a taxpayer investment to enhance the transport infrastructure in their area. The incentive for adopting these mechanisms during the planning and delivery stages of infrastructure projects is clear – value capture can substantially increase the capacity of governments to fund transport infrastructure.

Lessons from international best practice The use of value capture is by no means a new innovation in bridging the funding challenge. Early forms of value capture were used in the 1600s to develop New York’s utility infrastructure, and today they are routinely applied across the globe. Hong Kong’s Mass Transit Corporation (MTR) is an oft-cited case study of where Joint Development has delivered a substantial dividend. Property development rights at train stations along the network have been used as the principal funding stream for the development of the network. Between 2001 and 2005, property development, investment and management, principally in the land around and above MTRC train stations, accounted for 62 per cent of MTR’s revenue. Through their continued use of Joint Development, MTR has developed a best-practice template – the rail and property (R+P) model. Under this model, MTR does not receive direct subsidies from government to build and operate the city’s train network. Instead, the Hong Kong Government grants the company exclusive development rights for the land above and adjacent to its stations. Timing is crucial in terms of the return delivered by these development rights. MTR receives the continued on page 36

futurebuilding

1778_Future Building v301.indd 34

Volume 3 Number 1

11/9/12 11:15 AM

Shaping the Future of Rail Transportation

Engineering & Design

Manufacturing

Transit Systems

Rail Control Solutions

Intelligent and innovative transport solutions from Bombardier As a global leader in rail technology, Bombardier Transportation offers the broadest portfolio in the rail industry and delivers innovative products and services that set new standards in sustainable transport.

Maintenance

Global Rail Technology Local Manufacture, Local Support

35-45 Frankston-Dandenong Rd Dandenong, Victoria, 3175

www.bombardier.com

1778_Future Building v301.indd 35

11/9/12 11:15 AM

Capturing value: an option for funding the future

continued from page 34 property are charged 22 cents out of every $100 of assessed value increases in their properties annually until the 16 per cent of project cost target is achieved.

Global learning, domestic opportunity

development rights from the Hong Kong Government at a ‘before rail’ price and sells them at an ‘after rail’ price. The difference between these two stages is substantial, often enabling MTRC to cover the costs of their initial investment in the station around which the development is built. The MTR case study is an extraordinary example, driven by the very high land value in Hong Kong. While it is not likely that a similar model applied in Australia would deliver returns to the same degree, it nonetheless serves as a useful example for Australian governments of how the development of land around transport infrastructure could be used as a funding mechanism. The Washington Metropolitan Area Transportation Authority (WMATA) offers another case study for the use of value capture mechanisms. The WMATA is unusual among United States and Australian transport agencies, because it does not have a reliable funding stream beyond its farebox. In 2007, government funding comprised just 37 per cent of the agency’s revenues, in effect forcing WMATA to look to innovative funding streams to operate, maintain and expand its network. Recently, the WMATA has utilised BADs to help fund the Dulles Corridor Metrorail Project. This 37-kilometre project will service two of Virginia’s largest employment centres, and provide a direct connection from Dulles Airport to central Washington. The project, which is being completed in two phases, has been budgeted to cost US$5.2 billion – and roughly 16 per cent of the project’s funding is coming from the creation of a BAD in Fairfax County. The BAD, known as the Transportation Improvement District, has been levied on commercial and industrial properties in close proximity to the proposed metro extension; all owners of commercial or industrial 36

futurebuilding

1778_Future Building v301.indd 36

To date, value capture mechanisms have remained largely unused in Australia, presenting policy-makers with an unexploited funding resource for transport infrastructure projects. A 2012 report by Infrastructure Partnerships Australia, regarding the use of value capture strategies in the land surrounding New South Wales’s rail corridors, outlined the significant opportunity for the implementation of joint development models at New South Wales’s train stations. The IPA report found that Sydney’s high passenger traffic train stations (those on the City Circle loop) present a clear opportunity for joint development within the CBD. Redfern, Central, Town Hall, Martin Place and Circular Quay stations are all key interchange nodes that experience high customer throughput every day. Many of these stations are in poor condition, with a sub-optimal legacy design, and have not experienced wholesale renovation for many decades. The high level of patronage means the station concourse, airspace and adjacent land – if planned for, designed and delivered in a suitable way – is potentially a very valuable commercial real estate holding for the government, and would enable the redevelopment of Sydney’s legacy CBD rail stations at a measurably lower cost to the taxpayer. Value capture opportunities exist in Australia’s major cities – the challenge is to articulate the case for these kinds of reforms, and develop workable, local models to allow their application. With substantial funding constraints frustrating governments and commuters alike, the time is right for a much more informed public debate about how Australia can fund its forward infrastructure task. Models like value capture are only part of the solution, but they are a relevant development and need to take their place alongside the suite of reform and revenue measures that policymakers explore. Value capture represents a significant opportunity for governments to increase the funding for critical updates to Australia’s transport infrastructure. Mark Birrell is the Chairman of Infrastructure Partnerships Australia and a member of the Infrastructure Australia board.

Volume 3 Number 1

11/9/12 11:15 AM

Back on the reform horse Energy market reform has had a chequered history in Australia. Now, with Australia’s governments facing a substantial infrastructure investment task, and with growing cost of living pressures, governments will need to get back on the reform horse, writes Domini Stuart. At the start of the 1990s, Australia’s electricity utilities were largely single, vertically integrated units fully owned by state governments. The 1995 Competition Principles Agreement brought the states together in an undertaking to restructure the sector, apply competitive neutrality and review the regulation that restricts competition. They also agreed to separate transmission from generation activities, and to segregate the retail and distribution businesses. Southern and eastern states established the National Electricity Market (NEM) – a compulsory wholesale pool into which generators sell their electricity. While Western Australia and the Northern Territory are too distant and remote to be part of the network, the NEM remains the largest interconnected

power system in the world, with more than $11 billion of electricity traded annually, meeting the needs of around eight million end users. But while Australia has come a long way since the days of single, vertically integrated utilities under full government ownership, reform momentum has stalled – with significant differences remaining between the states in respect of the ownership, efficiency and overall energy sector performance. Just two NEM states have delivered on the agreement for wholesale privatisation. Victoria privatised generation, network and retail businesses between 1995 and 1997, while South Australia did the same between 2000 and 2001.

Volume 3 Number 1

1778_Future Building v301.indd 37

futurebuilding

11/9/12 11:15 AM

Back on the reform horse

Energy market reform in Australia has stalled, and national productivity is paying the price In the lead-up to April’s Council of Australian Governments (COAG) meeting, the COAG Reform Council underlined a persistent lack of progress, while the Productivity Commission’s latest working paper on Australia’s utilities brought more bad news. ‘This report confirms our worst fears,’ says Matthew Warren, Chief Executive of the Energy Supply Association of Australia (esaa). ‘Energy market reform in Australia has stalled, and national productivity is paying the price.’ But there are positive signs ahead. Several states have committed to privatising state-owned electricity businesses, or are undertaking independent reviews into future market structures. The federal government’s draft Energy White Paper (EWP), due for release in October this year, also promises to be a game changer. It is no secret that the report will come out in strong support for a fully private market, and will push for a move away from retail price regulation towards price monitoring across Australia. Ensuring this momentum is translated into action will require consensus across the major parties, and a shared recognition that privatised retail, wholesale and networks, coupled with retail price deregulation, will deliver meaningful and enduring price reductions. This article takes stock of current market structures in the unreformed states of New South Wales, Queensland, Tasmania and Western Australia – and the likely pathway towards reform.

New South Wales Like all states outside Victoria and South Australia, New South Wales’s transmission and distribution networks are publicly owned and operated. ‘The Premier has said that he won’t sell off the 38

futurebuilding

1778_Future Building v301.indd 38

poles and wires without a mandate,’ says Jim Miller, Head of Infrastructure, Utilities and Renewables, Australia and New Zealand, Macquarie Capital. ‘But they are very open to the process of engaging on the subject such that if a mandate is granted they will be able to move very quickly.’ Glenn Byres, NSW Executive Director of the Property Council of Australia, said New South Wales needs to move past the ‘false starts and politics’ that have held back any real reform progress. ‘This should be about economics, not ideology – and economics should lead New South Wales to unlock the capital tied up in energy assets for use on infrastructure renewal,’ says Byres. Meanwhile, electricity prices are continuing to increase faster in New South Wales than in Victoria. A 2011 Ernst & Young study found that the price paid per megawatt-hour of electricity in Victoria increased by just seven per cent in real terms from 1996 to 2010, compared with real increases of 45 per cent in New South Wales. Dr Peter Boxall, who is Chairman of the Independent Pricing and Regulatory Tribunal (IPART), is concerned about the impact lack of reform is having on cost increases. ‘Around half of the increase in New South Wales’s electricity prices from 1 July is a result of the continuing rise in costs faced by the retailers from the electricity network – or the poles and wires,’ he says. This concern is well-grounded. In the unreformed states of New South Wales and Queensland, network costs account for a significant proportion of overall price rises. Ernst & Young found that network costs in Victoria decreased by nine per cent in real terms on a per-customer basis between 1996 and 2010. Over the same period, per-customer network costs in New South Wales increased 65 per cent. Worse still, over the next five years, New South Wales network businesses are expected to spend up to three times the level of capital expenditure per customer compared with their Victorian counterparts.

Queensland In 2007, the former Beattie Government sold Queensland’s retail electricity business for a total of $3 billion. However, in December last year, the then Energy Minister Stephen Robertson told the ABC that, while he acknowledged that total privatisation had worked in Victoria, that did not mean it would work in Queensland.

Volume 3 Number 1

11/9/12 11:15 AM

Back on the reform horse

‘Queensland is still significantly below the electricity prices paid in Victoria, so if that is what the federal government is hanging [its] hat on as a compelling argument to privatise energy-generating assets, then that’s a curious way of going about it,’ he said. On taking office, Premier Campbell Newman reaffirmed his pre-election promise not to sell off any public assets in his government’s first term. Since then, the Commission of Audit appointed to assess Queensland’s finances has produced an interim report suggesting that privatisation is a good way to rein in the Sunshine State’s crippling state debt. The Commission, chaired by former Federal Treasurer Peter Costello, also identified the capital requirement of big government-owned corporations, such as power generators, as a major drain on the balance sheet. At $3.5 billion, the upgrading and maintenance of electricity infrastructure, including generation, transmission and distribution, was one of the largest items of capital expenditure in 2011–12. Over the next three years, investment is estimated at $8.3 billion – close to a quarter of Queensland’s total public sector capital expenditure. Reform of the state’s electricity sector has been a central focus for the Minister for Energy and Water Supply, Mark McArdle, who announced the appointment of a three-person Independent Review Panel (IRP) to oversee reform of power delivery by government-owned electricity entities. The panel, which includes former Ergon Energy Chief Executive Tony Bellas, Ernst & Young’s Matt Rennie, and advisor Alec Faulkner, forms part of an interdepartmental committee tasked with implementing power tariff reforms promised by government. McArdle says that with the exception of privatisation, ‘nothing is off the table’ in the review, with speculation that the panel could recommend merging Queensland’s two major power distributors, Ergon and Energex. McArdle described the IRP as critical to the electricity sector reforms promised by the Newman government in order to address spiralling electricity prices. ‘Everything, from corporate structures and executive numbers down to the cost of wires and power poles and other matters that drive prices, will come under the microscope,’ he says. Everything, that is, except privatisation. In August,

McArdle reaffirmed the government’s stance that it would not sell assets without first receiving a mandate from voters.

Tasmania In Tasmania, where state-owned generators provide close to 100 per cent of the power, the government is embarking on what Premier Lara Giddings describes as ‘major reform’. This follows a recent independent review of the state’s electricity sector, headed by Dr John Pierce, Chairman of the Australian Energy Market Commission (AEMC). The government’s reform package includes the sell-off of Aurora Energy’s 260,000 retail customers, to be undertaken in three tranches, as well as the introduction of Full Retail Contestability (FRC) from February 2014. In a move that is designed to realise operating efficiencies in the monopoly networks sector, the government also intends to merge Aurora Energy’s distribution business with state-owned transmission business Transend. Giddings says her first priority is to limit anticipated price rises, promising the second-lowest increases in Australia. ‘The government’s action means that an additional $200 every year will not flow through to an average customer’s electricity bill from 1 July this year,’ the Premier stated. However, in a clear departure from the advice provided by the independent review, the government has ruled out structural reform of the wholesale market, instead opting to regulate the prices that Hydro Tasmania can charge.

Everything, from corporate structures and executive numbers down to the cost of wires and power poles and other matters that drive prices, will come under the microscope Volume 3 Number 1

1778_Future Building v301.indd 39

futurebuilding

11/9/12 11:15 AM

Back on the reform horse

pillar of a research paper delivered by Infrastructure Partnerships Australia (IPA) to the Tasmanian Government in May 2012. IPA’s advice was that the sale of Hydro Tasmania, as well as state-owned transmission and distribution businesses, could reduce electricity prices by as much as 16 per cent. As well as paving the way for effective retail competition, the sale of Hydro Tasmania and stateowned networks businesses would significantly bolster Tasmania’s fiscal and broader economic position at a time of declining state revenues and reduced GST. IPA has estimated that full privatisation of Tasmanian electricity assets could unlock between $6.57 billion and $7.9 billion in capital proceeds, including: retail businesses worth between $271.75 million and $326.1 million; generation businesses worth between $3.2 billion and $3.97 billion; and network businesses worth between $3.1 billion and $3.6 billion.

Western Australia ABOVE: Jim Miller at the IPA Symposium

futurebuilding

1778_Future Building v301.indd 40

According to the government’s own estimates, this comes at a cost to taxpayers of $37 million per annum, through reduced returns from the electricity businesses. ‘This will ensure our power generation and distribution remains in public hands and continues to provide significant value to Tasmanians who have invested in these assets over generations,’ Giddings says. Hydro Tasmania’s considerable latent market power – and the subsequent lack of wholesale competition – was found by the panel to be a major barrier to retail market entry. ‘It is incontrovertible that Hydro Tasmania possesses significant latent market power, and can use this market power to profitably influence the Tasmanian spot price in a far wider range of scenarios than generators in the NEM,’ the panel found. This is a view widely shared by industry. ‘In particular, the panel has pointed to the critical importance of achieving greater competition in the wholesale energy market,’ says Mark Collette, TRUenergy’s Director, Energy Markets. ‘This will support the entry of new electricity retailers into the market.’ The barrier to retail competition posed by Hydro Tasmania’s effective monopoly was also a central

Western Australia is another state in which close to 100 per cent of the generation assets are publicly owned, and it is also another state unlikely to pursue bold structural reform anytime soon. Responding to the federal government’s draft Energy White Paper (EWP), released last year, Western Australia’s Energy Minister Peter Collier reiterated that his state is not considering selling any of its assets. ‘What we have at the moment is a situation where we have had significant private sector investment, in generation particularly, over the past few years, but that has come at a cost,’ he told the ABC. ‘There will be opportunities for private sector involvement as energy capacity increases over the next decade, but in terms of an overall blanket privatisation, it is not on the agenda.’ In a recent speech to an industry conference, Federal Energy Minister Martin Ferguson singled out Western Australia for its blanket failure to undertake energy market reform. ‘The biggest barrier to greater investment in Western Australia’s energy infrastructure is government ownership. It is crowding out private players who do not have the certainty that government policy won’t change and adversely affect them,’ Ferguson said. Ferguson went on to state that prices have risen

Volume 3 Number 1

11/9/12 11:15 AM

Back on the reform horse

by 57 per cent – or by $520 per household – under the current government, despite electricity prices being suppressed at a cost to state taxpayers of $367 million last financial year.

The case for reform The economic case for completing electricity market reforms is clear-cut, but the politics are difficult. Since privatisation in the 1990s, electricity price rises in Victoria have been consistently lower than in all other states. Victorian consumers also enjoy and actively take advantage of their ability to switch to a retailer of their choice. Retail competition is so advanced that Victoria is now widely recognised as the most competitive electricity market in the world, based on customer switch rates. Price impacts aside, the privatisation of network businesses also represents the best opportunity Australia has to break the back of its broader infrastructure shortfalls. Speaking at last year’s Partnerships conference, Macquarie Group and Origin Energy Chairman Kevin McCann hit the nail on the head. ‘At a time of historic shortfalls, Australia simply cannot afford for scarce capital to be allocated to areas where private capital is readily available,’ McCann said. In states where networks remain publicly owned, electricity investment consumes up to one-quarter of total public infrastructure investment – money that would be much better spent on ailing transport, hospitals and other social infrastructure. IPA valuations suggest that the sale of network assets in New South Wales would have a $50 billion bottom-line impact, through a mix of capital proceeds and avoided debt. This would give the cash-strapped New South Wales Treasury the ability to fund the North West Rail Link, the M5 and M4 motorway completions, and the Pacific Highway duplication, as well as the capacity to replace ageing hospitals, schools and community infrastructure. In Queensland, the sale of electricity businesses would have a similar, game-changing impact on that state’s bottom line. After years of heavy investment, the combined Regulated Asset Base (RAB) value of Queensland’s electricity networks is pushing $30 billion – more than in any other state. Add to this the roughly 8000 megawatts of state-owned generation capacity.

Opponents to reform are quick to point to the loss of dividends paid to government. But, as Kevin McCann told delegates at last year’s Partnerships conference, this argument has little merit. ‘Victorian Treasury analysis shows that savings from the retirement of debt more than compensated for the loss of dividends,’ he said. ‘The analysis found savings from debt retirement outweighed dividend payments by over $600 million in 1996–97, and by $718 million in 1997–98.’ Jim Miller says that concerns about job losses are similarly unfounded. ‘Historically, these concerns are not borne out by experience,’ he says. ‘In Victoria, for instance, the prospects for generation and hence employment actually improved after the assets were privatised.’ He believes that there is much to be gained by educating the public about the benefits of recycling infrastructure assets. ‘Some people have yet to make the connection between needing new infrastructure and the potential to use the sale of existing infrastructure to fund that.’ But with enormous public appetite for better infrastructure and cost of living pressures looming as major political issues, the stars may well be aligning for the completion of the electricity market. New South Wales is widely tipped to take privatisation of network businesses to the next election; and Queensland has few other options if it’s going to repay its massive debt and fund its capital program. Only time will tell.

Volume 3 Number 1

1778_Future Building v301.indd 41

futurebuilding

11/9/12 11:15 AM

COMPANY FOCUS

THALES DELIVERS CAPACITY, SAFETY AND SECURITY SOLUTIONS FOR TRANSPORT Urban, inter-urban and mixed passenger/ freight transport network operators are looking to maximise the return from new and existing infrastructure. Advanced signalling, operational control centres, integrated communications, condition monitoring and SCADA technologies, enable operators to grow capacity and optimise traffic flows, enhancing the safety and reliability of services, maximising return on investment and delivering long-term savings on the maintenance of trackside equipment. A prime contractor, systems integrator and partner of choice, Thales has the capability to integrate key systems. As a long-term partner, Thales is present across the supply chain, helping major ground transportation operators in over 50 countries keep pace with the challenge of change. • Stretching over 2000 kilometres, scheduled for completion in 2013, Saudi Arabia’s North–South Railway (NSR) will provide the first ever rail connection between the capital Riyadh and the Jordanian border in the north. Thales, in partnership with the Saudi Binladin Group (SBG), is delivering a comprehensive technology and integration package, including telecommunications, security, advanced signalling and systems integration services. • In Australia, Thales is supplying the communications and surveillance

42X

•

subsystem for one of the country’s largest suburban passenger-rail vehicle programs. The fully integrated communications and surveillance subsystem will enhance efficiency of rail services, security of the network and safety of rail commuters. As PSI, Thales is also integrating the train’s 15 other subsystems. Manchester is the United Kingdom’s third-largest city. Manchester’s new Metrolink tram extension will take an estimated five million car journeys off local roads per annum. Thales is providing mission-critical electromechanical systems as part of the Manchester Metrolink Phase 3A extension project. As part of the M-PACT-Thales consortium, with Laing O’Rourke and GrantRail, Thales is supplying communications, passenger information, CCTV, overhead lines and power, systems integration and maintenance. Spain has the world’s most extensive high-speed rail network. Thales plays a decisive role across the network, providing signalling, supervision, security and communications solutions that underpin safe, efficient and costeffective operations nationwide. Created for REFER, Portugal’s

railway infrastructure manager, Lisbon’s Operation Control Centre (OC) offers a glimpse into the future. The OC controls twothirds of Portugal’s rail traffic, and Thales’ fully-integrated power, telecommunications and signalling solution allows operators to supervise every conceivable rail system within the OC’s operational area. Thales is a global technology leader for the Defence, Security, Aerospace and Transport markets. In 2009, Thales generated revenues of A$22.7 billion, employing over 68,000 people in 50 countries. Thales Australia is a trusted partner of the Australian Defence Force and is present in commercial sectors ranging from air traffic management to transport, security systems and services. In 2009, Thales Australia generated over A$1 billion, employing over 3500 people at over 35 sites.

future building Volume Volume 3 Number1 1 3 Number future building

1778_Future Building v301.indd 42 323622E_Thales Australia | 1778.indd 24

11/9/12 11:15 AM 12/06/12 1:21 PM

The world is complex. Your decisions don’t have to be.

24/7 performance? Offering real-time information, communications and surveillance

Transport safety? Automating critical decisions to eliminate human errors

Passenger satisfaction? Enhancing passenger safety, security and comfort

Operational efficiency? Ensuring optimised network management with minimal investment

Network capacity? Improving flow with automated signalling for optimal train frequency

Transportation networks around the world are becoming more crowded, more congested and more complex to manage. The ability to run these networks smoothly and efficiently is crucial to economic growth and quality of life. Thales designs, develops and delivers equipment, systems and services that enhance the safety and operational efficiency of ground transportation infrastructure. Our signalling, communication, supervision and revenue collection solutions improve network operations and passenger experience around the world. Combined, these solutions make up the Critical Decision Chain. This enables network managers, operators and decision-makers to master complexity in critical scenarios and make timely decisions that deliver the best outcomes. To find out more about our Transportation solutions, scan the QR code or visit thalesgroup.com.au

1778_Future Building v301.indd 43

11/9/12 11:15 AM

IPA National Infrastructure Awards 2012 Infrastructure Partnerships Australia hosted the Annual Infrastructure Oration and 2012 National Infrastructure Awards at a gala event in Sydney earlier this year. ABOVE: IPA Awards 2012 BELOW: The Hon Mark Birrell, Hon David Davis, Tony Lubofvsky, Rob Aldis.

futurebuilding

1778_Future Building v301.indd 44

The event marked the sixth time IPA has convened the Awards, bringing together 600 public and private sector leaders. More than 70 nominations were received across the seven categories, with the calibre of project nominations noted by the panel.

The independent judging panel for this year’s event included: • Adrian Kloeden, Chairman of Serco Asia Pacific (panel Chair) • Dr Kerry Schott, former Managing Director of Sydney Water, IPA Board Member and the author of the New South Wales Government’s Commission of Audit into Public Sector Management • Rick Turchini, former Managing Director of Baulderstone and Non-Executive Director • The Hon Mark Birrell, Chairman of Infrastructure Partnerships Australia. This year’s Annual Infrastructure Oration was delivered by Hamish Tyrwhitt, Chief Executive of Leighton Holdings. Tyrwhitt was appointed Chief Executive in August 2011 after nearly 25 years in the construction sector, including most recently as Managing Director of Leighton Asia and as a Director of Leighton Contractors (Asia). The overarching theme of this year’s Oration was the need for Australia to capitalise on the unprecedented growth taking place in Asia, and the need for governments to develop earnest, long-term infrastructure plans that survive the political cycle.

Volume 3 Number 1

11/9/12 11:15 AM

IPA National Infrastructure Awards 2012

With half of the world’s middle class expected to be living in Asia within the next 10 years, Tyrwhitt said he was ‘fundamentally convinced’ that Australia is uniquely positioned to take advantage of this growth. Australia is now as much a part of Asia as it ever was of Europe, he explained, and the commodities boom will continue to lead to closer ties with major trading partners such as India, China and Indonesia. ‘We’re part of Asia. We’re part of the Asian Century. And that means we’re part of a new era of growth,’ Mr Tyrwhitt said. He explained that Australians had developed a reputation throughout Asia for bringing a professional, innovative and imaginative approach to major infrastructure delivery – an attitude that ‘aligns perfectly with the aspirations of the booming economies of our region’. Tyrwhitt also called on Australia to deliver the long-term planning vision that’s needed to help solve the country’s infrastructure backlog, adding that too often infrastructure was captive to the political cycle. ‘We need a list of priorities and a commitment from governments of all persuasions to stick with it, to fund it and to deliver it,’ Tyrwhitt said. He explained that a list of priorities and funding commitments from governments was the ‘most basic of starting blocks’, yet had remained ‘frustratingly elusive’ for years, resulting in Australia falling behind Singapore, Hong Kong and mainland China. ‘The Asian Century was not born of luck, or through the relative demise of the United States and Europe.

We need a shared vision. We need a vision un-blinkered by politics. A vision that sees beyond the political cycle. A vision that recognises [that] investing in infrastructure is a prerequisite for growth and prosperity ‘It has been delivered by governments through excellent planning, great choices and the fundamental understanding that investing in ... quality infrastructure delivers amazing results.’ He said that Australia faced a simple decision: ‘invest now, or get left behind.’ Tyrwhitt’s Oration concluded by challenging Australia’s governments to invest in the country’s productive capacity. ‘We need a shared vision. We need a vision un-blinkered by politics. A vision that sees beyond the political cycle. A vision that recognises [that] investing in infrastructure is a prerequisite for growth and prosperity.’

Volume 3 Number 1

1778_Future Building v301.indd 45

ABOVE: Hamish Tyrwhitt delivers the 2012 Infrastructure Oration

futurebuilding

11/9/12 11:15 AM

IPA National Infrastructure Awards 2012

Project of the Year

WINNER: New Royal Children’s Hospital, Project of Year

futurebuilding

1778_Future Building v301.indd 46

Project of the Year – sponsored by Evans & Peck Winner: The New Royal Children’s Hospital Victorian Department of Health and Children’s Health Partnership, consisting of: International Public Partnerships, Lend Lease, Spotless Group, Billard Leece, Bates Smart and HKS The new $1 billion Royal Children’s Hospital in Melbourne, Victoria, is a world-class, 357-bed tertiary paediatric hospital with state-of-the-art facilities, providing the best healthcare and environment for patients, families and staff. Commissioned on time and on budget, it features a stunning central atrium spanning six floors, a two-storey coral reef aquarium, a meerkat enclosure maintained by Melbourne Zoo, interactive Scienceworks displays, a Hoyts ‘bean bag’ theatre and 85 per cent single-bed rooms. Located in Royal Park, the hospital boasts direct park views in 80 per cent of inpatient bedrooms, and an outdoor terrace in every ward. Courtyards, gardens and play areas feature

throughout the hospital. The new RCH is Australia’s greenest hospital, with energy efficient features that reduce greenhouse gas emissions by 45 per cent, and water saving features achieving a minimum 20 per cent reduction in water use. A visionary design brief, on a unique site, led to the creation of an exceptional project solution and delivery of a facility beyond the client’s expectations. IPA congratulates the Victorian Department of Health, Lend Lease, International Public Partnerships, Spotless Group, Billard Leece, Bates Smart and HKS on this outstanding project.

Previous recipients of the prestigious Project of the Year include: • 2011 – The Gateway Upgrade Project (QLD) • 2010 – Melbourne Channel Deepening (VIC) • 2009 – Headquarters Joint Operations Command Centre (ACT) • 2008 – Eastlink Motorway (VIC) • 2007 – NSW Schools PPP (NSW)

Volume 3 Number 1

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

The Westgate Bridge Strengthening Project

Project of the Year Finalists Port Botany Expansion Nominee: Sydney Ports Corporation (Client); Baulderstone/Jan de Nul (Delivery Joint Venture) The Port Botany Expansion project is an outstanding example of engineering excellence and one of the most significant port infrastructure projects delivered in Australia for over 30 years. The $515 million project included the reclamation of 60 hectares of land with the construction of 1.85 kilometres of shipping wharves and associated rail and road network. The complex and demanding works were delivered safely, on time and within budget, using innovative design solutions and construction methodologies. This was achieved in spite of significant challenges that would have substantially delayed most projects of a similar scale. The project has provided significant enhancements to the local community and environment, as well as major economic benefits and value for money to the wider community. In addition to setting a number of benchmarks for future infrastructure projects in Australia and internationally, the PBE is a testament to true collaboration, engineering innovation and groundbreaking design.

Nominee: Westgate Bridge Strengthening Alliance, consisting of: John Holland, VicRoads, Sinclair Knight Merz and Flint & Neil The West Gate Bridge Strengthening Alliance has delivered strengthening and upgrades worth $400 million to the 2.8-kilometre long bridge, while maintaining the operational capacity of the bridge to safely carry 160,000 vehicles per day. At its construction peak, 700 workers were on site, as well as 200 permanent staff. Together, they delivered outstanding engineering and program solutions to the complex issues of strengthening an existing bridge where virtually every location required a bespoke solution with high levels of fitment accuracy. Installing 400,000 bolts, 100,000 fabricated steel sections, 12,000 square metres of carbon fibre fabric and 38 kilometres of carbon fibre laminate, while working at heights of up to 50 metres over the navigation channel of Australia’s busiest port, over public roads and high-voltage power lines, made the West Gate Bridge Strengthening one of the most challenging and logistically complex projects ever undertaken in Australia.

BELOW RIGHT: Westgate Bridge

Advisory Excellence Award – sponsored by Hansen Yuncken Winner: The Barangaroo Development Project KPMG – Financial Adviser to the State Barangaroo represents an extraordinary opportunity for urban, waterfront renewal. On the western edge of Sydney’s CBD, this 22-hectare former container port is being transformed into a vital new extension of the city. When complete, the $6 billion precinct, funded by private sector investment, Volume 3 Number 1

1778_Future Building v301.indd 47

ABOVE LEFT: The Port Botany Expansion Project

futurebuilding

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

RIGHT: Barangaroo Development Project

key positions in the Program Management Office during the implementation and delivery phases of the Program. The Program successfully stimulated the New South Wales economy during the global financial crisis, creating over 5000 jobs, providing opportunities for a new generation of apprentices, and injecting $1.9 billion within two years – while housing over 10,000 people in need.

Victorian Comprehensive Cancer Centre

will include a new iconic landscaped Headland Park, spectacular public waterfront walks and parks, shops, cafes and restaurants, world-class commercial office towers and apartments, all serviced by new and extended transport systems. Barangaroo will be a welcoming place for all Australians. It will give everyone a dynamic new opportunity to enjoy Sydney Harbour, with more than half of Barangaroo being open public space. Construction has begun on both the Headland Park and the basement beneath the three commercial towers. The first commercial tower, the Headland Park and the public promenade are on track to open in 2015, with completion of the entire development projected by 2023.

Finalists Nation Building Economic Stimulus Program – NSW Social Housing Initiative Nominee: Evans & Peck – Strategic Adviser to the State The federal government’s $1.9 billion Nation Building Economic Stimulus Program for Social Housing in New South Wales is the largest social housing infrastructure project across Australia in decades. The Program has delivered 6028 accessible and energy efficient homes to date for thousands of people in need. In a strategic advisory role, and in partnership with Housing NSW, Evans & Peck developed the initial strategy for the Program to deliver the NSW Social Housing Initiative. A series of innovative processes were implemented to achieve significant time and cost savings. Evans & Peck went on to hold 48

futurebuilding

1778_Future Building v301.indd 48

Nominee: Ernst & Young – Commercial and Financial Adviser to the State The Victorian Comprehensive Cancer Centre (VCCC) Project includes the development of a purpose-built PPP facility in Parkville to support and enable integrated delivery of patient treatment and care, and cancer research and education. The Victorian Department of Health is the lead state agency. Ernst & Young is the state’s financial and commercial adviser to the project since completing its business case. Plenary Health is the developer. The new facility will house the relocated Peter MacCallum Cancer Centre. It will also provide cancer research and clinical care facilities for Melbourne Health and The University of Melbourne. In addition, eight successful organisations in cancer control have formed a powerful alliance with the vision to save lives through the integration of cancer research, education and patient care. Through innovation and collaboration, the VCCC alliance will drive the next generation of improvements in prevention, detection and cancer treatment.

Contractor Excellence Award – sponsored by The Bank of TokyoMitsubishi UFJ Winner: The Port Botany Expansion Project Baulderstone The Port Botany Expansion project is an outstanding example of engineering excellence and one of the most significant port infrastructure projects delivered in Australia for over 30 years. The $515 million project included the reclamation of 60 hectares of land with the construction of 1.85 kilometres of shipping wharves and associated rail and road network.

Volume 3 Number 1

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

Middlemount Coal Rail Spur

The complex and demanding works were delivered safely, on time and within budget, using innovative design solutions and construction methodologies. This was achieved in spite of significant challenges that would have substantially delayed most projects of a similar scale. The project has provided significant enhancements to the local community and environment, as well as major economic benefits and value for money to the wider community. In addition to setting a number of benchmarks for future infrastructure projects in Australia and internationally, the PBE is a testament to true collaboration, engineering innovation and groundbreaking design.

Finalists Logan Water Alliance Nominee: Logan Water Alliance, consisting of: Allconnex Water, Cardno, Parsons Brinckerhoff and Tenix Allconnex Water’s Logan Water Alliance is a $300 million planning-led alliance accountable for the delivery of planning, design and construction activities for new and improved water, wastewater and recycled water infrastructure. The Alliance is a public-private sector enterprise comprising Tenix, Parsons Brinckerhoff, Cardno and Allconnex Water, and was established in August 2009 to meet the demand for water services in the Logan district. One of the largest water infrastructure delivery programs of its type, Logan Water Alliance’s main activities include: • program management • planning and project development • project delivery.

Nominee: Middlemount Early Rail Alliance, consisting of: John Holland, Middlemount Coal Pty Ltd and GHD The Middlemount Coal Rail Spur Project, delivered by the Middlemount Early Rail Alliance (MERA), involved the design, construction and commissioning of a 16.5-kilometre electrified rail spur to transport coal from the Middlemount Coal Pty Ltd (MCPL) open cut coal mine near Middlemount, Central Queensland, to Hay Point. Construction began in August 2010 and reached practical completion in November 2011. MERA comprised MCPL as the owner, John Holland (Qld) Pty Ltd as constructor and GHD (Aust) Pty Ltd as designer. This is the first railway balloon loop and connection to the QR National mainline to be designed and constructed solely by a private contractor and owned by a private company in Queensland. During construction, MERA was faced with several challenges, including six months of wet weather at the commencement of the project. Amidst these challenges, MERA delivered impressive statistics and results on safety, environment, quality and early project delivery.

Financial Excellence Award – sponsored by Rider Levett Bucknall Winner: The New Royal Adelaide Hospital Macquarie Capital – Financial Adviser and CoSponsor The new Royal Adelaide Hospital (new RAH) will be South Australia’s largest and Australia’s most advanced hospital. The new RAH is the single largest infrastructure project ever undertaken in South Australia. Containing 700 single-room beds and 100

Volume 3 Number 1

1778_Future Building v301.indd 49

ABOVE LEFT: The Port Botany Expansion project BELOW: Artist’s impression of The New Royal Adelaide Hospital

futurebuilding

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

same-day beds, the new RAH will have the capacity to admit more than 80,000 patients per year. The SAHP consortium (including Hansen Yuncken, Leighton Contractors, Macquarie Capital and Spotless) will undertake the financing, design, construction and operation of the non-clinical services of the $1.85 billion new RAH over a 35-year concession period. At financial close, the Macquarie-arranged financing solution raised more than $2.5 billion in long-term debt, and more than $300 million in private equity investment.

Finalists Victorian Comprehensive Cancer Centre Nominee: Plenary Group – Financial Adviser and Sponsor The Victorian Comprehensive Cancer Centre (VCCC) Project will deliver a new, $1 billion facility purpose-built for cancer research, treatment and care in the Melbourne suburb of Parkville, Victoria. Construction is underway to create the brand new 130,000 square metre home for the Peter MacCallum Cancer Centre, and new cancer research and clinical services for Melbourne Health and The University of Melbourne. In addition to the new facilities being built, eight world-leading cancer organisations have come together to share knowledge and resources and drive the next generation of cancer research, education, treatment and care. BELOW: Mundaring Water Treatment Plant

Based on the site of the former Royal Dental Hospital, and linked by bridges across to new facilities at The Royal Melbourne Hospital, the VCCC Project will assist building partners to accelerate the discovery of new cancer treatments, attract the nation’s leading cancer researchers and provide a centre of excellence for people affected by cancer.

Wiggins Island Coal Export Terminal Nominee: Australia and New Zealand Banking Group Limited – Financial Adviser The Wiggins Island Coal Export Terminal (WICET) is a new coal loading facility being constructed at the Port of Gladstone in Queensland. WICET is owned and being developed by existing and potential coal exporters, and is the first bulk terminal in Australia enabling multi-user and multiowner participation by all qualifying producers. WICET is essential infrastructure for the development of coal export capacity to service the steelmaking and energy needs of the Asia Pacific region. For Queensland, it provides a crucial platform for the development of large-scale export mines in the Bowen and Surat basins. Once fully commissioned, the Terminal will provide over 80 million tonnes per annum of additional export coal capacity through the Port of Gladstone. In September 2011, WICET successfully completed the financing for Stage 1 development (27 million tonnes per annum), raising a total of US$2,900 million and A$1,150 million to fund construction costs.

Government Partnership Excellence Award – sponsored by SMART Infrastructure Facility Winner: The Mundaring Water Treatment Plant Client – Water Corporation of Western Australia Delivery Consortium – Helena Water, consisting of: ACCIONA Agua, Brookfield Multiplex, Lloyds Bank Corporate Markets, Royal Bank of Scotland Advisory Services and TRILITY Helena Water has entered into a PPP with Water Corporation of Western Australia to finance, design, construct, operate and maintain a $306 million water treatment plant at Mundaring. The project reached financial close in July 2011 and is expected to be completed in two years, followed by a 35-year operating concession.

futurebuilding

1778_Future Building v301.indd 50

Volume 3 Number 1

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

The Helena Water consortium comprises ACCIONA Agua, TRILITY, Royal Bank of Scotland Infrastructure Advisory, Lloyds Bank Corporate Markets, and Brookfield Multiplex. Helena Water’s financial adviser, RBS Infrastructure Advisory, procured a highly competitive debt funding solution from its bank group, comprising Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Banco Bilbao Vizcaya Argentaria and WestLB. It was the first PPP in Australia since the global financial crisis to be funded entirely by foreign banks. The project is the first PPP awarded in Western Australia in over five years, and contributes to meeting the state’s objective of diversifying financing sources for the development of infrastructure in Western Australia.

Finalists Queensland Asset Sales Program Client – Queensland Government On 2 June 2009, the Queensland Government announced the restructure of key components of its infrastructure asset portfolio under the Renewing Queensland Plan, a two-year asset sale program designed to strengthen the state’s balance sheet and fund its ambitious capital program. The program was conducted under the Renewing Queensland Plan – developed by Rothschild, Bank of America Merrill Lynch and Royal Bank of Scotland. The plan involved the divestment of approximately $15 billion of assets across the forestry, toll roads, rail and ports sectors. The assets sold under the Renewing Queensland Plan included: • Forestry Plantations Queensland; sold (by way of 99-year lease) for $603 million • QR National; demerger and IPO with an enterprise value of $6.7 billion • Port of Brisbane; sold (by way of 99-year lease) for approximately $2.3 billion in proceeds • Abbot Point Coal Terminal; sold (by way of 99year lease) for $1.829 billion • Queensland Motorways Limited; sold (by way of a 40-year concession) to QIC for $3.088 billion. Queensland Reconstruction Client – Queensland Reconstruction Authority Over the summer of 2010–2011, Queensland experienced an unprecedented series of extreme

weather events that devastated local communities, damaged vital infrastructure and resulted in the entire state being declared a natural disaster zone. The Queensland Reconstruction Authority is overseeing the $6.8-billion reconstruction program through a governance structure that has been recognised as best practice. As at December 2011, there were almost $755.7 million of projects completed, $1.965 billion in projects underway or out to tender, and a further $834.3 million being prepared for market. Tasmanian Sustainable Irrigation Development Tasmanian Irrigation Pty Ltd The state-owned company Tasmanian Irrigation (TI) is transforming the island’s farming landscape with a series of 13 irrigation schemes that will all but droughtproof the state. With climate change, the schemes will broaden the canvas upon which Tasmanian farmers can work, opening up new crops and enabling conventional horticulture and livestock production to be intensified. TI’s partnership involving the Commonwealth, the Tasmanian Government and private farmer capital will deliver the equivalent of 40,000 Olympic swimming pools of extra water every year to Tasmanian farms, with 95 per cent reliability of delivery. The schemes are costing $330 million; one-third of which is private farmer capital. The project is nearly halfway to its target and will be completed in 2015. Not only will it herald a new era in Tasmanian agriculture that will contribute to world food security, it will breathe new life into marginal towns and communities throughout the state.

Operator and Service Provider Excellence Award – sponsored by Plenary Group Winner: The Operation of Yarra Trams KDR – Keolis Downer EDI Rail

Finalists The operational delivery of the Aspire Schools PPP Leighton Contractors – Services Division Leighton Contractors’ Services Division is responsible for the daily operations of seven schools (six primary and one secondary) across south-east Queensland, built under the Aspire Schools Public Private Partnership (PPP) Project. Volume 3 Number 1

1778_Future Building v301.indd 51

futurebuilding

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

Australia. With a capacity of 143,000 cubic metres per day, the plant is able to produce up to 17 per cent of Perth’s drinking water. Following five years of continued operational success, the plant continues to consistently help with the area’s drought, population growth, increased water demand and reduced rainfall, allowing the people of Perth to trust and rely on the valued operation of the plant.

SMART Infrastructure Project – sponsored by The Department of Infrastructure and Transport

TOP LEFT: Yarra Trams BELOW RIGHT: FutureFlow

The $189 million operational contract stands for 30 years, with an additional contingency period of 25 years. This includes the operations and maintenance of all school facilities, and the life cycle management of the assets and buildings. The team of 39 staff is responsible for all hard and soft services following construction. Leighton Contractors’ Services Division works closely with principals and school officers at each site to deliver reliable facilities that enable teaching staff to focus on delivering quality education to students. Demand for the schools has grown beyond original enrolment forecasts, and staff now maintain facilities for over 5779 Queensland students.

Joint winners: FutureFlow FutureFlow Alliance consisting of Transfield Services, Sinclair Knight Merz, Comdain Construction and Goulburn Murray Water Northern Victoria is one of the most important agricultural production regions in Australia. The farmers in this region produce food for local and export markets totalling around $1.94 billion. Following 12 consecutive years of drought, and irrigators’ reliance on an outdated irrigation system, this once-productive food region struggled to maintain this output. The $290 million FutureFlow alliance was set up in 2008 by GM-W to go about modernising the existing irrigation infrastructure (over 6300

The operation of The Perth Desalination Project – Degrémont Facing impending water shortages in April 2005, Western Australia’s Water Corporation (WA) formed an alliance with global water treatment company Degrémont and constructor Multiplex Engineering Pty Ltd. The resulting alliance (pro-alliance) was tasked with the design, build and 25-year operation (alliance between Degrémont & Water Corporation (WA)) of The Perth Seawater Desalination Plant – the city’s first seawater desalination plant using reverse osmosis technology and the first large desalination plant in the southern hemisphere. The $345 million state-of-the-art plant is located at Kwinana, 25 kilometres south of Perth in Western 52

futurebuilding

1778_Future Building v301.indd 52

Volume 3 Number 1

continued on page 54

11/9/12 11:16 AM

Plenary Group would like to recognise and thank all our valued clients and partners for being instrumental in driving our success. www.plenarygroup.com.au

Global Sponsor League Tables 2011 1st – Social Infrastructure PPP Transactions

2011 and 2009 North American PPP Deal of the Year

2nd – All PPP Transactions

2010 North American Developer of the Year

6th – All Infrastructure Transactions Source: Infrastructure Journal Online

Source: Project Finance Magazine

10th – All Project Finance Transactions Source: Dealogic Project Finance Review

25/06/12 12:20 PM

Volume 3 Number 1

1778_Future Building v301.indd 53

futurebuilding

11/9/12 11:16 AM

IPA National Infrastructure Awards 2012

continued from page 52

BELOW: Tasmanian Sustainable Irrigation Development

kilometres of open channels) with a world-leading IT-based system, and in the process save over 30 per cent of water (on average 94 gigalitres per year) that was previously lost through leakage, seepage or evaporation. This water has been returned to irrigators and the environment to maintain the region’s strong agricultural output. To date, the FutureFlow alliance has delivered the largest and fastest-constructed channel automation system in Australia, and possibly the world.

with 95 per cent reliability of delivery. The schemes are costing $330 million; one-third of which is private farmer capital. The project is nearly halfway to its target and will be completed in 2015. Not only will it herald a new era in Tasmanian agriculture that will contribute to world food security, it will breathe new life into marginal towns and communities throughout the state.

Tasmanian Sustainable Irrigation Development Tasmanian Irrigation Pty Ltd The state-owned company Tasmanian Irrigation (TI) is transforming the island’s farming landscape with a series of 13 irrigation schemes that will all but droughtproof the state. With climate change, the schemes will broaden the canvas upon which Tasmanian farmers can work, opening up new crops and enabling conventional horticulture and livestock production to be intensified. TI’s partnership involving the Commonwealth, the Tasmanian Government and private farmer capital will deliver the equivalent of 40,000 Olympic swimming pools of extra water every year to Tasmanian farms,

IPA partnered with the Department of Infrastructure and Transport to award a $25,000 grant for research to be undertaken in the area of smart infrastructure. Nominees were assessed on their research scope and potential application of their research to create greater efficiencies in new and/or existing infrastructure. Recipient: Colin Duffield, Associate Professor, University of Melbourne for Quantification of design innovation for infrastructure projects This research aims to quantify the benefits of design innovation brought to bear on service outcomes and sustainability through the use of different procurement techniques (including PPPs and collaborative contracts) and a competitive bidding process. A key outcome of the study will be the establishment of a refined and industry-validated model for evaluating design value. This research will be the first study in Australia that seeks to quantify the value proposition relationship between an early investment in design and the economic and service outcomes delivered over time. Infrastructure Partnerships Australia would like to thank our sponsors for this year’s event and particularly acknowledges the generous support of our Oration sponsor, the Bank of Tokyo-Mitsubishi UFJ.

SMART Infrastructure Research Grant – sponsored by The Department of Infrastructure and Transport

Thank you to our category sponsors: • Hansen Yuncken • Plenary Group • Rider Levett Bucknall • Evans & Peck • The Federal Department of Infrastructure and Transport • The SMART Infrastructure Facility.

futurebuilding

1778_Future Building v301.indd 54

Volume 3 Number 1

11/9/12 11:16 AM

PPPs in good health

Healthcare PPPs are increasingly being embraced in Australia because of the better outcomes they deliver for clinicians, governments and patients. But the model is also evolving to include core services, writes Jeff Hutton.

ABOVE: Joondalup Health Campus Theatre

1778_Future Building v301.indd 55

Volume 3 Number 1

futurebuilding

11/9/12 11:16 AM

PPPs in good health

BELOW: Patient room at Joondalup Health Campus

Australia was an early adopter of public private partnerships (PPPs) in the health space, and it’s largely been a positive experience, in spite of some difficulties with the very early model. But times are changing, and Australia is heading back to the future – this time backed with global expertise and a much more mature and experienced public and private sector. Australia was one of the first countries in the world to trial PPPs in the healthcare sector. Between 1992 and 2000, state governments in New South Wales, Victoria, Queensland and Western Australia signed seven first-generation PPP agreements, including Port Macquarie Hospital in New South Wales, which was the first health PPP to be developed in Australia. The early health PPPs bundled core clinical services in with the hospital’s finance, construction, and maintenance and operation. Known as full-service PPPs, they came to prominence as state governments turned to the private sector in a bid to bring down the escalating and inefficient costs of public healthcare. There were the inevitable teething problems.

Operators had trouble agreeing on budgets, calculating price increases and assessing how much risk the private sector would need to accept. Three of the projects, including Port Macquarie Base Hospital, reverted back to the government well ahead of their contracts, which saw governments

There were the inevitable teething problems. Operators had trouble agreeing on budgets, calculating price increases and assessing how much risk the private sector would need to accept retreat to a more straightforward model, with the PPP used for the asset, and the public sector delivering core services. PwC Infrastructure Partner, Martin Locke, says that the experience at Port Macquarie and LaTrobe Regional Hospitals in Victoria soured the appetite for full-service health sector PPPs in the eastern states. This trend has been reflected in recent major health projects – such as Sydney’s Royal North Shore and Melbourne’s Royal Children’s and Royal Women’s Hospitals – with Australia’s governments mostly limiting the scope of hospital PPPs to exclude clinical and core ancillary services.

futurebuilding

1778_Future Building v301.indd 56

Volume 3 Number 1

11/9/12 11:16 AM

PPPs in good health

Western Australia is the exception to this trend. Joondalup Health Campus in Perth’s northern suburbs is a full-service PPP, and is widely considered to be one of the nation’s best examples of a successful healthcare PPP. The Western Australian Government pays private operator Ramsay Health to maintain and run the facility, which was initially administered under a ‘design, build, finance and operate’ model. Joondalup sees the government pay availability charges to the private operator, in return for the delivery of all health services over the 20-year concession. The operator provides emergency and all other healthcare services, and assumes the risk associated with the provision of complex health outcomes. Since opening in 1998, Joondalup has consistently delivered excellent outcomes for patients – and at a substantially lower cost than comparable publicly managed hospitals. The success of Joondalup has seen a renewed focus on full-service PPPs in Western Australia, with the Midland Health Campus – a new hospital to replace the ageing Swan District hospital – recently awarded under a full-service PPP contract to a consortium led by St John of God. Dr David Russell-Weisz, Chief Executive Officer of Western Australia’s North Metropolitan Area Health Service, says the reason PPPs are popular is because of the strong outcomes they produce for patients and taxpayers. ‘PPPs are offering good value for money at least at the same level if not a better level for patients in the community,’ Russell-Weisz says. A 2007 study undertaken by Infrastructure Partnerships Australia on the comparative outcomes of PPPs versus traditionally delivered projects found that Australia’s governments can expect to save around 30 per cent when they use a PPP compared to traditional procurement models, because of the competitive tension and risk transfer imparted by the PPP process. With maintenance and renewal locked in for the economic life of the hospital, health administrators, doctors and nurses are free to focus on clinical care and better health outcomes, while the private sector is responsible for complex asset management and ancillary services that support clinicians. Involving the long-term service providers in the early stages of the project, including through the

competitive bid process, helps to ensure a focus on the asset’s whole of life, and results in a facility that is more fit for purpose. Russell-Weisz says full-service PPPs have been shown to drive cost efficiencies and better patient outcomes. The solution, he says, is attention to detail, good communication and transparency. ‘There is no reason it can’t work in eastern states,’ he says. ‘We’ve pursued full-service PPPs dating back to 1998. Western Australia has had significant experience with PPPs.’ Russell-Weisz said contracts were finalised with St John of God for the Midland Health Campus on 14 June. The North Metropolitan Area Health Service established several specification project teams to establish performance benchmarks and appropriate risk transfers. These included a pricing team and an infrastructure team, as well as legal and communications teams, Russell-Weisz says. ‘You need to get the right procurement analysis and get the right project teams in advance,’ he says. ‘These projects take time.’ The key to success, according to Russell-Weisz, is to agree to a contract early in the life of the project, with an administrator overseeing both maintenance and clinical service. That provides the incentive to find cost efficiencies and improved service for patients. ‘A full-service PPP is easier to contract and manage than one that’s half and half,’ Russell-Weisz says.

Volume 3 Number 1

1778_Future Building v301.indd 57

ABOVE: Joondalup Health Campus Façade BELOW: Joondalup Health Campus, June 2011

futurebuilding

11/9/12 11:16 AM

PPPs in good health

TOP RIGHT: Joondalup Health Campus Emergency Department

‘I want skin in the game. Once you put an operator in after the fact, you’ve lost significant advantage. ‘It’s primarily a service delivery focus, not an infrastructure focus.’ Western Australia has continued to explore innovative ways to involve the private sector in delivery of major health projects. The $1.76 billion Fiona Stanley Hospital in Perth’s southern metropolitan area, while not a PPP, will see 30 service lines of non-clinical services delivered by private operator Serco when it opens in 2014. ‘We have a number of models that the Eastern States could look at,’ Russell-Weisz says. The case for the eastern states to sit up and pay attention is pretty clear-cut. Total health spending in Australia has ballooned as a proportion of gross domestic product to roughly 9.4 per cent during the year ending June 2010 – just less than the OECD average of about 9.9 per cent, according to a report from the Australian Institute of Health and Welfare. A decade ago, it was less than eight per cent of GDP. A recent report by PwC found that healthcare spending across OECD countries is expected to climb to more than 14 per cent of GDP by 2020. With an ageing population and escalating healthcare costs placing strain on already tight budgets, governments are increasingly engaging the private sector to help deliver their operating expenditure programs. In May, New South Wales said its healthcare spending would rise 5.4 per cent to a record $18.6 billion, which included just $1.16 billion in capital works. An ageing population, rising equipment costs and escalating labour costs are the main factors behind the increases.

A recent report by PwC found that healthcare spending across OECD countries is expected to climb to more than 14 per cent of GDP by 2020 58

futurebuilding

1778_Future Building v301.indd 58

New South Wales Health Minister Jillian Skinner says she’s confident that the private sector has a bigger role to play in delivering healthcare. The nongovernment sector is committed to providing better patient care and driving value for money, she says. ‘Private sector involvement can help enormously with the early development of a hospital. It can provide additional services that may not be available or affordable if relying on the public purse,’ she says. ‘These industries have a genuine desire to do right on the part of their patients.’ Even so, politicians will need to work hard to communicate the importance to the public, she says. ‘If we can demonstrate that the models we come up with will help us get better results, then we’ll get there.’ New South Wales, which is building the new Royal North Shore Hospital as a PPP, has indicated that it will also deliver the new Northern Beaches Hospital as a PPP. ‘With a very tight budget,’ Minister Skinner explains, ‘and an obligation to meet increasing demand within a budget that cannot grow as much as some would like, we need to be looking at new models of care that involve the not-for-profit and the non-government sector.’ While noting the success of full-service PPPs in Western Australia, Skinner said New South Wales is unlikely to pursue a similar full-service model. ‘There is an element of needing to be conscious of industrial issues here, where there really aren’t the experiences that people can look to,’ Skinner says. ‘It’s working well for Western Australia because they are in a different stage than we are. I don’t think it’s going to happen in the near future,’ the Minister says. ‘Western Australia has a longer history of private sector involvement. It’ll happen here, I have no doubt,

Volume 3 Number 1

11/9/12 11:16 AM

PPPs in good health

but we aren’t there yet. We have to demonstrate to people their value.’ Skinner says as many as 40 private sector organisations have pitched ideas to offer services at the Northern Beaches Hospital, including parking, hotel services and security, as well as energy purchasing. ‘We have gone to market for market sounding and we’ve found a number of interesting proposals for the Northern Beaches hospital, including co-located public and private facilities,’ Skinner says. ‘Northern Beaches will be an absolutely fantastic hospital. It can be a role model for future developments.’ Skinner says the private sector’s involvement could expand further to include a ‘hospitals in the home’ style model where private companies bring services to patients, avoiding costly hospital stays. ‘You will see more purchasing of services from the private sector. The interest is very strong,’ Skinner says. Minister Skinner, an unabashed fan of Western Australia’s commitment to healthcare PPPs, says the most important lesson to learn from Western Australia is the importance of robust negotiations that get the contract right. ‘Two years of strong discussion, where you make sure all the parties are clear about their obligations, to make sure it’s fair and sustainable, [ensures that] you get a much better blend in the long run for all parties,’ she says. Russell-Weisz says the operator and the contract manager need to have a proactive and interdependent relationship. ‘The structure is not one that simply relies on financial contract management,’ Russell-Weisz says. ‘They need a significant interpersonal relationship right down to the contract manager level.’ Joondalup has an extensive reporting auditing dispute mechanism. The North Metropolitan Area Health Service provides an annual notice outlining service changes, which sets out the case mixes and pricing. Pricing is set in part by comparing the cost of services at similar benchmark hospitals. That list is reviewed every few years. As PwC’s Locke explains: ‘Healthcare PPP arrangements rely on specialised expertise in both the negotiation and management of contracts.’ As health PPPs continue to evolve from

infrastructure and facilities management services to a broader range of services, new structures around funding and contractual arrangements will be inevitable, according to experts. Lessons learned from Joondalup will be applied to the Midland contract, Russell-Weisz says. ‘We’ve learned from that and delivered a more robust Midland contract,’ he says. Even so, government is ultimately responsible should private operators fail. And PPPs do not necessarily always make sense. Specialised pediatric care, for example, may not fit the model, RussellWeisz says. ‘It’s not all plain sailing,’ he says. He dismisses claims, however, that private sector PPPs pay doctors and nurses less than the public service. Long waiting times can also be addressed in operating contracts, Russell-Weisz says. ‘PPPs are political. We have objections from some unions. ‘Private operators can’t be paying exquisitely less than the state or else they wouldn’t attract staff. ‘If they don’t deliver the service they don’t get paid; unlike a public hospital.’ It’s those strong incentives that are at the heart of any successful healthcare PPP, because greater incentives lead to better outcomes for patients, clinicians and taxpayers.

Volume 3 Number 1

1778_Future Building v301.indd 59

ABOVE: Joondalup Health Campus façade

futurebuilding

11/9/12 11:16 AM

COMPANY FOCUS

CertifiCation - the key to delivering Safe, Quality, environmentally Compliant infraStruCture SolutionS How do you know you will be able to deliver a consistent, highquality product or service? How can you assure your customers that your services are competitive on a global scale? How can you be sure that every person in your organisation will provide highquality customer service?

60 X

futurebuilding

1778_Future Building 320443E_SAI Global |v301.indd 1778.indd 60 2

Customers, staff and the global community demand that projects are delivered using best practice standards in a safe, sound and environmentally friendly manner. implementing international systems Standards like iSo 9001 Quality management, ohSaS 18001 occupational health and Safety or iSo 14001 environmental management, either as standalone business management systems or as an integrated business management system program, is one way for organisations to ensure their products, services and systems are safe, reliable and perform consistently. one of the key elements of a management system based on iSo 9001 Quality is ‘customer satisfaction monitoring,’ which helps businesses to understand the client’s expectations and provide a quality delivery solution that’s in line with these expectations. this helps to ensure that the organisation stays ahead of the competition and maintains growth through sustainable continuous improvements.

Consistent Approach ‘Certification ensures your project runs transparently providing all stakeholders with a clear idea of the who, what, where, when and why in a project,’ explains Saba lamyi-arani, Service delivery manager in assurance Services - Sai global. ‘the audit and Certification process adds value to your project. it gives your management system visibility to monitor all parties.’ Saba explains that most major projects require third party Certification as a minimum requirement to demonstrate that the organisation has a logical process giving stakeholders some assurance that the project has a very good chance of fruition. ‘these days, organisations have realised the value in third party certification and the assurance it provides of business production or service processes. it lets stakeholders know that you operate your business and manage your systems in a predetermined way, in line with international best practice.’ iSo 9001 Quality management, ohSaS 18001 and aS 4801 occupational health & Safety management and iSo 14001 environmental management, certification has become the norm for companies tendering for multi-million dollar projects, and there are good reasons why, ‘When you’re dealing with subcontractors, its imperative you get your message across in the most timely and succinct way,’ says Saba. ‘a commitment to a system based on Standards also displays

a commitment to safety, quality and the environment to your stakeholders.’

What is Certification with an accredited third party? australia’s leading infrastructure and construction companies know that accredited third party certification of their management system by an independent organisation can be a key component to a successful tender. accredited third party certification means the organisation has been audited by a qualified independent auditing organisation and can now endorse that your systems meet the minimum requirements as specified in the standards. in australia, these accredited third party certification bodies are also continuously monitored, audited and accredited by JaSanZ, which is a not-for-profit, international organisation operating a joint accreditation system to deliver integrity and confidence, trade support, linkages, and international acceptance. ‘in my experience, when companies are looking to compete for higher revenue projects, they need to be ahead of the competition. i believe registering with Sai global, a JaS-anZ accredited organisation, to provide the third party certification will provide them with that competitive edge,’ explains Saba. ‘not only do they receive an audit process with highly knowledgeable and experienced auditors in their industry group, upon successful certification, organisations are able to display the highly prestigious, unique and globally recognised ‘five ticks’ Standardsmark™ – a mark of excellence that over 80 per cent of consumers recognise.’

The key to delivering Quality solutions Sai global is a global organisation and australia’s leading provider of third party Certification Services. Certification of a management System based on standards such as iSo 9001 Quality, iSo 14001 environment or aS 4801/ ohSaS 18001 occupational health and Safety management Systems can help you to manage your business risks and drive improvement whilst improving business sustainability. For more information on SAI Global’s range of Audit and Certification Services to Australian and International Standards, visit www.saiglobal.com/assurance or call 1300 360 314 or email assurance@saiglobal.com for your free ‘Steps to Certification’ guide.

Volume 33Number Number1 1 Volume

11/9/12 11:16 16/03/12 12:40 AM PM

SAI GLOBAL ASSURANCE SERVICES

Helping You Build Australia AUDITING & CERTIFICATION SAI Global can supply you with the technical and business expertise through their auditing and certification services to help you meet your business challenges. A certified management system may give you a number of benefits like: > Tighter and more efficient control over your operations > Meeting prerequisites for tenders or contracts, especially

with government clients > Reduction of waste by monitoring and measuring

resources and outputs > Possibly meeting International export criteria > Realising efficiencies in the process

Providing independent, second and third party certified assessment services, we offer you one of the most widely recognizable symbols of excellence and assurance, the StandardsMark™. The StandardsMark™ is a mark of quality licensed to companies and products that have met the rigorous requirements of management systems or product Standards, like: > ISO 9001 Quality Management > ISO 14001 Environmental Management > OHS Management Systems > ISO 27001 Information Security > Product Standard Certification

> Gaining vital feedback from your clients > Laying a path of continuous improvement.

Call us on 1300 360 314 today for your FREE no-obligation quote and a copy of the Steps to Certification. Or email assurance@saiglobal.com

Quality ISO 9001

Health & Safety AS 4801

www.saiglobal.com/assurance 1778_Future Building v301.indd 61

11/9/12 11:16 AM

Balancing act key to Queensland’s infrastructure investment Swift action has characterised the Newman Government’s first six months in power, but with a constrained balance sheet, the challenges remain immense, writes Domini Stuart.

futurebuilding

1778_Future Building v301.indd 62

Five days before his victory in this year’s Queensland election, Liberal National Party (LNP) Leader Campbell Newman released a blueprint for all that his government hoped to achieve in its first 100 days in office. ‘If elected this Saturday, we’ll immediately start our plan to grow a four-pillar economy, lower the cost of living by cutting waste, deliver better infrastructure and better planning, revitalise front-line services for families and restore accountability in government,’ he said. Months later, the plans for the state’s infrastructure sector appear to be on track. Scott Emerson, Minister for Transport and Main Roads, said it’s important that the state delivers on its promised reform agenda. ‘It’s essential for the state’s future that we remain focused on delivering our agenda for Queenslanders who voted for change,’ he says. ‘My priority is to ensure we deliver on our election promises.’

The state of Queensland’s finances Queensland’s government faces a unique and twofold demand for infrastructure. On one hand, it needs to provide for a decentralised and rapidly growing population. On the other, it must service and support a flourishing natural resources sector. As a result, Queensland has typically needed to allocate a more substantial share of state resources to capital investment than other states. Total government capital expenditure has increased from around $4.4 billion in 2000–01 to an estimated $12.3 billion in 2011–12. This includes investments of $3.5 billion in upgrading and maintaining electricity infrastructure, and $1.9 billion in the construction and redevelopment of hospitals. An additional $5.4 billion was spent on transport infrastructure, including work on reconstructing over 9000 kilometres of road damaged by the recent spate of natural disasters, including flooding and cyclones. With the state’s debt expected to reach $64 billion before the end of the 2011–12 financial year, a review of the state’s finances was high on the agenda for Newman and his government. A Commission of Audit was set up to report on the current and forecast financial position, and to make recommendations for strengthening Queensland’s economy, with the goal of restoring its financial position and ensuring value for money in the delivery of frontline services. Headed by former Federal Treasurer Peter Costello, the Commission released its interim report in June, with

Volume 3 Number 1

11/9/12 11:16 AM

Balancing act key to Queensland’s infrastructure investment

Costello describing the task of returning Queensland’s economy to a position of strength as ‘enormous’, and recommending a two-staged approach – stabilising the growth in debt and returning the budget to a fiscal surplus by 2014–15; then restoring the state’s AAA credit rating by 2017–18. In particular, the report notes the impact that government-owned corporations (GOCs) are having on the state’s budget, with the 12 GOCs having a projected debt of $19.8 billion as at 30 June 2012, representing 32 per cent of total state-sector debt. The response from the government has been swift. In July, Emerson released the results of a government review into Queensland Rail, urging the GOC to refocus its attention on the delivery of front-line services and identify savings within the organisation. The review found that QR had been a substantial drain on the state’s finances, with head office staffing levels increasing 68 per cent since 2010 in the communication, stakeholder and marketing areas; 122 per cent in the finance division; and 66 per cent in strategy and corporate services. ‘There is $4.53 million being paid to 12 senior executives, each paid above the CEO level for government departments,’ Emerson says. ‘By comparison, the Department of Transport and Main Roads has only two senior executives paid at CEO level for an organisation of similar size.’ Costello’s Commission of Audit found that QR poses ‘a significant funding risk to the state’ and that in the absence of competitive market pressures, ‘it is important to ensure that there are appropriate incentives for QR to contain costs and manage its business appropriately in order to limit the state’s financial commitment’. Further reform was announced in the bulk water sector in South East Queensland, with Seqwater, LinkWater and the SEQ Water Grid Manager to be merged into a new single supply authority, and the Queensland Water Commission to be abolished. While Costello’s report states that privatisation is a logical way to rein in state debt, State Treasurer Tim Nicholls remains adamant that there will be no more asset sales without an election mandate. Responding to the Commission’s interim findings, the government outlined a commitment to achieve $4 billion in savings over three years – $1 billion more than was recommended by Costello’s report.

The enlarged savings target follows a $1.66 billion downward revision in the government’s outlook over the forward estimates, including an $812 million downward revision to transfer duty revenue over the next four years.

Measures recommended by the interim Commission of Audit into Queensland’s finances include: • broadening the land tax base by removing or reducing exemptions and concessions or an increase in mining royalties • addressing the cost of recurrent expenditure by linking the previously announced three per cent cap on growth in employee expenses in legislation • prioritising capital expenditure over the forward estimates, ensuring that only the highest priority projects receive funding. Business cases should include not only realistic estimates of capital costs, but also whole-of-life costs such as operating and maintenance costs over a period of 20 years • undertaking a review of the government’s holding of physical and commercial assets and implementing measures to maximise a return on those assets. The Audit states there is ‘no justification’ for the government continuing to operate commercial business operations in direct competition with private businesses, including Q-Fleet, Q-Build, Goprint, CITEC and Queensland Shared Services. The Audit urges further examination of avenues for private sector management of government assets and delivery of business services to government.

Volume 3 Number 1

1778_Future Building v301.indd 63

ABOVE: Scott Emerson

futurebuilding

11/9/12 11:16 AM

Balancing act key to Queensland’s infrastructure investment

RIGHT: Campbell Newman and Scott Emerson

Rising to the challenge One of the more formidable infrastructure challenges confronting the new government is the looming heavy rail crisis in Brisbane’s CBD. An Environmental Impact Statement released by the previous Bligh Government last year estimated that without updates to the network, the existing rail system in Brisbane’s CBD will reach capacity by 2016. The EIS reaffirmed figures released by Premier Beattie in 2005 and in the Inner-city Rail Capacity study in 2008. At the moment, there is just one inner-city rail bridge across the Brisbane River – the Merivale – which is likely to reach its capacity limit by 2016. Back in 2005, then Premier Peter Beattie began planning an underground rail link called the Cross River Rail (CRR). The estimated cost of the CRR was originally $8 billion, though this was later revised down to $6.4 billion. Seven years on, despite there being little progress in terms of funding, Infrastructure Australia (IA) rated the Cross River Rail as ‘ready to proceed’ in its report to COAG in July, on the grounds that it offers genuine growth opportunities for the city. Meanwhile, the South East Queensland Council of Mayors supported scrapping the CRR in favour of the much cheaper $2.5-billion ‘Cleveland solution’ proposed in a report commissioned from engineering firm GHD. Brisbane Lord Mayor Graham Quirk, who chairs the council, described the Cleveland solution as a stopgap measure to boost capacity by adding around 20 years of life to the Merivale Bridge. 64

futurebuilding

1778_Future Building v301.indd 64

Quirk predicted that, eventually, the Cross River Rail would still have to be built, but that ‘there was a recognition among mayors that there just wasn’t a spare $7 billion floating around in federal or state government coffers to deliver CRR, and there was a need to do something’. On taking office, Emerson asked for a review of the work already undertaken and options for both future-proofing the network and extending the capacity deadline. In June, he announced his decision – a solution that he says will deliver the two underground tunnels promised in the original plan for the much lower cost of just $4.5 billion. The plan put forward by the LNP, however, would still require substantial funding from the federal government. ‘We’ll be seeking 75 to 80 per cent from Canberra, which is standard for projects like this,’ he tells Future Building. ‘Then we have to look at how the private sector can get involved. This could include commercial opportunities for investors, such as paid parking.’ As the project cannot be delivered before 2020, the state government is looking at short-term measures to increase capacity. The review panel suggested a number of interim measures, such as removing some seats to create more standing room for commuters, and rescheduling interstate services so that they don’t run in peak periods. ‘We have to consider what delivers the best result for the dollars we spend,’ Emerson says. He is now preparing a submission for Cabinet to consider, and says he will continue to engage with Federal Infrastructure Minister Anthony Albanese and Infrastructure Australia.

Restoring confidence in public transport The rationale behind a revamp of Queensland’s rail system is clear. Queenslanders made four million fewer trips on public transport in the final six months of 2011 than in 2010. Major disruptions to Queensland Rail services have shaken commuter confidence, with two notable incidents in February and March this year together affecting 297 services and resulting in 124 cancellations. An audit of Queensland Rail’s maintenance was ordered by the LNP when it took government. ‘The audit found that maintenance of the rail network was being carried out in a piecemeal fashion

Volume 3 Number 1

11/9/12 11:16 AM

Balancing act key to Queensland’s infrastructure investment

and that sections of our city network were in urgent need of attention,’ Emerson says. Meanwhile, pressure is also building on Brisbane’s roads. Brisbane City Council has already completed stage one of an upgrade to Kingsford Smith Drive – a major road linking Brisbane CBD to the Brisbane Airport, Port of Brisbane, Northshore Hamilton and the Australia TradeCoast area – in order to reduce traffic congestion and improve safety. Options for the next stages are currently under review. ‘Restoring confidence in the public transport network is fundamental to easing congestion in Queensland’s major cities,’ adds Emerson. The government has also said it is committed to making public transport more affordable by introducing free travel after the ninth journey in any week, and halving Translink’s annual fare increases to 7.5 per cent, though this plan was called into question in the interim Commission of Audit.

The demands of increasing regionalisation South East Queensland is growing fast; by 2031 it is likely to be home to almost 4.5 million people. In the words of Emerson, it’s this growing regionalisation that presents its own unique challenges for the state’s transport network. ‘The great challenge with transport in our state will also be delivering for all Queenslanders, whether they be in Cairns, Coolangatta or Cunnamulla,’ says Emerson.

Restoring confidence in the public transport network is fundamental to easing congestion in Queensland’s major cities

While it is critical that key arteries like the Bruce Highway are maintained to a high standard, infrastructure is also needed to support a sustainable and integrated transport system. For instance, Queensland Rail is planning to expand and improve the rail network with projects such as the $100 million Keperra to Ferny Grove upgrade, and the $1.15 billion Moreton Bay Rail Link. ‘Returning some of the wealth created in mining industries will also be crucial if those communities are to grow in a sustainable manner,’ says Emerson. ABOVE: Scott Emerson

Harnessing the resources boom The government is looking at ways to increase the wealth flowing from resources by using infrastructure to boost productivity. Jeff Seeney, Deputy Premier and Minister for State Development, Infrastructure and Planning, believes that Abbot Point is an important strategic asset for the state and that its future expansion could play a key role in Queensland’s economic development. He recently told State Parliament that the planned incremental growth for Abbot Point would increase the export capacity from around 200 million tonnes a year to 360 million tonnes. ‘We will be working hard to obtain the remaining approvals for the developments and discussing with industry what additional capacity is needed beyond that,’ he said. The Newman Government has also announced two rail corridors to service new and existing coal mines in the Galilee and Bowen Basins. An east-west corridor will see an extension of the existing QR National network from near Moranbah to the central Galilee Basin, and will provide links to the coal ports of Abbot Point, Dalrymple Bay and Dudgeon Point. A north-south rail corridor will be defined along the proposed GVK-Hancock Coal alignment to facilitate the construction of new standard-gauge rail lines to link the proposed large-scale, vertically integrated mining operations in the southern Galilee Basin to Abbot Point. Seeney told Parliament that the two corridors were the only areas in which the state government was likely to use its powers to compulsorily acquire land for new rail lines. ‘The government will work towards declaring State Development Areas to define these two preferred corridors, within which the government’s powers of compulsory land acquisition can be exercised to bring about our clearly stated policy outcomes of a Volume 3 Number 1

1778_Future Building v301.indd 65

futurebuilding

11/9/12 11:16 AM

Balancing act key to Queensland’s infrastructure investment

Queensland’s budget is under sustained pressure, and the loss of the state’s triple-A rating makes a strong case for ongoing reform to slash waste in the public sector

coordinated approach to railway development,’ he said. The government will also support the development of coal-line standard for the existing rail line from Alpha to Emerald. ‘We will ensure third-party access to each of these corridors and no proponent will be disadvantaged,’ he said. ‘There will also be the option for other large mining proposals to co-locate their own new railway lines within the north-south corridor should they consider that to be more commercially viable.’

Infrastructure Queensland The Audit Commission’s interim report reiterated that, in order to maintain financial sustainability, any government must be able to deliver its long-term service and infrastructure commitments without having to impose excessive revenue-raising measures such as taxes, and without undue reliance on debt. In other words, it must be able to afford what it invests. The Commission spelled out a number of general principles that governments should apply to the forward planning of net capital spending. These include planning for the long term and ensuring that all government agencies have up-to-date asset registers and detailed asset management plans. Newman had already committed to establishing Infrastructure Queensland, a body that will advise the state government on long-term infrastructure planning, prioritisation and ongoing management and maintenance. It follows the move by the O’Farrell Government in New South Wales to establish Infrastructure NSW as an advisory body soon after it won the state election in March 2011.

futurebuilding

1778_Future Building v301.indd 66

Emerson is confident that the establishment of Infrastructure Queensland will help to provide the best infrastructure outcome for taxpayers. ‘We are going to require some changes to the way we do business,’ says Emerson. ‘For example, Queensland has slipped behind other states when it comes to delivering major projects in a cost-effective way. I want to see greater involvement from the private sectors in delivering innovation and value for money when it comes to transport and road infrastructure. ‘Cutting red tape and making our business attractive to the private sector will be a very important part of delivering major transport infrastructure in the future – whether that’s pure investment or a public private partnership (PPP). It’s not only about private investment; I’m also keen to ensure that the private sector is in a position to deliver value for money and innovation for taxpayers when it comes to tendering for government contracts.’ The Newman Government has also announced the establishment of Projects Queensland, a standalone unit set up within the Department of Treasury and Trade to drive cooperative funding models and maximise private investment in infrastructure. While progress has been swift since the election, the government’s success in meeting its infrastructure investment task will be closely linked to a prudent fiscal strategy, including a broader debate around the structural reforms needed to free up capacity on the state’s budget. Queensland’s budget is under sustained pressure, and the loss of the state’s triple-A rating makes a strong case for ongoing reform to slash waste in the public sector. As the Commission of Audit showed, there is a long way to go.

Volume 3 Number 1

11/9/12 11:16 AM

Between a rock and a hard place

ABOVE: Hon Jay Weatherill MP Premier of South Australia

1778_Future Building v301.indd 67

Volume 3 Number 1

futurebuilding

11/9/12 11:16 AM

Between a rock and a hard place

A constrained fiscal position and a slump in revenues have seen South Australia forfeit its triple-A credit rating, and substantial reform is needed if the state is to claw back control of its budget, writes Jeff Hutton.

BELOW: Artist’s impression of The New Royal Adelaide Hospital

With a soaring Australian dollar hammering manufacturing, and tumbling commodity prices denting mining profits, South Australia saw its triple-A credit rating downgraded earlier this year. The move was not unexpected. Premier Jay Weatherill has been unabashed in his support of putting continued expenditure ahead of the state’s triple-A rating. The fact remains, however, that South Australia’s capital investment future looks bleak without a sustained period of reform. Runaway expenses, dwindling tax receipts and the requirement to invest in infrastructure continue to exacerbate the pressure on the state’s bottom line. Weatherill has argued that the government must push ahead with key projects, including $109 billion of resource, defence, health and transport projects in the pipeline, saying that scaling back capital spending in line with sagging revenues would only risk bottlenecks in the future and shift the burden onto taxpayers.

Weatherill, who took over from Mike Rann as Premier in October 2011, says forfeiting the triple-A rating was a straightforward decision. ‘We did that deliberately,’ Weatherill says during a recent interview. ‘We needed to maintain capital spending and ensure job creation. That was our emphasis. It was about the long-term economic viability of the state.’ While the state remains committed to pushing ahead with a number of large projects, including the revitalisation of Adelaide Oval, the New Royal Adelaide Hospital and the duplication of the Southern Expressway, fiscal pressures continue to loom large. The most recent state budget saw deferrals on a number of infrastructure projects, the state’s ability to invest in major infrastructure moving forward will require a mixture of luck and prudent judgement. Weatherill says the challenge is striking the right balance – one that preserves capital projects and job creation without seeming too much of a spendthrift. ‘It was a matter of financial prudence,’ Weatherill says. ‘We wanted to respond to the economic conditions responsibly, while keeping the future economic development of the state on track.’

Working with the private sector As European debt woes and an economic slowdown in China and the United States undermine business and consumer confidence in Australia, the South Australian Government has shown a strong appetite to share risk with the private sector to secure investment, analysts say. ‘The current government is much more openminded to a variety of ways of unlocking private sector investment than past administrations,’ says Adelaide-based Rob DiMonte, Managing Partner for Deloitte Touche Tohmatsu in South Australia. In the non-mining sector, perhaps the best example has been the $2 billion New Royal Adelaide Hospital – one of Australia’s largest health public private partnerships (PPPs) and the largest PPP in the state’s history. 68

futurebuilding

1778_Future Building v301.indd 68

Volume 3 Number 1

11/9/12 11:16 AM

Between a rock and a hard place

The 800-bed hospital – which is being built by the SA Health Partnership, comprising Leighton Contractors, Macquarie Capital Group, Hansen Yuncken and Spotless – is scheduled for completion in 2016. Weatherill says the tighter balance sheet, coupled with the government’s determination to shield the state from the ravages of a climbing dollar and other external shocks, would inevitably mean a broader role for the private sector in fulfilling the state’s infrastructure requirements. Additionally, ensuring maximum value for money for taxpayers will be at the forefront of the government’s infrastructure strategy. While none of the state’s upcoming infrastructure projects are currently slated for delivery through the PPP model, Weatherill says that is not reflective of the government’s reluctance to embrace the model. ‘We will choose the PPP model when they make sense,’ Weatherill says. ‘It made sense to transfer the building and maintenance of the [NRAH]. It transfers risk to the private sector.’ Treasurer Jack Snelling says that PPPs like the New Royal Adelaide Hospital are effective because the state can transfer construction and maintenance risk to the private sector, allowing it to focus on delivering clinical services. ‘PPPs enable the state to focus on what it should be focusing on, which is the quality of its public services, while the private sector can focus on the quality of the infrastructure that houses those services,’ Snelling explains. ‘With the split of that risk allocation, both the state and the private sector benefit; the state through value for money, and the private sector through return on its capital. ‘The challenges for governments in the future will be to ensure that the key criterion in tendering PPPs remains value for money, and the process for doing that remains very competitive.’ While Snelling says there will be many projects over the forward estimates that ‘will be built and managed by the government’, the private sector will still be called on to play a significant role in the delivery of major infrastructure. ‘When value for money for government and the South Australian taxpayer is competitive, we will look at options as to how those projects could be built under a public private partnership,’ he says.

Snelling says PPPs deliver well maintained and quality public infrastructure over the life of the contracts so that current and future generations can benefit from a state-of-the-art project. ‘For the private sector, PPPs present a great opportunity for return on capital if they do meet the conditions of their contract. ‘The private sector works very hard to meet the standards in their contracts, so it continues to receive the service fee revenue that comes with the partnership. ‘We believe there are several opportunities where those partnerships will serve South Australians well today, but, just as importantly, serve South Australians well into the future.’

Dealing with a difficult budget Snelling’s second state budget, which he handed down on 31 May 2012, forecasts an $867 million deficit in the year ending June 2013. That will narrow to $778 million the following year. The main culprits are slumping budget, tax and GST revenues, which have been written down by a further $2.8 billion over the period 2011–12 to 2014–15, including a $700-million reduction in 2012–13. The pace at which the government reaps tax will slow by 7.2 per cent in real terms during the 12 months ending June 2013. After that, tax revenue is expected to recover and the government hopes to return the budget to surplus by June 2016. The combination of lower revenue and sustained capital works spending will double the debt over the next four years to $8.8 billion. While Standard & Poor’s reacted by lowering its rating of the state government’s ability to service its debt from triple-A to double A-plus, Weatherill says other states may also have to face up to a new reality. ‘The global financial crisis had a substantial effect on revenue because global uncertainty drove down demand for resources and their contribution to revenue,’ Weatherill says. ‘Each state has to do it in its own way.’ Forced to take drastic action, Snelling found $430.7 million in new savings in the state budget. Numerous projects were either deferred or cancelled. A planned $500 million tram line for Adelaide was cancelled, while the government delayed electrification work for some rail lines, including the Gawler and Outer Harbour. That added about $373 million to the state’s balance sheet through to June 2016. Volume 3 Number 1

1778_Future Building v301.indd 69

futurebuilding

11/9/12 11:16 AM

Between a rock and a hard place

The government also said it would wait two years to buy land for a future rail corridor to Aldinga, saving almost $13 million.

But it wasn’t all gloom for infrastructure spending

BELOW: The existing Olympic Dam site

futurebuilding

1778_Future Building v301.indd 70

The government announced an extra $110 million toward separating freight and commuter lines at Goodwood – a project that attracted more than $200 million in Commonwealth funding in this year’s federal budget. Snelling says the project will be vital to driving up efficiencies in the delivery of heavy freight. A total of $192 million was also committed to roll out three electronic healthcare systems that boost storage systems for test results, improve imaging for scans and x-rays, and deliver better patient access to information. The government will commit $75 million to build supported care accommodation for the disabled, including $13.5 million to close down the 40-yearold Strathmont Centre. Overall, the state’s infrastructure program will see investments of $10.8 billion over the next four years, with some $2.9 billion of work slated for the fiscal year to June 2013. Among the big-ticket items are the $1.88 billion Adelaide desalination plant, the $535 million redevelopment of the Adelaide Oval – a key part of the development of the Riverbank precinct – and the new Sustainable Industries Education Centre at Tonsley, the former site of the Mitsubishi auto assembly plant.

‘The government is funding record levels of infrastructure investment to build for future generations,’ Snelling says. Spending on transport and infrastructure, including work on the Adelaide Oval, will climb to $1.3 billion, while a health spend of $4.9 billion is also slated for 2012–13, up 5.6 per cent on last year. The 800-bed New Royal Adelaide Hospital will comprise a large slice of that spending. The hospital, combined with the South Australian Health and Medical Research Institute, is slated to be the hub of medical research in the state. The project sits at the heart of the state government’s ambition to create an ‘arc of development’, as Weatherill describes it, along the city’s Riverbank precinct. The hospital and research centre will concentrate 7000 clinical and medical research jobs in the city centre. Baulderstone is spearheading the $535 million redevelopment of the Adelaide Oval, which got underway in March 2012. The staged redevelopment is slated to wrap up in March 2014. Deloitte’s DiMonte says the decision to press ahead with its infrastructure program underlines the importance of infrastructure spending to underpin economic growth. ‘The government recognised there needs to be a balanced approach,’ DiMonte says. ‘It’s not all about austerity.’

Olympic hopes dashed… Minerals remain a bright spot for South Australia, but the lustre is coming off. The state could only boast four mining projects at the turn of the 21st century. Now it has 20, with another 25 considered to be in the advanced stages of planning, but unfortunately, the proposed $27 billion expansion of BHP’s Olympic Dam site has now been mothballed – with some analysts warning that this may put doubts into other planned projects. Olympic Dam accounted for just under half of the $65 billion of resource-related projects in the pipeline in South Australia. University of South Australia Professor Richard Blandy says the Olympic Dam expansion would have boosted economic growth by some four per cent per year, with activity at the mine projected to account for about 10 per cent of the state’s gross product.

Volume 3 Number 1

11/9/12 11:16 AM

Between a rock and a hard place

While the withdrawal of the expansion is a serious setback, it’s not fatal. ‘Even without the Olympic Dam expansion, there’s a significant amount of expansion in that sector alone,’ DiMonte says. Among them is Oz Minerals’ Carrapateena copper / gold mine, which was discovered under South Australia’s PACE program. And Snelling argues the state needs to be more than a resource economy. ‘We need to be a state that, into the future, doesn’t just dig things up, but makes things as well,’ Snelling says. ‘That is why growing our advanced manufacturing sector is one of the government’s key priorities.’ The government has ruled out road tolls, Weatherill says, pointing to the government’s election promise on the issue. ‘It was an election pledge,’ Weatherill says. ‘We’ve been able to increase infrastructure spending without road tolls.’ Snelling downplayed remarks he made in June at a post-budget breakfast that he would have to give consideration to proposals to build a road toll in South Australia. ‘I would naturally give that consideration, as a Treasurer would with any proposal that is put forward to government,’ Snelling says. ‘But at the time I also said that no-one has currently come to me with a proposal, and I don’t think anyone will.’ The issue became more prominent after the head of the state’s Transport Department, Rod Hook, said in June that the next government in South Australia would need to find new ways to fund road infrastructure, with tolls an obvious candidate. Hook said that if South Australia wants to continue to receive federal support, road tolls would have to be considered in the 2014–15 budget, which will be after the next state election. ‘It is very unlikely we will ever get a toll road in South Australia fully funded by the private sector paid for by tolls,’ Hook said. Snelling reiterated the point that the government has no current plans for road tolls, but even so, he doesn’t expect the issue to go away. ‘As part of the rigorous assessment of the submissions it receives, Infrastructure Australia requires project proponents to show that they have considered all the options, including on the matter of financing.

Policymakers in South Australia are going to need to take some difficult steps to decrease the cost of public service delivery ‘This has already occurred once with the Northern Expressway, and will happen with future road projects.’ One thing is overwhelmingly clear: the fiscal pressures facing South Australia are showing no signs of abating. If South Australia is going to fund its ambitious infrastructure program, there will have to be heavy lifting to restore the state’s finances. South Australia, together with Victoria, achieved historic micro-economic reforms in the 1990s, including the privatisation of its publicly held electricity and port assets. While those reforms have bolstered the state over the past two decades and held down the costs of electricity that have blighted New South Wales and Queensland, it also makes the job of reforming the budget harder for the current crop of political leaders. While the recent state budget saw some positive progress, with operating expenses to be cut by $430.7 million over the next four years, significant heavy lifting still needs to be done. Policymakers in South Australia are going to need to take some difficult steps to decrease the cost of public service delivery, and look at new taxation revenues to increase funding capacity. And while these are welcome first steps, South Australia needs to face up to the fact that a prolonged effort to rein in operating expenses will need to be accompanied by a broader debate about the funding options needed to help deliver the next generation of projects.

Volume 3 Number 1

1778_Future Building v301.indd 71

futurebuilding

11/9/12 11:16 AM

COMPANY FOCUS

PECAN LIgHTINg LAuNCHES LRL SAT-S fIxTuRE IN AuSTRALIA LED Roadway Lighting Ltd. (LRL) has introduced a new, smaller form-factor LED street and area lighting fixture. The SAT-S is part of the company’s Satellite Series.

While the SAT-S is smaller in size, it compromises nothing in terms of performance and reliability. The Satellite Series fixtures are engineered for a 20-year design life, using high reliability aerospace and automotive grade components. The SAT-S provides up to 80 per cent energy savings and has a total life cycle cost that is substantially lower than conventional street lighting systems. The SAT-S is available in 24 and 48 LED models and a range of finishes.

SAT-S benefits: • • • •

•

• •

highest power supply reliability (independently tested in accordance with Telcordia SR-332) 20-year design life energy efficient – up to 80 per cent savings environmentally friendly – RoHS compliant and Dark Sky Association approved easy to install and maintain – no special tools or training required – fixtures are maintenance-free lowest total life-cycle cost wall-mounting bracket available (for commercial-industrial applications).

Amherst. LRL offers a complete range of LED-based street and area lighting fixtures that meet or exceed IES (Illuminating Engineering Society), CIE (Commission Internationale de L’Eclairage) and IDA (International Dark Sky Association) requirements. LRL’s products are RoHS compliant (free of lead and mercury), provide energy savings of up to 80 per cent and substantially reduce maintenance costs. LRL’s products are currently installed in more than 250 locations in 12 countries, including Australia. For further information please contact Pecan Lighting E: info@pecanlighting.com.au or visit the LRL website www.ledroadwaylighting.com.

About LED Roadway Lighting Ltd. LED Roadway Lighting Ltd. (LRL), represented in Australia by Pecan Lighting, is a leading designer and manufacturer of LED (light-emitting diode) based street and area lighting fixtures and control systems. LRL is located in Nova Scotia, Canada, with research and design facilities in Halifax and a 55,000 square foot manufacturing facility in

72X

future building Volume 3 Number Volume 3 Number1 1 future building

1778_Future Building v301.indd 72 322351E LHS_Pecan Lighting | 1778.indd 24

11/9/12 10:05 11:16 AM 7/13/12

leading the LED technology wave BEFORE The new SATELLITETM SERIES SAT-S Luminaire by LED Roadway Lighting Ltd.

High Pressure Sodium 200 Watt Lamp 235 Plug Watts

AFTER LED ROADWAY LIGHTING 110Watts 110 Watts SAT-96 (96 LEDS) - 350mA

Puerto Rico Capitol Building 53% Energy Savings

Lowest Total Life-Cycle Cost | 20 Year Design Life Up to 80% Energy Savings | RoHS and Dark Sky Compliant Easy to Install and Maintain

08 8349 8917 1-877-533-5755

info@pecanlighting.com.au | www.pecanlighting.com.au ledroadwaylighting.com

info@ledroadwaylighting.com | www.ledroadwaylighting.com 1778_Future Building v301.indd 73 322351A RHS_Pecan Lighting | 1778.indd 1

11/9/12 10:07 11:16 AM 7/13/12

OUR TRACK RECORD IN INFRASTRUCTURE WASN’T BUILT OVERNIGHT.

50Hertz

At Industry Funds Management (IFM), we’re one of the largest global investors in infrastructure with a 17 year track record of success. In fact, we are recognised as pioneers in infrastructure investment on behalf of pension funds and other institutional investors. We now have over $10 billion invested across 26 infrastructure assets covering every infrastructure sub-sector. IFM has a unique investor-owned model with over 60 like-minded institutional clients across Australia, Europe and North America. We manage over $34 billion across four asset classes in three of the world’s largest pension markets, with a global team of investment experts. For further information visit www.industryfundsmanagement.com or call Eddy Schipper on +61 3 8672 5300.

MELBOURNE

SYDNEY

LONDON

NEW YORK

This document does not constitute an offer to sell securities. Any such offer shall only be made pursuant to a definitive private placement memorandum.

1778_Future Building v301.indd 74

11/9/12 11:16 AM

Future Building 2012 V3 N1

Articles inside

Between a rock and a hard place By Jeff Hutton

Balancing act key to Queensland’s infrastructure investment By Domini Stuart

PPPs in good health By Jeff Hutton

From missiles to motorways By Domini Stuart

IPA National Infrastructure Awards 2012

New South Wales plots transport revolution

Abbott presents his infrastructure vision

Back on the reform horse By Domini Stuart

Capturing value: an option for funding the future By the Hon Mark Birrell

Foreword By the Hon Mark Birrell, Chairman, Infrastructure Partnerships Australia