14 minute read
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.
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.
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.
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.
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
Abbott presents his infrastructure vision
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. continued from page 6 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.
NSW AU 16007 Head Of ce
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.
What parts of your infrastructure business are most active?
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).
How does activity in Australia stack up against opportunities overseas?
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.
How are you active in tapping into those infrastructure priorities?
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.
What role will PPPs play when it comes to planning infrastructure?
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.
seNTinel
Northern Territory Secure Facilities PPP A$495 Million Club Facility Financial Advisor, Bid Sponsor, Equity Investor and Mandated Lead Arranger October 2011
Newcastle Coal Infrastructure Group Stage 2F Project Financing US$1,050 Million Senior Term Debt Facilities Mandated Lead Arranger and Bookrunner August 2011
North Queensland Airports
A$529 Million Club Facility Mandated Lead Arranger
July 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
AMT M1 A$520 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
