Future Building 2015 by Infrastructure Partnerships Australia

The Australian Infrastructure Review Volume 6 Number 1

Volume 6 Number 1

futurebuilding

The Australian Infrastructure Review

Managing Editor: Sarah Dagg Editor: Gemma Peckham Design: Alma McHugh Future Building is published by:

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Contents 2

Chairman’s Foreword | Adrian Kloeden, Chairman, Infrastructure Partnerships Australia

Politics, projects and people – panel discussion

Kerrie Mather | Chief Executive Officer and Managing Director, Sydney Airport

The Hon Dr Mike Nahan MLA | Treasurer of Western Australia, Minister for Energy, Citizenship and Multicultural Interests

Steve McCann | Group Chief Executive Officer and Managing Director, Lendlease

Rod Sims | Chairman, Australian Competition and Consumer Commission

John Pickhaver | Executive Director, Co-Head of Infrastructure, Utilities & Renewables, Australia and New Zealand, Macquarie Capital

Towards social markets – panel discussion

The Hon Andrew Constance MP | New South Wales Minister for Transport and Infrastructure

The Hon Bill English | New Zealand Deputy Prime Minister

The Hon Anthony Albanese MP | Shadow Minister for Infrastructure and Transport, Shadow Minister for Cities, and Shadow Minister for Tourism

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National priorities, state projects: Australia’s new machinery of government – panel discussion

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Foreword I am delighted to present the latest edition of Future Building – the journal of Australia’s infrastructure sector – which presents the proceedings from the annual Partnerships infrastructure policy symposium. This year’s proceedings reflect the ‘two speed’ infrastructure market, with palpable optimism about New South Wales and Victoria, but a gloomy outlook for the other states facing leveraged public budgets and the evaporation of mining investment. This year’s programme saw a focus on short-, medium- and longer-term reforms to increase the quantum and the quality of infrastructure investment. Immediate budget and project funding reform priorities formed a focus across many presentations – noting the wide availability of finance, but the lack of well-structured cash flows to repay finance over time. Many speakers also considered how immediate solutions can be considered within a wider context of long-term structural reforms to government budgets, and to the structure of infrastructure markets themselves. Our 2015 conference saw delegates and speakers drawn from a wide cross-section of community, government and business sector stakeholders. Many of the reforms that Australia will need to drive permanent infrastructure solutions – such as privatisation of public assets, pricing reforms and others – will only be possible through an informed public debate, and support from unlikely quarters. Partnerships is an important forum to resolve the way ahead – and to deepen and widen the national infrastructure policy reform partnership toward material progress. I hope that you find this edition of Future Building of interest, and I welcome any feedback you may have.

Adrian Kloeden Chairman, Infrastructure Partnerships Australia

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L–R Max Moore-Wilton, Tony Shepherd, Martin Ferguson, Roger Massy-Greene and Brendan Lyon

Politics, projects and people Four respected Australian infrastructure sector leaders discuss the barriers to reform and what political leaders need to do to break through these obstacles. Key points:

Chair: Brendan Lyon, Chief Executive, Infrastructure Partnerships Australia Panellists: • The Hon Martin Ferguson AM, Non-Executive Director, Seven Group • Roger Massy-Greene, Chairman, Networks NSW • Max Moore-Wilton AC, Director, Infrastructure NSW • Tony Shepherd AO, Chairman, WestConnex Delivery Authority

Brendan Lyon (BL): Do you think that reform is increasingly possible in this country? Perhaps starting with Max, can you each give an outlook for reform in Australia? Max Moore-Wilton (MMW): There is a general dissatisfaction at the moment with the pace of reform, both at the federal level and, less so, at the state level. New South Wales is making very significant strides in the reform process, which shows with the number of cranes in the sky, and recent business activity; but there does need to be a sense of partnership. Infrastructure is long-term, so it needs to transcend partisan politics. There needs to be an understanding and acceptance that there are things for the general good that both sides of politics can embrace in a reasonably bipartisan way. That’s the change of mindset that is needed. Instead of owning projects for a term of government and then starting again, you need a strategy. Where governments have embraced a strategic approach, and have recognised that

• A degree of long-term consensus and political transparency are key to resolving infrastructure challenges. • Transparency about the problem will drive better accountabilities for enabling microeconomic and fiscal reforms. • With an honest political debate, Australia can achieve substantial reforms, without waiting for a sense of ‘crisis’.

infrastructure is the key productivity driver, progress is made. We’re in a bit of a dip at the moment, but I’m very hopeful that we will come out of it in a constructive way. BL: Tony, your Commission of Audit was designed to give a lot of cover, but we haven’t seen a huge amount of discussion around a lot of the aspects raised. Do you think politics has changed in this country, or do you think we’re in a dip? Tony Shepherd (TS): I think we’re in a dip. The reform process is continuing in New South Wales, and we’re seeing the results of that reform process in a stronger rate of growth, and plenty of cranes in the sky. There’s far more to come when the $9 billion for WestConnex starts hitting the market. New Zealand embarked on a process of quite dramatic reform in some respects, but the Government brought the community with it, and was returned with an increased majority. Ditto in the United Kingdom, where the Government embarked on quite a savage Volume 6 Number 1

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reform process in some cases, and again was returned with an increased majority. You can reform and bring the community with you, but you’ve got to work the community. You’ve got to be incredibly equitable, very open and fair. You’ve got to make sure that you look after the lower quartile – make sure that nobody disadvantaged is any worse off, and [that they are] hopefully better off. You can do it, but you really must work the community; you must have a consistent strategy. When I say consistent, [I mean] consistent in everything you say and do. BL: Martin, you have stood up in a big way on electricity, coal seam gas and other issues. What has made you take such a strong stand? Martin Ferguson (MF): It’s about commitment to leadership, and a desire to do the right thing in the national interest from a policy perspective. We, as a nation, have proven in the past that we can do it, throughout the Hawke, Keating and Howard periods. We’re now seeing it at a state level with Mike Baird – an outstanding leader – who is actually prepared to decide on what is needed, to argue why it’s needed, and to then deliver it. That was about leadership. The Australian community now expects the major political parties to front up to their responsibilities at a national level. We must stop focusing on the short-term political outcomes and start to think about a productivity agenda over the next 10 to 15 years. That’s exceptionally important at the moment, because our economy is in transition. The resources boom is over in terms of investment in major capital projects. We will reap the benefits of that capital investment for many years to come – from iron ore to coal, and especially liquefied natural gas (LNG). We will be the biggest exporting nation. A prime example of the lack of leadership at the moment is this false and dishonest debate about the Free Trade Agreement with China across all political parties – not just the trade union movement. It verges on having racial overtones, just like [the failed takeover bid of] GrainCorp; just like we’ve 4

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got in a prime region of investment at the moment, the agricultural sector and the position of the National Party. We need the Free Trade Agreement because the potential industries that will grow are the beneficiaries. It’s almost as if the Construction, Forestry, Mining and Energy Union (CFMEU), coming from a sector that is benefiting from Chinese investment, wants to hold the rest of the nation to ransom for their shortterm political gain. The message to Canberra has to be to fix this and fix it quickly, because we actually need the jobs and we need them now. We cannot afford to put them at risk. BL: Max, you ran the federal public service for a period of time. What sort of impact would the political debate about the Free Trade Agreement be having, do you think? MMW: I didn’t run the federal public service. I was happy to lead, but it’s a very capable organisation. We are very fortunate with our federal public service because it’s got a lot of intellectual horsepower, but it needs to be harnessed in a disciplined way. We’ve been losing that discipline; progressive governments have become wilful, they haven’t adopted disciplined approaches. When the traditional disciplined approaches [have been adopted], which did happen in the Hawke–Keating and Howard periods, you get good results. Governments should not marginalise their professional advisers and tell them, ‘Do as I tell you,’ rather than talk to them about the Government agenda; however, this is what’s happening. The public service would be horrified by what’s happened with the China–Australia Free Trade Agreement, because it is bipartisan. Both sides of politics desperately want a China–Australia Free Trade Agreement, and for this to come up at the last minute is really very sloppy and very messy. It’s part of the confusion about us being like the United States. We all know that every free trade agreement in the United States finally ends up in Congress, then they fiddle and fool around with it, and something finally gets through when the President is able to fast-track it. We’re not the United

Politics, projects and people – panel discussion

States; our Parliament doesn’t occupy that role, and too many of the political players now watch The West Wing instead of actually getting down to the business of the way Australia runs. From the public service point of view, they sit there and say, ‘For God’s sake, could we turn off the television for a while?’ TS: If we’re looking at bipartisanship, the Free Trade Agreement was started by Julia Gillard. I was there in Beijing three years ago with Julia, and she signed a memorandum of understanding (MOU) with China. It was a Labor Party initiative. Step forward three years, and there’s a complete turnaround. That’s what I mean by policy consistency – the lack of consistency, both philosophically and economically. BL: Roger, you were at the coalface of the electricity reform debate as the Chairman of Networks NSW. We saw a subset of this discussion around China; a fear campaign around China, within the anti-reform union campaign. What did you think of the debate around electricity reform, and particularly around the union campaign and other issues? Roger Massy-Greene (RMG): By way of introduction, I’d like to pick up on a couple of themes that Max and Martin have introduced: leadership, and the need for a mandate for reform. Jean-Claude Juncker, the President of the European Commission, and Luxembourg’s most popular politician, observed, ‘We know exactly what to do, we just don’t know how to get re-elected if we do it’. Martin mentioned the Hawke–Keating accords, and also referred to the Howard era. The Hawke– Keating accords had the support of the affected constituency, which was the Australian Council of Trade Unions (ACTU) and the workforce, through the unions. Howard had an electoral mandate that he sought for the GST. Those two things really define what’s necessary to get legislation through. You’ve either got to have the support of the affected constituency, or you’ve got to have the support of the electorate – and then you’ve also got to have a parliamentary majority. You’ve got to have two of those three. Baird took electricity reform to the election and won the electorate’s grudging support. The electorate voted the Baird Government back because they liked and trusted Mike Baird, and they trusted his Government – not because they wanted electricity reform. They were willing to buy it because it was part of a package. The Baird Government also has – just – a parliamentary majority. The need for a

parliamentary majority is absolutely crucial, because there have been too many governments that have effectively had a mandate for reform, but haven’t been able to get the reforms through Parliament. We should look at electoral reform in [the] upper houses in both state and federal jurisdictions in order for reform to proceed. BL: One of the issues that you, Tony, and Martin have both been passionate about has been this discussion around coal seam gas policies and other things. Could you give us a little bit of a sense of how you think political leadership might be able to break the nexus around upstream gas? TS: It’s a desperate situation in New South Wales, where 95 per cent of the gas is imported, but we have two great gas fields – they’re not on prime agricultural land, [but] in places like Narrabri in the scrubs. There is a campaign against [upstream gas], driven by the Greens and picked up by local residents. They get concerned, and in many cases are very misinformed. The Government weakens, and says, ‘We’ve got to be more and more and more careful’. Obviously we’ve got to be careful, and we’ve got to protect the aquifers and protect the farmers, which good companies like Santos and AGL actually do. They’ve got a great track record. If they breach [regulations], penalise them and pull them up. But here we are, sitting on a wonderful resource that could really help keep New South Wales going, and we are going to leave it in the ground because of what, I think, is grossly misinformed public opinion. MF: I agree with Tony. We do not have a shortage of gas; we have a problem with a lack of determination at the political level to actually facilitate the production of that gas. If we’re not careful, it will lead to a tightening in the market, and consumers will pay the price for a lack of political leadership in terms of higher prices. It will also put at risk some of our manufacturing operations in Australia, which is about jobs. For both major political parties, it’s about time, because we’ve got weakness in parties in both Victoria and New South Wales. They need to decide that they want the investment and the jobs. Queensland is a prime example, where you have both major parties on board. You get huge investments – something in the order of $60 billion. There is a revival of regional communities that were struggling, but now have long-term job opportunities because these are long-lasting investments. How could a state like New South Volume 6 Number 1

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Politics, projects and people – panel discussion

Above: Roger MassyGreene Right: Max MooreWilton

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Wales, which has to import 95 per cent of its gas, not be aggressive about selling these benefits? More importantly, organisations such as the CSIRO need to independently tell the story about this. Let’s get on with the job, like Queensland has. The sooner Narrabri and Gloucester are producing, and proving to New South Wales that [the state is] no different to Queensland, then it’s all the better from the east coast of Australia. RMG: It’s useful to go back to look at where the coal seam gas industry has come from. Some of the early proponents of coal seam gas in New South Wales were what you would describe as colourful mining identities. They took a cowboy-like approach to the whole industry, which was, ‘We can go and do whatever we want to do; we don’t have to enlist community support for what we do’. That enabled and engendered a fair bit of community opposition. At around the same time, the Gasland movie appeared in the United States, which enabled the opponents of coal seam gas to conflate fracking and shale gas extraction with coal seam gas extraction, even though they are fundamentally different. Coal mining on the Liverpool Plains managed to get rolled into the whole package, and by the time that was rolled together, we had a completely toxic mess. Where do we go from here? Industry leadership is needed first. The problem in the beginning was that the industry was small, fragmented and incompetent. We’ve now Volume 6 Number 1

got, as Martin mentioned, Santos, AGL and other really respected industry players [in the field]. They need to stand up and get out there. TS: Go around Roma – the whole region around Roma. Have a look at it – it’s vibrant, it’s wealthy, and the kids have jobs there; they don’t all go back to Brisbane now to work. The community is alive. Why? Coal seam gas. Nobody’s been poisoned. BL: Across today’s presentations, we’re going to hear about some really difficult but necessary reforms. Things like road pricing from Rod Sims, social markets in health, public services – those sorts of things. Perhaps staring with you, Max, and then you, Tony, who led the Commission of Audit, what do you think is missing in getting these sorts of reforms sparked along? Is it going to be the fiscal starvation of the states? Is it going to be the aggravation of the people? Or is it going to be something else? MMW: The debate is certainly going to continue, because Australia faces the challenge of its infrastructure ageing, and it needs to build infrastructure for the new jobs of the future. I’m not worried about there not being a robust debate. If we need to have a crisis to show how incompetent we are before somebody will do something, that’s a rather inefficient way of doing it. I like the way that New South Wales has tackled it; I like the way the O’Farrell Government and then the Baird Government have been consistent. They’ve

Politics, projects and people – panel discussion

accepted a view – which has been a businesslike view that all of us had been putting to them when they were in Opposition – that infrastructure is too important to treat capriciously, sitting around and just saying, ‘This will be a good project to do,’ and then locking it in. No business does that with its capital program. A capital program in business is heavily analysed, and financing and productivity gains are analysed, as is the impact on the business in the long term. That has been missing, to a very large extent, from the infrastructure debate in Australia. Infrastructure Australia was a start. It was a bit stillborn, and I’m hopeful that it will now improve; although, I’m worried by the idea that we’ll exclude projects, and that governments will decide what they’re going to do without putting it to Infrastructure Australia. You’ve got to have a process that is reputable and transparent, and we’re going well towards that in New South Wales. You’ve got to have a project and a public process, put it to your opposition, and then have a debate on it; for example, the cancellation of a project in Victoria was a real disaster in public policy terms. Projects shouldn’t get to that stage. At the moment, it’s a problem: governments, politicians and their staff increasingly think in billions. They ought to get back to the millions. It’s not their billions; it’s our billions. They’ve aggregated it up too far. Many of the projects that are going to provide the most benefit to the states are not the totemic projects. They’re about cleaning up the traffic congestion and road pricing. It doesn’t take huge amounts of capital, but it takes huge amounts of political capital. You’ve got to put it in context. You need an infrastructure view that is not only about very big projects, but that is also about the public policy framework, and what is going to give you the best bang for your buck. We need to recognise that politicians have to spread the joy, to some extent. They have to spread to the constituencies, but they can still have a sound and rational process. Business takes it from the analysis first, and then announces the project. Politics in Australia is announcing the project, and then fitting the analysis to justify the project. It’s also, unfortunately, whatever the leader at the time says to a journalist or an editor, and that then gets locked in. They should stop talking so much, and actually do a bit more doing. BL: I want to come back to this point around sovereign risk and transparency – but Tony, I

wanted to ask you particularly: what do you think it is that will spark some of the big breakthroughs? There is good understanding of what we need to do, but it’s difficult. TS: I really worry that, short of a big crisis, Australia finds it very hard to respond. If you go back to what Martin talked about – in the 1980s we were heading for a crisis, but the Government could see it coming and actually acted. But does Australia need to get itself in deep doo-doo before it responds? The economy is treading water, and again, as Martin says, we are in a massive transition. It was masked by the investment in the resources sector – that’s finished. We are really in transition now. Lowerpaid white-collar jobs are disappearing by the minute. What are we going to be, what are we going to do? The economy is treading water, and terms of trade have turned against us far faster than the Commission of Audit predicted. Growth has dropped far, far below even the level that we predicted. The structural fiscal deficit is very real. It’s not going away – it’s getting bigger by the day. Do we need to get ourselves into a complete crisis, or can we get some incremental reform over time to get this economy going, and set it up for the future? That’s the issue and, again, taking Martin’s point, that requires leadership. BL: Martin, you were the president of the ACTU during a lot of the modernisation of infrastructure markets and the economy. What was different back in the 1980s and 1990s? Was it an understanding of the need, or just leadership? Volume 6 Number 1

Above: Tony Shepherd

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Politics, projects and people – panel discussion

MF: I actually had a bite to eat yesterday with Simon Crean and Bill Kelty, and we talked a little about these issues. We were very fortunate as relatively young men at the time. We had a group of what were effectively men who were children of the Depression, who’d come back from World War II and never got the chance of education, but they had been through the hard times and good times. When you think back to 1983, we had an economy that was at a standstill – double-digit unemployment, double-digit inflation. There was realisation in the broader society and the union movement that something had to change. We’d come out of a period of no economic reform. We all know that the Fraser years were disappointing from an economic perspective. We actually decided that something different had to occur, and the union movement also realised that you can actually have a bigger impact on improving ordinary people’s living standards by effectively getting reform through government. The first down payment on that was Medicare, the universal healthcare system. That was exceptionally important in terms of lower-paid people, and we built on that. We also knew that, in return for those reforms, we had to be part of driving change in Australia, and that nothing comes without also making a contribution. I chaired the ACTU social reform committee, and I served on the root and branch reform of the whole social security system – the first time since World War II. We actually attacked middle-class welfare – the pension was not means tested. We wouldn’t think about that today. We decided to make changes to unemployment benefits and bring in the activity test. In the end, there was a reciprocal obligation on all of us in the community. I think the Australian community is almost at a point now where it knows that something has to give. They can see, from the Budget perspective, that the days of huge revenue out of commodities and gas, have disappeared. Western Australia and Queensland are prime examples. They want to know, for example, with an ageing society, how we will pay for our health and education in the future. They want a real tax debate in the lead-up to the next election, and this is emerging to a large extent at the moment out of Premiers Baird and Weatherill. They come from different political persuasions, but they are prepared to put their feet in the water and say, ‘Let’s have a debate about the GST’. Let’s hope this continues in the lead-up to the 8

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next election. If you go back to New South Wales, I don’t think Baird won just because of leadership, but also because he had a plan. The privatisation of electricity was a necessary reform, and consumers will benefit. It’s tough in terms of the change to the electricity system in the short term, but other states have had to do it. Baird also went out and explained to the electorate what he was going to do with the proceeds of privatisation: invest in infrastructure and jobs, and improve productivity. The M7 is a prime example, where 55 sets of traffic lights disappeared. Since we’ve finished it, why haven’t we continued it up to the Pacific Highway through Hornsby? Think of the productivity gains for New South Wales and the whole of the east coast if there had been leadership at a Commonwealth and state level – we would have finished that over the last decade. Such a plan will get community support. Western Sydney is gridlocked. They want leadership on tax and leadership on infrastructure; they can see the benefits for their everyday lives. RMG: The New South Wales electricity debate actually highlights the fact that you can make reform, despite the difficult situation we’re in. If you go back to Iemma-Costa’s attempt at privatisation, they had no mandate whatsoever. In fact, before that election – I think it was 2008 – Morris Iemma had said that he wouldn’t privatise electricity, so he didn’t have the support of the electorate. He definitely didn’t have the support of the union movement. Of course, they then tried to pull it on, but he didn’t have a parliamentary majority; because Barry O’Farrell voted against them, they had none out of the three things I mentioned earlier that you need for reform. It was sort of crazy/brave. Why was Baird able to achieve it? As Martin said, he had a plan; he was honest with the electorate about what he was going to do, and they trusted him. He put it to the vote, and he won it because he had a good plan. You can achieve reform, but it does require bravery, and it does require leadership. Andrew Constance said to me some time ago, ‘Mike and I promised each other before the 2011 election that if we got elected, we wouldn’t be there in 10 years’ time wishing we had done something. We’re either going to do it, or we’re going to go down trying’. Reform requires bravery, leadership, honesty with the people and a plan. TS: Taking Max’s point, this is the first time in Sydney that we’ve had an integrated long-term

Politics, projects and people – panel discussion

transport and land-use plan, and the money to pay for it. It’s probably the first time we’ve had such a plan since Bradfield. MMW: We had an Infrastructure NSW Board meeting yesterday, to take Tony’s point, with the senior state bureaucrats and the Board members, who are businesspeople. We are all on the same page about taking the strategy forward. Now, that would have been unthinkable in New South Wales a few years ago. It didn’t take a lot of hard work; it just takes commitment to try and actually go forward. The second point is on leadership. It’s not all about getting facts before the public. We’ve got a huge problem in process – if you have a mandate, can you deliver it? This is the point that’s coming up. People say, ‘Well, we took a mandate to the election,’ and then you’re frustrated trying to deliver it. You’re frustrated largely either through not having parliamentary majority, or, more significantly, not having majority in the upper house. My good friend, Stephen Loosley, reminded me that in the British system, they have a thing called the Salisbury Protocol, to which both sides have agreed. If you put a manifesto to the electorate and you win, the House of Lords will not frustrate you if it’s consistent with that manifesto. I’m not suggesting that the Shooters and Fishers Party or the Palmer United Party are able to understand that, but I think it would be terribly important if the Opposition of the day understood it. Then you can get something done. The second point is that something’s going to be done about these upper house elections, Federal and state, with these huge ballot papers. The electorate just says, ‘These jokers aren’t serious’. You don’t need to take that to an election; you can change that by both of the major groupings getting together and recognising that what they’ve come up with is a mess, and that they need to go back to where they were to give the electorate a decent choice in upper houses. Both of those reforms could be done. It doesn’t cost any money – it just takes a bit of common sense. We’re lacking in common sense in the leadership stakes at the moment. BL: Accepting that point, I did want to ask the panel about Queensland, which doesn’t have an upper house, doesn’t have much of an economy left after the mining boom, and you’re seeing a real slowdown in that state because of the fiscal settings. The state is looking to Canberra to come in and solve

its project-funding problem. What do you think about that as a philosophy, and what do you think the answers are going to be for Queensland? TS: Personally, I don’t believe in an upper house at the state level, or even the federal, frankly. I don’t think we get any value out of it, and it just complicates the issue. Vote a government in, give them a mandate, and let them get on with the job. That would be a hell of a lot simpler than the complex arrangements we’ve got in Australia, with states and two houses of Parliament in all jurisdictions except for Queensland. New Zealand only has one house of Parliament. They get on the job; they’re capable of reform. People are well treated, the community is reasonably happy, and the country is growing. BL: And for Queensland, what’s going to be the breakthrough? TS: With Queensland, they’re heavily reliant on investment during resources booms. They’re very heavily reliant on coal and gas exports, and then the major issue becomes what else the economy does. They compete on a global basis in other sectors like tourism, agriculture, manufacturing and services. The challenge for their government is how to transition their economy from a resources-based economy into something else, so that they are not reliant on a single sector. That’s the big challenge, and they’re going to focus on this whole question of jobs and productivity in Queensland. They have the fundamentals there – a lot of the fundamentals are there – they’ve got a lot of resources, they’ve got a well-educated, healthy population and a great climate. They’ve got the fundamentals there. It’s just a question of getting the plan right, and getting on with the job. BL: Martin, you spend a lot of time in Queensland in professional roles – you’ve got a lot of friends up there. What would you say about Queensland’s current situation? MF: Campbell Newman is a prime example of how not to govern. He should have had a 10-year plan, because he had a majority to actually go through three elections unchallenged, provided he delivered on practical, pragmatic reform over a period of 10 years. Anna Bligh started it; she actually started to front up to the Budget challenges of Queensland. It was there for Campbell to do in a strategic way, Parliament by Parliament. I’m not reflecting on the current Premier, but we now have a Government that didn’t expect to be in government. When you’re in Opposition and don’t expect to be in government, Volume 6 Number 1

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COMPANY FOCUS

REDUCING UNCERTAINTY ON INFRASTRUCTURE PROJECTS It’s estimated that about 80 per cent of unnecessary project expenditure on infrastructure projects results from defects identified during the construction phase. Uncoordinated planning and design creates unforeseen challenges, causing project delays and cost blowouts. everyone to see and understand a project, and this means fewer surprises during the construction phase. But successful planning relies on the validity of the data informing the process.

The right data with the right expertise

Using new and existing technologies, Coffey can help address this issue, saving time and money on new infrastructure projects. In this new world of digital disruption, organisations that put their georeferenced data to best use are getting results.

Building it twice; first virtually, then physically – what does it mean? Spatial data solutions are fast emerging as new standards in infrastructure development. Building information modelling (BIM) is now an accepted part of many projects, while visualisation using simple graphics, maps, web maps or more sophisticated 3D maps and prints are enhancing decision-making. Virtual reality and augmented reality – already extensively used in the resources sector – are increasingly being applied to infrastructure projects. These technologies, used individually or together, bring data to life. They’re allowing a wide range of stakeholders, including community members, regulators, asset owners and constructors, to see and understand the project from their unique perspective. This works to address traditional project challenges in new ways, and facilitates more meaningful conversations.

10X

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These conversations start long before the project begins, with the ‘virtual build’. Using hard-copy or digital format files in the past has been highly limiting when trying to choose a preferred route for a new rail line, to understand a tunnel’s impact on existing buildings, or to see the real visual impact of a new skyscraper. Stakeholders who wanted to explain their points of view couldn’t manipulate the material to support their comments. Without suitable visual aids, there was potential for misunderstandings to occur, leading to overly lengthy debate that failed to achieve adequate resolution. But with a visual model that can incorporate all relevant technical designs – environmental, geotechnical or engineering – the ambiguities and uncertainties disappear. Everyone can ‘see’ everyone else’s point of view in a scaled, visual, or even virtual model. It’s a common and familiar interface that accurately replicates the invisible (underground) or future (planned) world. All of this can be done well in advance of any design or construction, enabling more confident and informed decision-making during the planning and approvals phase. These 3D and visualisation tools are valuable. Building it once virtually allows

Informed data management is where owners, designers and constructors can make a significant impact on the success of a project. The success of a visual model depends on two key factors: the quality of data used, and the technical expertise to manage it effectively. During the planning and design phase, it’s not about lots of data. It’s about the right data. Well organised and basic datamanagement tools and practices can deliver savings through better planning, and, in many cases, can lead to less work through the more efficient use of information. This data, combined with the right technical expertise to analyse and interpret it, allows a complete and accurate virtual model to be built up-front – where the most valuable decisions can be made. It doesn’t start with good data management. It’s about understanding what information is needed from the outset – and driving efficiency and good decision-making from that point.

It’s then about building efficiency on efficiency With everything accurately georeferenced, up-to-date and readily visualised in a familiar 3D world, organisations can more fully appreciate the broader project design, bringing different models together for improved stakeholder engagement and clash detection, as well as optimised design, planning and risk management. This will result in a more clearly defined project – one whose chance of being delivered smoothly, on time and on budget is vastly improved.

Spatial data management across the asset lifecycle

Complex and valuable data

Capture

Applying expertise to make sense of it

More informed decision making

Cleanse

Store

Organise

Analyse

Feasibility

Planning & approvals

Design

Construction

Management & maintenance

)) ))

coffey.com

Politics, projects and people – panel discussion

continued from page 9

it’s easy to rule things in and out, because you don’t think that you’ll have to implement those decisions in the next Parliament. The challenge for the Queensland Government is to actually make the most of a situation that confronts them with an inability, unlike New South Wales, to realise values such as the Gladstone Port or, alternatively, the privatisation of electricity. I don’t think other states should bail out New South Wales on its inability to deliver gas. Front up to your own decisions. Similarly, Queensland is entitled to what it normally should be entitled to. Why should any other state be disadvantaged by a lack of political leadership on either side of politics if states are not prepared to make their own decisions? Why should New South Wales be short-changed because it’s going to have the benefits of privatisation? If Queensland isn’t prepared to make the same tough decisions, why should South Australia now be told that it should sell the gas out of the Cooper Basin at a cheaper price to New South Wales consumers because it won’t front up to leadership on the issue of putting more gas into the market? It is a Federation, but states should not be disadvantaged by the inability of another state to make tough decisions. BL: Just in closing the panel, I want to ask each of you to reflect a little on the issues around East West Link, potentially around Capital Metro, and also around the discussion about transparency and about the outcomes in infrastructure; what is going to start to bait the reform hooks? Are we measuring the wrong thing? Should we be reporting congestion rather than how many billions of dollars are going into transport? Should we be measuring the out-turn and starting to make it explicit to the community when things are going better or worse? MMW: I’m in favour of bringing in a number of the externalities, because I think the emphasis has to be productivity. What’s going to lift living standards in this country is jobs and improving our productivity. Productivity growth would give us more jobs, and that’s where the debate ought to start – not with what we should build next. It’s where we’re going to get the most bang for our buck, and that requires a sensible debate on change and reform. As Martin has said, the Hawke Government was a reforming government because it recognised that something had to be done. It’s time for that to be done again, both at the state and Federal levels. The Council of Australian Governments (COAG) needs to be re12

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energised; I think it’s just sort of drifting. It’s not going anywhere. It does communiqués. That wasn’t what COAG was about when it first started. There were a series of reforming premiers and a reforming Prime Minister who wanted to change things. Those things need to be taken into account. You need a rich mix of reforms. Some of them are about changing the system; some of them are about replacing infrastructure; and some of them are about building new infrastructure. We’ve got to have a mix, and it’s got to be something that the public can see will be delivered. At the end of it, what comes out of the sausage machine is more jobs and a community that, over time, is going to grow in wealth and prosperity. TS: We do need transparency. The modern community demands transparency, and when you are transparent, it’s amazing how the arguments just dissipate – they go away. The concession deed for Melbourne CityLink was tabled in Parliament, and that killed all discussion and debate about whether that was a good project or not. Complete transparency really just killed the issue stone dead. Transparency is very important in bringing community with you. The community groups are now really well organised. They’ve always been pretty well organised, and we’ve had the ‘anti’ lobby on every project I’ve ever worked on, starting with the Sydney Harbour Tunnel. The trouble now is that social media makes it very easy to organise, and that creates a lot more noise than the group actually represents. We’ve done surveys on WestConnex, and we found that 80 per cent of the community in Western Sydney supports the project, but you wouldn’t think that if you listened to the news. You’d just think that everyone’s against it – spoiling the environment, or what have you. It’s up to the Government to provide the leadership and just keep responding openly and fairly, advise the community, and educate the community on what they’re doing. Listen to the community; we’ve changed the design of WestConnex to deal with local community concerns about parks and schools, and all that sort of thing. Genuinely, we listen. But you have to engage, you have to be transparent, and you have to be incredibly patient. At the end, once you’ve delivered the project, the community will say: ‘This works; we’re happy’. At EastLink in Melbourne, it was the end of civilisation as we know it. We were booed at the sod-turning – I was there with the Premier and the Treasurer, with people booing and throwing rocks and what have you. Complete the project, set it to

Politics, projects and people – panel discussion

work, two years later do a survey, and 80 per cent of the people in eastern Melbourne say: ‘This is a great project, and we don’t know how we lived without it’. It’s just patience, and you have to be transparent. You’ve got to be consistent. You’ve got to be positive, and you’ve got to try and bring the community with you. MF: Firstly, we shouldn’t lose sight of regulatory reform, because one of the barriers to investment in Australia at the moment is the increasing rate of regulation. The prime example is the need for a one-stop environmental shop. And the current court cases about Adani and the use of legal technicalities are sending a message internationally. In terms of Australia, we are not open for investment. We’ve got to front up to regulatory reform. On investment, I think it’s about transparency. I was the one who put on the Labor Party platform, in about 1999, the idea of Labor in government at a Federal level actually creating Infrastructure Australia. I did it for transparency and to take the politics out of decision-making, because projects were selected on the basis of the electoral pendulum, not on an independent cost-benefit analysis that went to productivity, but that also can include a degree of social amenity, and can mean big and small projects. A prime example was the Bega Bypass – a huge productivity gain for industry in the southern part of the New South Wales, because everything went back to the Port of Melbourne, and stopped the need to uncouple B-doubles. This was a huge benefit to the community. The key issue is for governments to accept that, for major investment in Australia, there will be an independent process and then accept the outcome, rather than having their fingerprints all over the decision for electoral purposes. If we do that, then the community is going to let us spend their money because it’s accountable and transparent, and they’ll get the benefits. They’ll accept it, even if that means that a particular project is not done in their area, where they will be the beneficiaries, because they know it’s being done elsewhere because there’s a bigger gain for the overall community. BL: How much would transparency have changed the discussion around electricity in New South Wales, do you think? RMG: I’m going to step gently outside my comfort zone, and I’m going to disqualify people who work for the regulatory arms of AGL and Origin here. Can I have a straw poll? Hands up anybody who knows the

amount of their last electricity bill. So, there are a few. Hands up if you know the price of any component of that bill. How much are you charged per kilowatt hour? So, I’ve got one person, two, three, four. Hands up anybody who knows the price of the transmission of distribution component of any part of that bill. I think I’ve made my point about transparency. Until the amount that you are charged for transmission and distribution – which is actually half of your bill – is displayed on your electricity bill, along with the name of the company that provided the services – so that you know that, for example, Endeavour Energy was responsible for half of your bill – no-one will ever understand the debate about electricity pricing in Australia, and vested interests will be able to go on disingenuously misleading the public about prices. This is just an exemplar of the lack of transparency at work in the infrastructure sector. So, bring it on. Max mentioned Infrastructure Australia, and Martin deservedly takes credit for it, and pride in it. Oppositions love infrastructure organisations such as Infrastructure NSW, and governments hate them because they provide transparency, and transparency is what’s required. Once the public knows what’s going on, then they can support what makes sense. There’s one thing that we can all do as members of the infrastructure community, and that is to get the message to governments that they might be uncomfortable with independent infrastructure commissions, but they’ll get things done. In the long run, we’ll all be better off.

Volume 6 Number 1

Below: IPA Chairman Adrian Kloeden with Martin Ferguson

futurebuilding

Politics, projects and people – panel discussion

Tony Shepherd AO Chairman, WestConnex Delivery Authority Tony Shepherd AO was President of the Business Council of Australia from November 2011 to March 2014, and Chairman of the National Commission of Audit from 22 October 2013 to 2 May 2014. Mr Shepherd was appointed Chairman of the WestConnex Delivery Authority in New South Wales in October 2013. On 10 September 2014, Mr Shepherd was appointed Chairman of Macquarie Specialised Asset Management. Mr Shepherd was Chairman of listed company Transfield Services from 2005–2013. His career with Transfield began in 1979. Mr Shepherd’s early career was as a federal public servant, working in defence procurement and research and development, including a three-year posting to Washington DC. Mr Shepherd oversaw the public listing of Transfield Services and the listings of Transurban and the ConnectEast Group. He was Chairman of ConnectEast. He has a portfolio of roles and projects that includes NASA tracking stations, the Moomba to Sydney Gas Pipeline, the Anzac Warships, the Sydney Harbour Tunnel, the CityLink and EastLink tollways in Victoria, the Walsh Bay Redevelopment in Sydney, and a range of water treatment plants, power stations, roads, railways and tramways.

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He is a director of Virgin Australia International Holdings, Chairman of the Sydney Cricket Ground Trust, Chairman of the AFL Greater Western Sydney Giants, Chairman of the Australian Subscription Television and Radio Association (ASTRA), and an adviser to the Bank of Tokyo-Mitsubishi UFJ.

Max Moore-Wilton AC Director, Infrastructure NSW Max Moore-Wilton was Chairman of Sydney Airport from April 2006 until his retirement on 15 May 2015. Prior to this appointment, he was Chief Executive Officer of Sydney Airport Corporation Limited (SACL) from January 2003 to April 2006, and was Chairman of Southern Cross Airports Corporation Holdings Limited (SCACH) from January 2003. He was also the Chairman of ASX-listed Southern Cross Austereo Media Group from 2007 to 2015. Previously, Mr Moore-Wilton was Secretary to the Department of the Prime Minister and Cabinet, a position he held from 1996 until 2003, and the former Chairman of Airports Council International. Mr Moore-Wilton has held a number of key executive roles within the public and private sectors, and has extensive experience in the transport sector. He was appointed a Companion in the General Division of the Order of Australia in the Australia Day Honours List in 2001.

Politics, projects and people – panel discussion

The Hon Martin Ferguson AM Non-Executive Director, Seven Group The Hon Martin Ferguson has a wealth of experience in the resource sector, both from a government and a private sector perspective. Mr Ferguson served as the Member for Batman from 1996 to 2013, and held a variety of Shadow Ministerial portfolios, including Resources and Energy. Upon the Rudd Government’s election in December 2007, Mr Ferguson was appointed as the Minister for Resources and Energy – a position that he held until March 2013. During Mr Ferguson’s time as Minister, he oversaw the largest investment in the oil and gas sector and the rapid expansion of the mining sector. Post-politics, Mr Ferguson holds a number of positions in the oil and gas industry, including Group Executive in Natural Resources at Seven Group Holdings, Non-Executive Director of the BG Board, and Chairman of the Appea Advisory Board. Mr Ferguson joined the CO2CRC as their Chairman in September 2014. Mr Ferguson holds a Bachelor of Economics (Hons) from the University of Sydney.

networks in New South Wales. He also chairs each of the three state-owned distribution companies: Ausgrid, Endeavour Energy and Essential Energy. He is the principal shareholder and Chairman of Eureka Capital Partners – a private investment company. Mr Massy-Greene co-founded the ASX 200 company Excel Coal Limited in 2002, and was its chairman until its acquisition by Peabody Energy in 2006. He founded and served as the Managing Director of Excel’s predecessor, Resource Finance Corporation Ltd, from 1984 until 2002. Previously, he worked for the Bank of America in project and corporate finance, and as an underground mining engineer for Rio Tinto Limited. He is a director of OneVentures Pty Ltd – a technology venture capital company. Mr Massy-Greene currently serves as the Chairman of the Salvation Army’s Sydney Advisory Board, and is Chairman of Eureka Benevolent Foundation, a family foundation focused on overcoming social disadvantage. He is the Vice President of Cranbrook School, and is a director of The Hunger Project Australia.

Roger Massy-Greene Chairman, Networks NSW

Brendan Lyon Chief Executive, Infrastructure Partnerships Australia

Mr Massy-Greene is Chairman of Networks NSW, the joint venture entity that manages the three electricity distribution

Brendan Lyon is the Chief Executive of Infrastructure Partnerships Australia.

Volume 6 Number 1

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Pressures associated with population growth, urbanisation, energy efficiency and water scarcity are driving ongoing investment in the urban and resource environments that sustain our societies, drive our economic engines and enable our lifestyles.

Advisian understands this environment.

As a global provider of multi-disciplinary infrastructure advisory and technical consulting services, Advisian is well equipped to provide strategies and solutions to the challenges of the present and future. Our skills and experience combine to deliver well-planned and cost-effective infrastructure solutions to our clients in developed and developing regions of the world.

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Kerrie Mather

Below: Kerrie Mather

Chief Executive Officer and Managing Director, Sydney Airport

Key points: • The privatisation of Australia’s airports has been a case study in good reforms to infrastructure markets. • Since privatisation, Sydney Airport has invested circa $2.7 billion in airport infrastructure. • There are practical benefits to the operational integration across the Kingsford Smith and proposed Western Sydney airports. • Landside transport and other infrastructure connections are critical to the Western Sydney Airport, and will need support across the tiers of government and the community.

Sydney Airport is adapting to changes in aviation, and is working to ensure that Australia remains internationally competitive. We are also working to ensure that the Western Sydney Airport is set up for success.

Sydney Airport’s role in Australia’s international competitiveness As it’s a publicly listed company with an enterprise value of around $20 billion, anyone can own a piece of Sydney Airport. Our investors are superannuation funds that represent millions of Australians. Sydney Airport plays a critical role in the national aviation network, forming the core hub of aviation and air travel in Australia. It’s one of the largest and most important transport infrastructure facilities in Australia, and has the scale of a small city. 18

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It contributes $30.8 billion to the New South Wales economy – almost 6.4 per cent of gross state product (GSP) – and this is forecast to grow to $54 billion by 2034. With New South Wales contributing around one-third of Australia’s gross domestic product (GDP), Sydney Airport’s contribution to Australia is significant. The airport supports thousands of businesses and generates 307,000 jobs, including 29,000 jobs on the site itself for 800 businesses. It is also the home base for our domestic carriers, including Qantas and Virgin. It is the national gateway, welcoming 40 per cent of all international arrivals to Australia and competing globally with the likes of Paris, London, New York and Vancouver airports to attract airlines and aircraft. Sydney Airport also works with government, and with industry bodies such as Tourism Australia, to take a targeted and collaborative approach to growing tourism and aviation for the benefit of Australia’s community and economy. This year, Sydney Airport has attracted five new airlines that will bring significant inbound benefits for tourism, including AirAsia from Indonesia, which starts operations in October. As a result, Sydney Airport will be the number one airport in the world for long-haul, low-cost carriers. Sydney Airport also sponsors major tourismdriving events, such as the Sydney Festival, and Chinese New Year, which is the largest event of its kind outside of mainland China. We work with partners to provide a positive impression of Sydney and Australia for international visitors, and the 150,000 people that visit the airport every day.

Kerrie Mather

Sydney Airport is not only an exciting and dynamic place to work and visit; it also plays a key role in Australia’s competitiveness and productivity. Structural changes in aviation are bringing challenges and opportunities for airports globally, including Sydney’s. The economics of aviation are changing for the better, with the introduction of next-generation aircraft leading to new airline business models. They’re opening up new routes not previously viable for airlines, and driving more people to travel more affordably, and more often. More than half of the world’s population now lives within range of an Airbus A340 or a Boeing 777 from Sydney.

The importance of the Asia-Pacific region With 4.3 billion people living within the Asia-Pacific region, about 60 per cent of the world’s population is now in our backyard. The region is growing rapidly. By 2015, 11 of the world’s 25 most powerful economies will be in the Asia-Pacific region, and we’re well positioned to benefit from that growth. Economic development, increasing urbanisation and a rapidly growing middle class are all driving growth in air travel. China and other Asian countries now represent a significant and fast-growing share of Sydney’s inbound passengers. China, in particular, has phenomenal growth potential, and it is increasingly important to Australian trade, tourism and the economy. More than 100 million Chinese people travel abroad every year, and that is forecast to increase to 200 million by 2020. In Australia, we’re seeing less than one million arrivals, so there is significant potential to increase our market share. Sydney Airport is now equal second airport in the world for Chinese long-haul carriers, alongside Paris and Vancouver.

Delivering that infrastructure in a live operating environment is complex. For example, a tightening of international aviation standards saw Sydney Airport invest in runways and safety areas across the three runways at a cost of more than $100 million. Construction at the end of the east–west runway posed a significant engineering challenge, because it had to be built over a sewerage line, the M5 East motorway tunnel, major electricity cables and a gas pipeline. World-leading construction methodology was used to overcome those issues and limit the impact on erosion. It was important to keep stakeholders in the community informed throughout the works, and an extensive engagement strategy provided information to every resident in our community. More recently, Sydney Airport undertook the largest community consultation in our history in developing the Master Plan 2033, to ensure that the airport’s change in strategic direction and development over the next 20 years considered community feedback.

Infrastructure facilities and technology Sydney Airport is one of the most experienced infrastructure developers in Australia, with a very strong track record of significant investment in, and delivery of, infrastructure. We have managed complex airport development projects and invested around $2.7 billion in infrastructure throughout the last decade in order to improve services, meet forecast capacity requirements and improve passenger experience. Volume 6 Number 1

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Other major complex projects undertaken include a 30 per cent expansion of Terminal 2, and significant expansion works on Terminal 1. These works are leading the charge globally for next-generation aircraft, because our upgraded infrastructure and facilities accommodate new technology with benefits for airlines, passengers and the community. These new, larger aircraft are delivering improved economic, noise and community outcomes. Nextgeneration aircraft have reduced noise by 40 per cent in recent decades as aviation technology continues to improve. With three runways and three terminals, Sydney Airport has plenty of capacity, but we continue to invest significantly to enhance our capacity, use our infrastructure more efficiently and productively, and provide an even better passenger experience. Over the next few years, another $1.2 billion will be invested into significant airport improvements across areas such as road or ground transport access, airfield construction, terminal expansion and redevelopment, state-of-the-art baggage systems, check-in counters, and other initiatives. Technology is an important enabler, providing the opportunity to improve infrastructure capacity and operational efficiency. We recently delivered upgraded airfield lighting to improve operations during poor weather, significantly reducing delays and diversions for airlines. Sydney Airport now has the lowest number of airborne delays in Australia. State-of-the-art, satellite-based navigational equipment was also recently commissioned with the support of the airlines and, as a result, Sydney Airport now supports the most satellite-assisted performancedriven landings in the world. Technology is also a key enabler of the customer experience, and we are working with airlines to deliver automatic bag drops and self-service check-in. At the same time, we are partnering with the Federal Government to deliver Australia’s first outbound smart gates to speed up immigration processing. All of this is geared towards significantly improving processing times and the passenger experience. Our aim is to deliver a world-class airport experience for our customers: both airlines and passengers. We share data with airport partners to improve their planning, and equip our Airport Ambassadors with iPads with language translation applications, so they can assist passengers and provide a better service. 20

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In May, we launched a road improvement programme with New South Wales Minister for Roads, Maritime and Freight, Duncan Gay. We jointly committed half a billion dollars to make it easier for people to travel to, from and around Sydney Airport. In September, we took control of Terminal 3, Qantas’s high-quality terminal, which is one of the requirements of our long-term master plan. It is not easy retrofitting a 100-year-old airport, but we are continuing to invest significantly to improve the passenger experience. Despite the improvements and initiatives, outdated, 20-year-old operating restrictions are limiting the true operational potential that Sydney Airport can achieve. Underutilised infrastructure negatively impacts on the customer experience. For example, simply calculating the hourly movement cap for Sydney Airport based on scheduled slots, rather than runway movements, would improve noise outcomes for the community while minimising delays for travellers across not just Sydney, but also Australia. It is important that policy settings recognise airport investments and improvements, and reflect modern aviation technology. There is no question that maximising existing aviation infrastructure would ensure that Australia captures its productivity potential.

Western Sydney Airport First and foremost, Sydney Airport supports and commends the Federal Government’s vision to develop an airport that will deliver significant longterm economic, productivity and social benefits to Western Sydney and Australia. As Deputy Prime Minister Warren Truss has said, Western Sydney is the key to Australia’s economic future as a catalyst for growth. The new airport will accelerate and enhance the contribution that Western Sydney is expected to make to the nation’s future prosperity, and will harness the opportunity being created in this fast-growing region. We agree that Badgerys Creek is the logical location, as the site and the associated transport corridors have been preserved for decades in anticipation of the planned airport. The new airport serves a significant population catchment at the epicentre of Sydney’s population growth. Western Sydney is Australia’s third-largest economy and fourth-largest city. It is bigger than Perth and

Kerrie Mather

Adelaide, and as large as Brisbane, and it continues to grow. The Western Sydney site is a unique and exciting opportunity for a greenfield airport development. It is an opportunity to develop an airport according to world’s best practice – one that is scalable, flexible, sustainable and able to respond to the changing needs of passengers and airlines, and that creates a seamless passenger experience. The Deputy Secretary of the Department of Infrastructure and Transport, Andrew Wilson, aptly described the Western Sydney Airport as neither a shed in a paddock nor a grand monument, but more like Adelaide Airport. We’re aligned with the Government’s thinking in that respect. When we acquired Sydney Airport in 2002, we also acquired a right of first refusal for the development and operation of a second airport within 100 kilometres of the CBD. We are currently engaged in a consultation process with the Federal Government, which has been very constructive on both sides. A nine-month consultation process, which included more than 70 formal meetings in addition to a plethora of technical meetings, recently concluded. We have been examining all aspects of the new airport in detail to ensure that the planning and design process delivers what will be the best airport in Australia in 2025. In terms of the timetable for the Western Sydney Airport, formal evaluation is continuing. The Federal Government has indicated that it expects to issue a notice of intention, setting out the material terms for the development and operation of the airport by the end of the year. It is important that the airport meets our established investment criteria and requirements, and we will continue to analyse the potential opportunity. We are working actively to understand all stakeholder and passenger expectations, and we are taking a disciplined, principled approach to its consideration. In a parallel process, the Government has also been developing a draft Environmental Impact Statement, which is said to be released for public consultation towards the end of this year. At the conclusion of this process, once approvals have been granted, the Government may undertake site preparatory works to clear and level the land so that it is ready for airport structures, such as the runway, airfield, terminal and the ground transport interchange, to be built. The current timetable, subject to approval, sees the Western Sydney Airport opening in 2025.

Most major city airports around the world operate as part of a system, and it has been envisaged for 20 years that the two airports in Sydney will operate together. With all the tourism and economic benefits that the new airport has the potential to bring, it is in the national interest to operate Sydney’s two airports as a system. This is so they can compete globally; accelerate traffic growth; drive productivity improvements, jobs and economic growth; and provide investment certainty. With Sydney and Western Sydney operating as a system, the Government has estimated that up to five million of the forecast 56 million passengers served in the Sydney Basin will use Western Sydney Airport in its first year of operation. For Western Sydney Airport to be successful, it must be able to attract airlines by offering the right facilities and competitive charges. If that balance is right, airlines will be motivated to establish high-quality domestic and international routes. By operating as a system with the right charges framework, it is likely that more than 75 per cent of the Western Sydney passengers in the early years will be attracted to the new airport from the existing airport at Kingsford Smith. The two airports working together means that the Western Sydney Airport will be viable in its critical early years. Investors need to be confident that the asset will be able to deliver a reasonable rate of return on their investment over time. The Government and Sydney Airport are working together to set Western Sydney Airport up for success, which requires the right policy settings, the right level of investment, and enabling work across roads and services. The right operating framework is also important. Government and the vast majority of stakeholders have called for Western Sydney Airport to be curfewfree. The Government has always planned for the airport to operate on a 24-hour basis to ensure its viability, to support growth, to provide flexibility, and to enable it to compete against curfew-free airports like Melbourne and Brisbane. When the Western Sydney Airport opens in 2025, today’s generation of quieter aircraft will already have been replaced by even newer, quieter, more environmentally efficient aircraft, which will be accommodated by the new airport. There is no question that aviation technology is evolving quickly. The aircraft that will be operating in a decade’s time have not yet been seen, and that is one of the things that makes this industry so exciting. Volume 6 Number 1

futurebuilding

Kerrie Mather

A fundamental plank of a successful airport is an accessible and affordable transport network, with links offering a broad range of modal choice for its users. We know from firsthand experience that effective ground transport links are critical for airports, as well as the many businesses that operate in and around the airport precinct. The Australian and New South Wales Governments have committed to delivering vital new road infrastructure for Western Sydney. Recently, there has been a lot of discussion about a rail service to the new airport. While this is a matter for government, we strongly support a range of transport options for the new airport. Only one in 10 people parks at Sydney Airport, which means the remaining 90 per cent use trains, buses, taxis, drop-offs and active transport. Trains are an increasingly popular choice. There are about 20,000 people using rail to travel to Sydney Airport every day, even with the station access fee levied by the private operator and the Government. Finally, at Sydney Airport, the importance of engaging with, and supporting, the local community is well recognised. We sponsor tourism-generating events, consult on airport developments and support local organisations. Last year, we invested around $1.5 million in the community across charities, schools, hospitals, sporting organisations and a range of community initiatives. This week, we announced two academic scholarships for students studying a Bachelor of Tourism Management in Sydney to develop the next generation of tourism leaders. We are also committed to deepening our engagement in Western Sydney, with the community, business, tourism organisations and political representatives working together to make the airport a success. Our team has been in Western Sydney meeting with local state and federal Members of Parliament; the councils; Western Sydney Community Forum; local chambers of commerce; and Rotary clubs and tourism organisations to get to know the local community, and to understand and address people’s concerns. I am also a member of the Committee for Liverpool, the Western Sydney Leadership Dialogue and the Western Sydney Business Chamber, all of which have been very constructive forums in which to discuss the future of Western Sydney Airport, including the thousands of jobs that this new airport is going to create. 22

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We see a real opportunity here to work with the people of Western Sydney to develop an airport for this region – an airport with a distinct sense of place that employs local people, embraces local art and culture, and develops a sense of pride and ownership within the local community. Our plan is to continue to work together to ensure continued growth of aviation for Sydney, New South Wales and Australia, with all the tourism, economic and community benefits that are generated.

Kerrie Mather Chief Executive Officer and Managing Director, Sydney Airport Kerrie Mather was appointed Managing Director and Chief Executive Officer of Sydney Airport in June 2011, bringing with her more than 18 years of international aviation sector experience. She is focused on growing aviation in Sydney, New South Wales and Australia through strong and positive relationships with airlines, governments, tourism, business, industry and the broader Sydney community. Airports are significant drivers of economic activity, and Ms Mather is deeply committed to promoting Sydney as a key destination for international visitors. This supports growth in the business, visiting friends and relatives (VFR) and tourism traveller segments, and helps to attract major events, conventions and conferences to Sydney. Sydney Airport is Australia’s gateway airport, and a key piece of transport infrastructure, welcoming 38.5 million passengers in 2014, with a network of around 90 destinations served by 36 international, six domestic and five regional airlines, and 10 dedicated freight carriers. Ms Mather draws on her broad international and national experience, having worked in a number of international jurisdictions, delivering major airport initiatives while serving previously on the boards of Brussels, Copenhagen, Rome, Bristol and Birmingham Airports.

IFM Investors was one of the pioneers of infrastructure investment and remains one of the world’s largest infrastructure equity and debt managers. We invest for the long-term and are committed to enhancing the productive capacity of the assets and communities in which we operate.

WHERE OTHERS SEE INFRASTRUCTURE, WE SEE LONG-TERM VALUE. IFM Investors is owned by 30 not-for-profit pension funds. Our unique, investor-owned model aligns our interests with those of our institutional investors. We continue to offer exceptional infrastructure management to maximise value. There is no other investor like us. To find out what makes us the uncommon investor, visit ifminvestors.com

Past performance is no indicator of future performance. This information has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person or entity. IFM Investors Pty Ltd recommends that before making any investment decision, each prospective investor should consider whether any investments are appropriate in light of their particular circumstances and refer to the appropriate information memorandum for further information. IFM Investors Pty Ltd ABN 67 107 247 727, AFS Licence No. 284404, CRD No. 162754, SEC File No. 802-75701.

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INFRASTRUCTURE – THE TIME IS NOW As was highlighted in its December 2013 submission to the Productivity Commission Inquiry into Public Infrastructure, Westpac Institutional Bank remains firmly focused on promoting constructive dialogue that supports a national response to the continued challenge of funding and financing infrastructure in Australia. Two years on, and the fundamentals remain unchanged. Australia continues to have a significant infrastructure challenge, with major investment required to meet the demands of a growing population, as well as supporting future economic growth and prosperity. Speaking at a recent forum, Pippa Crawford, Managing Director and Head of Energy and Resources, Westpac Institutional Bank, indicated that one of the biggest challenges that government and industry are facing at the moment is how to build for a more productive Australia against a backdrop of structural and cyclical change. ‘As a nation, we have a unique window of opportunity to ensure that we have a strong pipeline of infrastructure projects at a time when financing is readily accessible, and is still relatively inexpensive. ‘The challenge for both the government and the private sector is in ensuring that effective long-term planning disciplines are in place to support sensible projects, regardless of the short-term impacts on policy or the economy.’ The low interest rate environment globally, and Australia’s relative economic strength, creates an unusual and unique opportunity for our sovereign nation to capture this infrastructure opportunity, and support greater productivity and growth for future generations of Australians. Indeed, there has never been a more important time for governments and the private sector to work closely together to develop efficient infrastructure markets that enable Australia to really maximise this opportunity.

The role of government The degree of government involvement in delivering and funding infrastructure remains a hot topic among those involved in the industry. There is no doubt that the role of government remains paramount, but can – and should – they be playing a greater role than they currently are? Previously, infrastructure projects were almost universally delivered and paid for by the government. Over recent decades, the private sector has played an increasing role in the delivery and financing of new

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Pippa Crawford

Didier Van Not

‘It is now widely accepted that for Australia to be successful, there needs to be a stronger partnership between public and private sectors in the delivery of the infrastructure of tomorrow’ infrastructure. It is now widely accepted that for Australia to be successful, there needs to be a stronger partnership between public and private sectors in the delivery of the infrastructure of tomorrow. A strongly endorsed method of funding new infrastructure, by both government and industry, is through ‘user pays’ or ‘value capture’. That is, those that benefit from the infrastructure pay for the infrastructure. While this may pass the fairness test, it remains a challenge to implement efficiently and effectively.

As Didier Van Not, Head of Project and Acquisition Finance, Westpac Institutional Bank, notes, ‘With respect to user-pays funding, the only projects over the last couple of decades that have been able to effectively fund themselves have been the toll roads; however, given the numerous greenfield toll road failures over the last decade, such projects are clearly very challenging for the private sector to finance’. ‘Value capture’ refers to the ability of the governments to recover some or all of the value that public infrastructure

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generates for private landowners, potentially through additional land value taxes or other charges. Again, while this represents a noble objective, it is challenging for governments to implement. While the search to find more innovative ways of funding infrastructure continues, the current challenges inevitably lead back to governments being required to fund a large portion of the new infrastructure spend. There are many who think this is exactly what governments should be doing. Addressing this point directly, Van Not says, ‘The most efficient approach now is for state and federal governments to increase debt to fund infrastructure, because debt levels are still relatively benign and interest rates are clearly at all-time lows’. While the need for greater infrastructure funding is apparent, it is also clear that governments have funding limitations as measured against maintaining certain minimum credit ratings. This is particularly the case for state governments, and, indeed, this has led to a number of these governments looking at privatisation of existing assets as a means of funding new infrastructure projects. This approach has been most strongly endorsed in New South Wales, for which the process has been termed ‘asset recycling’. While again, it is not easy to implement, in itself it represents an innovation in funding new infrastructure. Beyond the infrastructure funding challenge, it remains apparent that project selection is still a roadblock for the industry, and one that governments have a stronger role to play in addressing. Over the last five to 10 years, various bodies have been established to incorporate greater independence and expertise into the process of project selection and prioritisation, with the objective of minimising the politics of these selection decisions. Such bodies include Infrastructure Australia, Infrastructure NSW, Projects Queensland and, most recently, Major Projects Victoria. Based on the experiences of the last few years, arguably the ideal independent project selection is one that is removed from the influence of politics, but this remains a work in progress. As Van Not says, ‘Whether this can ever be fully achieved remains the question; however, Westpac strongly endorses the continued support and funding of these various independent bodies with the aim of achieving this objective’.

Is superannuation the answer? The Australian superannuation sector has a key role to play in building Australia’s future. The superannuation industry has already invested in the domestic and international infrastructure sector, and has also expressed a desire to undertake further investment.

‘Westpac believes that this clearly represents a considerable untapped opportunity that could be maximised if allocation levels can be increased, and provided that there are ways for superannuation funds to invest at appropriate levels of risk’ Local superannuation funds under management are currently forecast to reach A$3.3 trillion by 2020 and A$4.6 trillion by 2025, and with currently only four per cent (or $54.8 billion1) invested in infrastructure, there still remains a considerable untapped opportunity for more to be allocated over time to infrastructure projects. It is this projected growth in the sector that Westpac believes will be a key diversification driver. Government has long been considering ways to harness this growing pool of funds, and concedes that this needs to happen independently, and over time, as the industry evolves. ‘As a nation, we shouldn’t direct the superannuation sector to invest in infrastructure; that needs to be their own decision, and in the best interests of their members,’ Van Not emphasises. What is clear, though, is that the superannuation sector has a bigger role to play because, as it continues to grow, infrastructure as an alternative asset class will offer a viable option to diversify its investment solutions. Westpac believes that this clearly represents a considerable untapped opportunity that could be maximised if allocation levels can be increased, and provided that there are ways for superannuation funds to invest at appropriate levels of risk. Peter O’Connell, Director, Superannuation and Fund Relationships at Westpac Institutional Bank, also notes that further interest will be generated as the ‘Stronger Super’ reforms drive further consolidation within the industry, making funds larger in size, with a much greater propensity to diversify portfolios. 1 APRA Statistics Quarterly Superannuation Performance 30 June 2015.

This, in turn, will pave the way for the establishment of specialist infrastructure teams, which will be a critical need for the industry and a prerequisite for assessing the risk profile of any proposed infrastructure investment, be it within equity or debt. ‘Over the last few years, superannuation funds have been adding specialist skills into their businesses and, if you look at the bigger funds, they increasingly have the skills in-house to do these transactions,’ says O’Connell. ‘What’s really encouraging is that we are now also witnessing smaller funds developing this capability by expanding their internal investment management teams with a view to supporting direct investment in infrastructure and other alternative asset classes,’ O’Connell continues. Furthermore, as Westpac observed in its submission, with more baby boomers moving into the retirement phase in the coming decade, additional impetus will be provided for the superannuation industry to focus more on the infrastructure sector as an investment class. This should subsequently create greater demand for annuity-style returns in superannuation, with the infrastructure sector being ideally placed to deliver in this regard, given how well the long-dated nature of these assets aligns with the similarly long-dated nature of super funds’ liabilities. Commenting on this, Van Not says, ‘The superannuation sector needs to come up with new products to give that sense of cash flow to superannuants. ‘Imagine that you are a 65-year-old superannuant wanting a monthly income, but you can’t invest in the stock market because it’s too volatile, and you can’t really be long on bonds and cash because the income will be unattractive in a low-interestrate environment.

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‘Infrastructure as an alternative investment vehicle potentially offers something in the middle, where you can get a bit more than cash, without as much risk as you have in equities.’ This ties in directly with Westpac’s previously expressed view that the infrastructure asset class is a good investment hedge to support payments to its members, since it is capable of producing predictable, long-term cash flows with strong consumer price index linkages. ‘Over the next decade, we will see superannuation solutions to investors that provide a stable return, and infrastructure has a key role to play in being able to do this,’ Van Not says. According to Treasury estimates2, superannuation drawdowns will start to exceed contributions in mid-2030, and the industry will have to offer more annuity-style investment solutions well before then. ‘With 11 funds now having in excess of 25,000 pension members3, and approximately 26 per cent of members aged 50 or above4, the opportunities are significant,’ says O’Connell. According to Van Not, ‘These are positive developments that will forge stronger links between superannuation and infrastructure; however, more needs to be done to make infrastructure investment more attractive to the superannuation industry, and the public and private sectors need to work together to identify and remove any barriers that may slow down stronger linkages’.

Bank market liquidity As a leader in the industry, Westpac Institutional Bank continues to hold the view that commercial banks and other investors do not lack the appetite to increase support and financing of long-term infrastructure projects as a result of tighter prudential regulation. Indeed, over the last few years there has been appetite from both the equity and debt markets to finance the deployment of productive public infrastructure at a reasonable rate of return, reflecting the risk in the project. Remarking on this trend, Norm Heavener, Head of Project Finance, Westpac Institutional Bank, says, ‘There’s no shortage of liquidity in the bank market, as we are now seeing the return of European banks that left during the European sovereign crisis, along with the increasing presence of the North American and Japanese institutions’. This greater bank liquidity reflects not only improved market conditions, but also the 2 Rice Warner – Ageing and Capital Flows, Financial Systems Inquiry 3 APRA 2014 Fund Level Data 4 APRA 2014 Fund Level reporting and KPMG Supertrends

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increased presence of foreign contractors and equity, and the following of these relationships. ‘This is great for competition and for achieving cheap financing. In fact, it could be argued that we’ve never had more liquidity in the market than we currently do for infrastructure,’ Heavener concludes.

Growth of the local bond market An ongoing discussion point for many infrastructure market participants is the immaturity of the local bond market, or more particularly, the inability to finance long-term infrastructure projects with long-term debt (that is, tenors of 15 years or more). There are numerous reasons for this – the most fundamental of which, as earlier discussed, is the structure of the Australian superannuation system, and the low penetration of long-term annuity products. Beyond these superannuation fundamentals, it is also clear that one of the consequences of increased government financing of new infrastructure, either pre- or post-construction, is a reduced opportunity for the local bond market. This, in addition to the significant levels of short tenor bank financing currently available, is arguably also stifling the potential development of a longertenor local bond market. Heavener agrees, pointing out that, ‘bank financing is abundant and very competitive in shorter tenors, between three and seven years, such that equity investors and also governments find this option hard to resist’. While headwinds continue, a fundamental desire remains for longertenor infrastructure financing, combined with an ageing population and, in time, an increased demand for annuity product. Westpac believes that the wheels of change will continue to slowly turn, with increased market depth and financing tenor available in the local bond market. This development has been evident this year, with one corporate infrastructure issuer raising financing at 10 years in the local

bond market; however, this is still a long way from 20–30-year financing of greenfield infrastructure, with Westpac wanting to see the domestic bond market develop further to support infrastructure project development. An area of development over the last few years has been the greater interest from nonbank debt investors in the loan product. This interest is from offshore investors as well as local investors, and there is a blurring of lines evident between infrastructure financing in bond form or loan form. Heavener says, ‘While there are only relatively small numbers of investors interested in longer-term infrastructure financing, access to the opportunities is likely to see this interest firstly materialise in the loan market and through private placements. If, and when, this interest reaches sufficient scale, that is when we could expect to see more of a non-bank ‘market’ develop and opportunities flow into a local bond market.’

Continued private sector dialogue critical If Australia is to realise its infrastructure potential, and capture the benefits that ultimately flow to the broader economy, the government and the private sector need to work more closely than ever to formulate stronger partnerships, and develop new investment models, to accelerate project development and offer a greater number of institutional investors access to a larger pipeline of investment opportunities. ‘The current discussion and activity is really encouraging, especially among politicians, both in the federal government and some of the states – notably in New South Wales, where infrastructure activity has stepped up significantly in the last five years,’ says Crawford. ‘A constructive and planned approach with ongoing dialogue will serve to build investor confidence, which is a vital requirement when looking to attract capital investment,’ Crawford concludes.

‘If Australia is to realise its infrastructure potential, and capture the benefits that ultimately flow to the broader economy, the government and the private sector need to work more closely than ever’

Building infrastructure? Make us your first port of call

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The Hon Dr Mike Nahan MLA Treasurer of Western Australia, Minister for Energy, Citizenship and Multicultural Interests

Western Australia, and indeed the nation, has been experiencing a wonderful period of infrastructure investment over the last 10 years. This has seen Western Australia invest $600 billion into new productive assets, the resource sector, and associated infrastructure. This remarkable period represents the largest infrastructure investment in Australia’s history. During the 2011–12 financial year (FY11–12), Western Australia was only investing around $20 billion into infrastructure, but it peaked in FY11–12 at around $75 billion. That’s a large investment, but it’s coming down as projects are due to be completed. There are a couple of things to note from this decline. Firstly, the decline has been predicted for some time, and has been evident for a couple of years. It began quite sharply. As FY14–15 closed, Western Australia had still invested $59 billion dollars – so the investment hasn’t disappeared, and over the forward estimates, there is still substantial investment to come. The Wheatstone, Roy Hill and other projects are still ongoing, and will reach completion over the next two years. There are also some potential projects in planning, but they will not be as capital- or investment-intensive as they have been in the past. In addition to this remarkable period, Western Australia has had a 30 per cent increase in population, and a subsequent increased demand for infrastructure. There has also been a phenomenal increase in the average income, and, during this period, Western Australia became the most expensive place in the world to build a new project. These projects have been completed to facilitate exports, and we have seen very large increases in liquefied natural gas (LNG), oil, gas, nickel, bauxite and gold. In Western Australia, the value may have come down in terms of price, but export volumes have exceeded expectations. 28

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Key points: • The retreat of the mining and energy infrastructure boom has exposed Western Australia to a range of fiscal and economic pressures. • The Western Australian Government is now turning to the structure and ownership of public assets to increase competitiveness and rehabilitate budget settings. • The Western Australian electricity sector is an area of substantial focus, as are seaports. • Privatisation will be a key funding source for continued public transport and other capital works.

The Hon Dr Mike Nahan MLA

When we started this venture, Western Australia was exporting 120 million tonnes of iron ore, and it is now pushing 800 million tonnes. We have large investments in infrastructure that have pushed our capability to produce these assets to the limit, and they are coming down sharply. Importantly, for the foreseeable future, Western Australia is by far the largest, lowest-price producer of seaborne iron ore and LNG in the world. Many hundreds, if not thousands, of jobs are being produced by these exports, so it is important to not lose sight of the purpose of this investment. Economic growth in Western Australia has been phenomenal, often with gross state product growing more rapidly than in China. This growth has been above the national average, but it is coming down. State final demand has plateaued out to decline slightly in Western Australia, and our state demand increased by 30 per cent. Substantially, it has increased by 20 per cent relative to New South Wales. Employment levels, wages and state demand had grown dramatically, but have now plateaued. This phenomenal unemployment rate understates that Western Australia drew in 65,000 fly-in flyout workers – some from Perth, but many from further afield. These projects are now coming to an end, and the whole process has been accentuated by the decline of commodity prices, and the drive to increase efficiencies in the production and export sector – iron ore and LNG in particular, but mainly iron ore. A rush to invest in iron ore assets saw the sector go hell for leather to get the infrastructure in place, and the contracts and capacity in. Now price is driving efficiencies in those assets significantly, so I wouldn’t be surprised to see the total reduction effect, particularly on capex in the iron ore sector and perhaps the LNG sector. This has a significant impact on employment. We had to facilitate around 20,000 to 30,000 people coming out of the mines looking for work – most of them paid on average around $120,000, with a lot of jet skis and Mustangs to pay for, in addition to high rent. We have done remarkably well, because Australia’s markets perform well, and the jobs lost in the mining sector (and associated sectors, such as transport and warehousing) have been compensated by an employment increase in the healthcare, social services, professional and scientific, arts and recreation, and combination construction sectors.

Over the course of one year (May 2014 to May 2015), a net 11,000 new jobs were created in the construction sector in Western Australia, with indirect construction in LNG and iron ore. The sector is broader than mining, as is the economy, which is why Western Australia has seen employment growth of 2.5 per cent – the highest in the country – and a participation rate of 69 per cent. We are creating a lot of jobs. We are also eliminating the tax impacts on fragile households and businesses by keeping tax increases to a minimum. Secondly, the public sector will absorb the hit, running to deficit. We’re also driving efficiencies into the public sector, having held expenditure to a 20-year low during FY14–15, and that should be reiterated across the nation. Indeed, wages growth is currently held at a 30-year low. We are continuing our capital works programme, and we also have a substantial asset sales programme underway. Since the China boom started in 2004, Western Australia has had a large capital works programme. The idea that the state sector pulled back during the last 10 years, and now has to step up, does not apply in Western Australia. Over the past six years, we have invested $45 billion, and we have $24 billion included in the forward estimates. Per capita, that’s a large amount of money. We spend 50 to 100 per cent more per capita on new infrastructure than the average of the other states. Our policy is not to significantly increase our infrastructure programme to replace the decline in the private sector, but to maintain it. We have continued to maintain the capital works programme over the forward estimates, despite the rise in debt and the deficit. Early on – and we were elected in 2008 – our focus was to accommodate the rapid population growth that we were experiencing – a growth of 3.5 per cent year on year for about five years. That led to the major focus on electricity, water, roads, land access and other urban infrastructure to accommodate population growth. We have built new or redeveloped 11 hospitals, spending more than $7 billion in a major investment into health infrastructure. Two of those major projects were public-private partnerships: Joondalup Health Campus with Ramsay Health, and Midland Health Campus with St John of God. We are also in the process of contracting out not only private hospitals, which are regulated by the Commonwealth, but also the public provision of hospitals, and the same in prisons. Volume 6 Number 1

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The Hon Dr Mike Nahan MLA

Figure 1: Western Australian Treasurer – asset investment programme

Going forward, our focus is on transport. This is neccesary for a variety of reasons, but it takes a long time to plan, and it can be controversial. As Max Moore-Wilton indicated [earlier in the day’s proceedings], the major gains in terms of returns with benefit-cost ratios (BCRs) are in small projects that de-bottleneck, and we’ve done billions of dollars’ worth of that, and we continue to do so. Take, for example, the drive from the airport to Perth city. Five years ago, this was a traffic jam, but it will soon flow nicely because – with Commonwealth assistance – we’re building Gateway WA, a $2 billion airport and freight access connection. We’re also building an airport rail link, connecting Forrestfield to the city by extending the existing Midland line near Bayswater Station through underground tunnels. This $2.2 billion project is currently underway, with Expressions of Interest out to market. We have also announced the Perth Freight Link, which has been controversial. This is not a new project; it dates back to the 1950s when planners developed a ring-road around Perth. The Roe Highway has been steadily developed for some time, with seven sections completed and the Roe 8 project currently underway. Roe 8 will provide the next critical link in Perth’s Urban Transport Corridor, and aims to allow trucks and heavy vehicles coming through the city to get to the truck terminal or the Fremantle Port without stopping – eliminating 16 sets of traffic lights. A freight charge, monitored by GPS technology, may also be introduced to offset the cost of these facilities. 30

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As part of this development programme, we have also entered into a range of asset sales, including: • Perth Market Authority • Utah Point Bulk Handling Facility • Fremantle Port Authority • Forests Products Commission • TAB • State Fleet • a portfolio of Government Regional Officers’ Housing stock • securitisation of part of Keystart’s loan book • government-owned office buildings, LandCorp land holdings and discrete energy assets. The Commonwealth is supportive of this programme, and through the Asset Recycling Initiative, we plan to put some of the proceeds of these sales into public transport projects or the Perth Freight Link. We are committed to long-term planning, and our rule is to manage resources to focus on the major infrastructure issues, rather than dealing with infrastructure planning in the chaos of an election campaign, where the planning is done on the basis of yesterday’s news rather than longterm thinking. I would also argue that you have to not only plan ahead, but also manage resources to focus on a few major infrastructure issues, and that is what the Western Australian Government is doing for the Perth Freight Link, the Forrestfield Airport Link and other major projects. I’ve been asked to talk about electricity in Western Australia. I can say that we entered into a reform agenda about 10 years ago, and the Western Australian experience was an exercise in how not to do it; I’m now trying to unpick that. We had an integrated monopoly; we took out the poles and wires and the regional networks; we focused on – and tried to encourage – private investment into generation. We mucked it up terribly. The objectives of keeping electricity prices down and getting private investment based on competition were right, but Western Australia’s wholesale electricity prices shot up, and are now 80 per cent above the next highest distribution area. We have excess capacity that we can’t deal with, and that excess capacity is growing. Last year, we subsidised residential electricity to the tune of $400 million. Australia has made a serious mistake in losing track of the importance of electricity costs. In Western Australia, we have an electricity market review underway, and my total focus is to reduce, at first,

The Hon Dr Mike Nahan MLA

wholesale costs to allow for lower prices. We have announced a number of initiatives in the electricity sector. Firstly, the regulation of our poles and wires company, Western Power, will be moved to the Australian Energy Regulator. We are not currently part of the national regulatory regime. We have a reserve capacity mechanism that pays people to come in and never produce electricity. That’s under review. We have demand-side management for which we paid between $60 million and $90 million per year, and they’ve charged us for use six times in 10 years, and have generated so little energy that you can hardly measure it. When we have this system working, we will begin to sell some assets. We are also planning to move to full retail contestability and competition by 1 July 2018, pending the subsidy working and asset sales. None of this reform is easy, but it is the objective. In reflecting on the lessons from the Western Australian market, be very careful when deregulating these businesses. These businesses are not in the actual market; they are mechanisms. If you want to get assets in private hands, sell them not only with physical ownership, but make sure they also take the mercantile risk associated with it. In this case, the Government couldn’t sell assets, so when they signed

Figure 2: Wholesale electricity cost comparison

power purchase agreements for the private sector, we took all the risk in this market. We’re trying to take a case study of how not to do things, and turn it into a case study of how to fix up a mess. To conclude, Western Australia has been on a great run. We have had massive infrastructure investment that will keep the nation going for a long time. One of the headaches of this is the very high cost of building things in Australia. We have a very large capital works programme that we are maintaining, and that is absorbing a large amount of the labour from the mining sector – but more needs to be done. We have a very active first stage of asset sales, which we expect to augment into the future. Why are we doing this? Necessity, in some part, but it’s also very good policy.

Dr Mike Nahan MLA Treasurer of Western Australia, Minister for Energy, Citizenship and Multicultural Interests Dr Nahan was initially appointed to Cabinet as Minister for Energy; Finance; Citizenship and Multicultural Interests, following the Liberal National Government’s electoral win in March 2013. He was then elevated to the position of Treasurer in March 2014. He was first elected as the Member for Riverton in the 2008 state election, and in 2012 was appointed to the position of Parliamentary Secretary to the Minister for Education, Energy and Indigenous Affairs. Dr Nahan chaired the Economics and Industry Standing Committee, and has undertaken important inquiries into big issues affecting the state, including domestic gas prices. The Minister migrated to Australia in 1978 from the United States, and arrived in Western Australia in 1982. Prior to becoming a state politician, he was Executive Director of the Institute of Public Affairs – a leading national conservative think tank. Dr Nahan brings to the Ministerial role a lifetime of experience, leadership and values as a parent, a state public servant, an economist and a proven champion for the local community. Dr Nahan holds a PhD in Economics from the Australian National University, and was awarded a Centenary Medal by the Australian Government in 2000 for his contribution to public policy. A keen sportsman himself, Dr Nahan is proud to be the Patron of the Riverton Football Club Inc. He also has a strong involvement with the Riverton RSL. Dr Nahan is married to Dr Nyuk Nahan, who is originally from Malaysia, and they have two children: a daughter Keavy, who has completed her masters in the United States, and a son Key, who has completed podiatry at the University of Western Australia.

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CLIMATE-READY ENCLOSURES FOR HEAVY-HAUL RAIL The Roy Hill heavy-haul 344-kilometre railway line in Western Australia is a landmark project in its engineered flexibility and upgradability. Awarded to Ansaldo STS, the two-year turnkey project required a technically superior solution to transport up to 55 million tonnes per annum (Mtpa) of iron ore.

‘A particular point of difference was in B&R’s proficiency to manufacture using aluminium’ With a proven history designing and supplying enclosure solutions for heavy haul rail projects, B&R Enclosures were contracted to supply a range of aluminium rail cabinets. This included single- and double-width control cabinets with full internal frames, post-mount test switch boxes, post-mount track disconnect boxes, and single- and double-width battery cabinets with battery interconnection cables. This project drew on previous expertise and products supplied to the

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Rio Tinto AutoHaul project and RAFA, however, it also demanded adherence to a unique set of Roy Hill project requirements and specifications. The cabinets were installed in the remote outback of northern Western Australia, where average ambient temperatures can reach above 50 degrees in the dry season, while monsoonal rain and cyclonic winds are prevalent in the wet season. Combine this with the potential for vermin infestations and

extreme dust infiltration, and the cabinets needed to have technical approval and accreditation through rigorous testing and documentation protocol. At B&R’s head office, located in Brisbane, the design team were able to utilise their in-house environmental testing facility to investigate the effects of structural certification, heat rise, humidity, wind load and ingress protection. A series of tests were conducted, which included placing an operational cabinet within an environmental room where resistive heaters were used to simulate internal heat loads of between 500 and 2000 watts loss. A maximum 20 degrees Kelvin temperature difference was obtained through testing for an ambient temperature range of 272.4 degrees Kelvin to 323 degrees Kelvin and the above-mentioned heat loads. Wind testing of the cabinets was simulated through applying a manual point force between 30 and 55 kilogram force to simulate a Region D, Level 4 wind load. A particular point of difference was in B&R’s proficiency to manufacture using aluminium. The advantages of using aluminium as an alternative to stainless steel or zinc coated steel included improved corrosion resistance, low density and excellent thermal conductivity for high exposure environments. The use of aluminum also leads to decreased costs in freight and general installation due to its lighter composition. A team of B&R design engineers were able to refine the cabinet solution, ensuring the cabinet’s integrity in sustained arduous environmental conditions. The comprehensive design research and testing conducted by B&R allowed Ansaldo STS to further qualify the project’s successful delivery and long-term performance. B&R worked very closely with Ansaldo STS prior to and throughout the project time line – from early-stage design, prototyping and testing through to final commissioning, completion and hand-over.

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EVERYTHING INFRASTRUCTURE GROUP: OUTSTANDING WOMEN LEADERS – INFRASTRUCTURE FUTURES Defence for gender inequity is usually rationalised by an employer saying ‘We only select on merit’. In the world of infrastructure, Everything Infrastructure Group (EIG) is seriously illustrating its firm grasp on recognising ‘merit’. EIG has a team of women leaders to match its substantial vision of 21st-century infrastructure management – it ‘walks the talk’. There is no unconscious bias in this organisation; for instance, that women do not have the same merit as men. Since inception, EIG has known that its growth in delivering top-of-the-range professional services to develop, deliver, maintain and operate infrastructure assets for both government and industry depends on optimising the combined talent it employs – people are its primary asset. This core belief in talent has enabled the company to grow into a market leader in providing strategic advice to government on planning; market and industry involvement; delivery approaches to projects and programs of work; organisational change for effective outcomes; and transaction management advisory services for major infrastructure projects, with more than $50 billion worth of projects underway or completed.

Ben Dempsey Director Ben Dempsey says that the strong culture within EIG emanates from building high-performing teams with significant value placed on diversity. ‘The women in the organisation strengthen our understanding of the clients’ needs. The overall team mix

Peter Gemell

is a blend of experience, skills, gender and age.’ He goes on to say, ‘I find [that] women provide a balanced perspective, which, in my view, seems to be a result of having a different way of thinking about problems and refined listening skills. This is reflected in the practice we call emotional intelligence’. He is quick to point out the

importance of the fact that 50 per cent of their clients are women. ‘It is therefore part of our organisation’s culture and policy to continually advocate for women in infrastructure and social inclusion.’ EIG has more than 70 experienced, full-time employees and offices across the eastern seaboard. Twenty-one of these employees are professional women, including senior women, up-and-coming women, and office staff.

Peter Gemell

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Founder of EIG Peter Gemell is extremely proud of the diversity within the organisation, and totally reinforces Dempsey’s opinions. Peter has had experience in male-dominated workplaces where the culture is not diverse enough. He believes that the diversity within EIG automatically enriches the brains trust: ideas and vision come together in an energetic culture that is totally client-focused. This is the organisation’s DNA, and it goes to the bottom line as an enormous company asset.

CCOOMMPPAANNYY FFOOCCUUSS

Kay Salvair Smith

Kay Salvair Smith Gemell refers to Kay Salvair Smith as one of the outstanding senior professionals at EIG. He points out that she has held senior roles in ASX50- and LSE-listed construction and engineering organisations. She has also worked for both an Australian Tier 1 Contractor and the Australian Government. Salvair Smith reflects on how things have changed for women in construction. ‘Construction sites now have bathroom facilities for women. Laugh if you like, but I remember having discussions with my very first site foreman for this “novel addition” to the traditional construction site – he was very generous in providing me with what was a first for him at the time.’ Salvair Smith also shares the fact that she thrives in the EIG environment because of the automatic acceptance, and the value that is given to her skills and experience – there is no gender bias. She is able to apply her experience with P&L and operational responsibilities, and combine these skills with a strong capability in building corporate alliances. She is quick to acknowledge, however, that she has been extremely fortunate in having incredibly talented colleagues from whom she has learned, which has enabled her skills to develop. So, she now relishes the opportunities to apply all of this valuable experience by consulting and delivering organisations to

Kathryn Coutts

Wendy McMillan

project-ready status. These include Stage 1A of WestConnex, and the Capital Metro Project – Canberra’s light rail public-private partnership (PPP). In her portfolio of leadership skills, Salvair Smith also includes advocacy for seeding the future pool of engineers. She has set up and led development programs for undergraduates, graduates and ‘the first 10 years’ of professional development. This focus on social capital includes having established scholarship programs with industry and government for Indigenous Australians studying engineering degrees. Salvair Smith speaks about the collegiate culture and how each person capitalises on their skills; however, she is keen to emphasise how women in the EIG organisation are really hitting their straps with outstanding leadership skills. She goes on to describe some of her fellow women in the organisation.

conservative industry, and in construction organisations where male dominance was the accepted norm. Her present work environment enables her to lead multidisciplined teams, develop team cultures and be a lead influencer in decision-making situations. Coutts has built respect and credibility through effective communications, collaborative relationships and stakeholder management. Her belief is that women in this industry sector are already effectively illustrating their leadership and the benefits of diversity, and are thereby helping to dilute the masculine culture that prevailed in the 20th century (and still exists today).

Kathryn Coutts Kathryn Coutts is also an experienced leader in major infrastructure transactions, and most recently successfully managed the North West Rail Link Operations Trains and Systems PPP. She has a background in civil engineering, and project and construction management, all of which enhances her broad strategic, commercial and transaction experience; however, she values the EIG culture because of having worked in a very

Wendy McMillan Wendy McMillan is an example of the progression of women leaders in the infrastructure space. She is highly regarded for her experience in transport, infrastructure, and Tier 1 construction and resources industries. Her extensive experience in governance, commercial projects, and her diverse and complex project management experience, in both the public and private sectors, has also translated into nonexecutive directorships for a significant government and a private education entity. She, too, is extremely complimentary about the EIG culture, where merit is genuinely used for recruitment, and where a genuine and collaborative peer group generates positive, balanced and effective results. Volume 6 Number Volume 6 Number 1 1

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Shalendra Ranasinghe

Shalendra Ranasinghe Shalendra Ranasinghe has witnessed many changes in her 24 years in infrastructure, but believes that the industry can do more to recognise the skills of women who she says often have both depth and breadth to their experience. She sees the government, and organisations such as EIG, as being the leaders in demonstrating gender equity in the infrastructure space. Ranasinghe has worked in both the public and private sectors in Australia, Asia and Italy on diverse oil and gas, transport, building, energy and telecommunication infrastructure projects. Her site and P&L experience (she was formerly the General Manager of Telco and Energy at Abigroup) combined with her commercial acumen are a good fit at EIG, where she has the opportunity to apply that experience – most recently on Sydney Light Rail and WestConnex projects. In 2014, she co-facilitated the 2014 IORA Women’s Economic Empowerment Event held in Kuala Lumpur for the Department of Foreign Affairs and Trade (DFAT) and the United Nations (UN).

Isabel Sprackman Isabel Sprackman has gained valuable experience through advising government and the private sector on procurement strategy and delivery, commercial issues and transaction documentation for infrastructure

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Sharon Mawhiney

Isabel Sprackman

projects in Australia and Europe. She has had lead roles on large-scale and complex transport infrastructure and services projects, including the Regional Rail Link. With Sprackman’s background in law, EIG provides the right environment for her to bring a strong commercial perspective to her roles – an approach that complements the engineering context. Sprackman has highly developed skills in leadership, interpersonal and facilitation, ensuring that she quickly brings projects into tight focus. This then provides the team building for powerful stakeholder relationships. She also recognises that clients highly value effective knowledge transfer. Sprackman articulates her high approval for EIG’s culture – like several colleagues, she has returned to work after having a baby, and the flexible approach supported by EIG enables her to continue to perform highly challenging work, with exceptional outcomes.

Sharon Mawhinney Sharon Mawhinney has a background in civil engineering, with more than 20 years’ experience in the transport industry in the United Kingdom, Australia and New Zealand. Her skill set is unique, blending asset ownership with being a client, developer, operator and maintainer, and, more recently, a consultant in the industry.

This results in a deep understanding of the entire life cycle of transport assets. Mawhinney’s expertise is recognised by the industry, and she has been appointed to peak bodies to perform many roles: to lead the authoring of new industry standards; to lead technical roles on high-profile initiatives, such as the ASX listing of QR National; and to lead the major performance improvement programs that she has managed. Mawhinney has become an expert in communication, which enables her to break down many barriers that still exist in maledominated industries. Since joining EIG, she has been afforded the opportunity to be a key part of some of Australia’s most exciting and transformational projects – most notably the North West Rail Link and Sydney Light Rail.

EIG’s women on the rise: The depth and breadth of EIG’s talent pool of professional women is obvious, and there are a number of highly capable upand-coming women who are building their careers at EIG. These women typically have backgrounds in law, engineering, finance, economics, management consultancy or government. They are continually being provided with diverse experiences, greater responsibility, and learning and development opportunities in the organisation. They are also on a fast track to establish their value in the industry.

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Joselyn Lakin

Joselyn Lakin Joselyn Lakin is a good example of an upand-coming woman at EIG. She uses her legal background and practical experience to deeply analyse, identify, develop and implement needs-based solutions that are tailored to a broad range of clients in the public and private sectors. Her most recent work for EIG was to provide strategic, commercial and procurement advice for the Gateway Upgrade North Project.

a centre of excellence, and that criterion underpins recruitment. He is very proud that EIG is seen as a champion of change in its leading role of recognising and employing highly qualified professional women. He believes that this automatically reinforces the company’s founding promise – to measure its own success by its clients’ success.

EIG provides professional services for the development, delivery, maintenance and operation of infrastructure assets to both government and industry. In addition, EIG’s strategic advisory services assist clients in key activities including governance, organisational change, strategic planning, policy development, commercial analysis, program administration and investment strategies. EIG measures its own success by its clients’ success.

A constant focus: EIG is definitely embracing gender equality. The company provides flexible working arrangements to add to its fully developed recognition of merit. For professional women, EIG represents an ‘employer of choice’. Director John McLuckie recognises that attraction and retention of talent is integral to any company’s growth path. McLuckie says, ‘“Women in Infrastructure” is presently a slogan, and it will continue to transform into a situation where being a woman in infrastructure is automatically considered normal. Women are changing the face of infrastructure, causing masculine bias to be dissolved’. He is, however, quick to affirm that in the transformation process – closing the gender equality gap – rigorous recruitment and retention will still have its foundation based on merit. He also asserts that EIG is

John McLuckie

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Steve McCann Key points: • Increasing population growth in major cities will require urban regeneration and supporting investment into transport infrastructure. • Key challenges including an ageing, growing population, efficient utility and transport costs and climate change see a largely non-discretionary case for change. • The community will support major changes, like urban densification and major motorway and metro rail projects – provided the case for investment is clear and well made.

Group Chief Executive Officer and Managing Director, Lendlease Lendlease has a proud track record of creating some of the best places around the world through urban regeneration, proudly partnering to deliver these outcomes in safety, sustainability, and health and wellbeing. The last two years have been quite good for us on the city-making front. Lendlease’s portfolio of major urban regeneration projects has grown by around $8 billion dollars, with new developments secured in Singapore, Malaysia and the United States. Lendlease was selected as the major developer for projects such as the London Olympic Village and the remarkable Barangaroo, and is responible for more than $40 billion worth of construction in New York, including the National September 11 Memorial & Museum. This recently led Federal Trade Minister Andrew Robb to declare that Lendlease is at the epicentre of delivering high-quality services, both in Australia and around the world. Lendlease has been at the forefront of both the social and the economic infrastructure sectors for more than 50 years. The organisation has partnered 38

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with governments to design and construct largescale bridges in Australia’s major cities, including the Anzac Bridge in Sydney, which enjoys its 20th anniversary this December, and the Story Bridge in Brisbane. Through our great forebears – Civil and Civic, and Baulderstone – Lendlease is proud to have delivered the Sydney Opera House. Beyond these, Lendlease also helped to deliver the Clem7 in Brisbane, and the Cross City Tunnel and M5 East Tunnel projects in Sydney. In delivering some of the nation’s most notable roads, not only does Lendlease aim to create the best places; we also work hard to connect them. Through an integrated model of investment, development and construction, Lendlease is in an enviable position to both work in, and learn from, some of the best cities across the world. Lendlease has delivered more than 350 healthcare projects around the world, including major public-private partnerships in the United Kingdom, as well as the Royal Children’s Hospital in Melbourne, Bendigo Hospital in Victoria, and the Sunshine Coast University Hospital.

Steve McCann

From modest beginnings on the Snowy Hydro scheme, Lendlease has come a long way as an organisation. In this increasingly challenging business environment of international competition, I am proud to be leading one of the few surviving Australian companies with a track record of successful execution of major projects both at home and abroad. This strong position makes Lendlease a leader, and with that comes a responsibility to help drive good-quality outcomes for our country, and the associated local employment and productivity benefits that result from that. The bearishness of the Australian market and global economy has increased the urgency of the discussion. Fewer than 10 years ago, Lendlease commissioned Harvard Economics to present on whether or not the Chinese economy could decouple from its dependence on the United States economy for growth. What is now referred to as the global financial crisis (GFC) clearly took care of that vexed question. Today, when China stumbles, the entire global share market responds, the Australian economy slips a gear, and the resurging United States economy becomes a secondary topic. This shift highlights the need for quick, effective, brave decisions to stimulate growth through urgent infrastructure spending. This discussion must be elevated with people across the nation in order to achieve this reform. Dialogue needs to be about answering the ‘why’ question about major infrastructure projects. Good leaders learn that people gravitate to the ‘why’. Why do we need a new road? Why is it better to create a range of alternative means of transport? Why do we need to anticipate the healthcare requirements of the future? Why is the user-pays structure more sustainable and fair? The question of why is a more engaging passion, and is ultimately a more supportable conversation, than explaining what we think is needed, or how it might be delivered. In Australia, we have some interesting challenges – funding, risk allocation, community engagement, and politics – but ultimately, we have a solvable problem, which, on a relative scale, re-emphasises our position as a lucky country.

The Australian economy has recently slowed significantly, and industry is becoming increasingly focused on what it might mean if a China slowdown becomes more permanent; although, Australia is still growing and maintaining employment levels superior to what Europe has enjoyed since the GFC. Australians have a great standard of living, and a number of our cities rate among the world’s most livable. Australians aren’t choking on density and aren’t facing the pollution issues that are beginning to make some major global cities unattractive for human habitation. Maintaining that standard of living, while accommodating an unstoppable wave of urbanisation, is the reason that major infrastructure projects are needed to anticipate and address the needs of the future. The concentration of population growth in our cities reflects a long-term global trend. In the 1960s, the urban population accounted for about one-third of the total global population. That figure has now passed 50 per cent, and by 2030, more than 60 per cent of the world’s population will live in urban areas, increasing demand for urban regeneration. In Australia, cities are the engines of prosperity, generating 80 per cent of our GDP, and employing three in four Australians. Australia is already one of the most urbanised countries in the world, with more than 90 per cent of the population living in cities.

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While we do have it better than most, our infrastructure is not keeping pace. Given the challenges that cities face – including population growth, an ageing population, climate change and increasing energy costs, to name a few – we can no longer rely on our existing infrastructure. In Sydney alone, the population is expected to hit the five million mark within the next year. Significantly, New South Wales’s 10 largest growth areas over the past year are all in the Sydney metro area. These 10 growth areas have absorbed threequarters of the state’s recent population increase. The challenge remains [establishing] how to harness and direct this growth so that it contributes positively to community amenity and the broader economy. Integrating transport infrastructure into urban renewal plans is vital to success, because transport infrastructure plays a vital role in shaping cities, their economies and, ultimately, urban landscapes and lifestyles. It is not such a radical idea to switch that thinking and see transport investment as the precursor to urban renewal. Recently, the investigation of completed large-scale investments in Melbourne’s transport network revealed the extent of the long-run economic and land-use impacts brought about by major transport investments. 40

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Melbourne’s City Loop, CityLink and Western Ring Road projects had, and continue to have, profound and lasting influences on the economic and physical growth of the city, in addition to the transportation functions that they perform. CityLink, which was completed in 2000, improved the accessibility of large sections of Melbourne by linking the north and south-east of Melbourne with the central core of the city. The project added an estimated $9 billion to Melbourne’s economy in 2010 to 2011, by facilitating an estimated 70,000 jobs. If infrastructure is the catalyst for urban renewal, how can infrastructure investments be targeted to ensure that cities truly enable residents and businesses? The development of urban transport is one area in need of attention. Transport goes beyond the motor vehicle, and is increasingly about sustainable mobility. A significant proportion of the population growth in cities should be encouraged into corridors supported by new, high-quality public transport – otherwise, new housing and economic activity will be dislocated from high-quality public transport, or concentrated around public transport corridors with significant capacity constraints. A growing number of trips are being taken using public transport. Between 2004 and 2013, aggregate metropolitan urban public transport passenger kilometres grew by close to 30 per cent – a rate almost five times that of private motor vehicles – according to the Bureau of Infrastructure, Transport and Regional Economics. The cost of avoidable congestion is predicted to grow to $20 billion per year by 2020. To properly leverage investments in infrastructure and maximise yields on land use, densities surrounding existing transport corridors, interchanges and activity centres need to be increased. The Central to Eveleigh Transformation Programme, Sydney Metro, the Victorian Level Crossing Removal Programme and other projects will create interesting urban renewal opportunities, because they offer old spaces for new users, parks, pathways, recreational facilities, and residential and commercial purposes. It is critical that as many people as possible are given the opportunity to live closer to transport in order to access employment, education and markets. Australia needs to match the world’s best in terms of transport and other infrastructure. This challenge requires a national response, and suggests the need

Steve McCann

for greater Commonwealth involvement in urban planning and outcomes than has occurred in the past. There is no better example of this beginning to work than the future development of Sydney’s second airport, which is critical for the future of New South Wales, and for our national productivity. While the Commonwealth has policy responsibility for aviation, it is pleasing to see it maintaining high-level roles in the development of transport, links and corridors to the south-west growth centre. Strong cooperation between both levels of government, and an active role by the Commonwealth, will unlock the economic capacity for the region, making it a better place to live and to do business. Well-planned cities can help address some of the pressing issues of our time: the age of our population, inequality of opportunity, and climate change. This requires industry leaders, governments and the relevant government authorities to be thinking about urban development and infrastructure from a precinct-wide perspective. The Lendlease experience shows that successful urban renewal and regeneration of our cities depends on directing population growth to corridors that are supported by transport – particularly public transport.

Steve McCann Group Chief Executive Officer and Managing Director, Lendlease Steve McCann was appointed Group Chief Executive Officer and Managing Director of Lendlease in December 2008, and joined the Board in March 2009. Prior to his current role, Mr McCann was Group Finance Director, appointed in March 2007, and Chief Executive Officer for Lendlease’s Investment Management business from September 2005 to December 2007. Mr McCann has more than 15 years’ experience in funds management and capital markets transactions. Prior to joining Lendlease in 2005, he spent six years at ABN Amro, where his roles included Head of Property, Head of Industrial Mergers and Acquisitions, and, for the last three years, Head of Equity Capital Markets for Australia and New Zealand. Previous roles also include Head of Property at Bankers’ Trust; four years as a mergers and acquisitions lawyer at Freehills, Melbourne; and four years in taxation accounting at Deloitte, Melbourne. Mr McCann holds a Bachelor of Economics (finance major) and a Bachelor of Laws from Monash University in Melbourne.

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INFRASTRUCTURE: A TRULY GLOBAL INDUSTRY Globally, governments are looking to promote infrastructure as a way to boost economic growth, productivity and international competitiveness, as well as to keep pace with population growth. This is complemented by interest from developers, contractors, investors and financiers in the private sector.

Chris Scougall – Managing Director, Transport

Tracey Gibson – Executive Director, Project Finance

‘Commonwealth Bank is one of the leading Australian financiers of infrastructure assets globally, and its footprint provides insights into the sector’s capital flows.’ Globalisation is a well-established megatrend, and infrastructure is no exception to this phenomenon. In an increasingly mobile world, intellectual and financial capital is freely moving from one region to another. In recognition of this, Commonwealth Bank has established teams based in Sydney, Melbourne, London, New York, Houston, Hong Kong and Beijing.

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Commonwealth Bank is one of the leading Australian financiers of infrastructure assets globally, and its footprint provides insights into the sector’s capital flows. Commonwealth Bank’s Head of Transport, Chris Scougall, and infrastructure project finance experts Tracey Gibson and John Russell, comment on some of the geographic trends that we are seeing.

John Russell – Executive Director, Project Finance Infrastructure

Ideal investment conditions Economic and population growth, along with urbanisation, are driving the need for infrastructure. This is coinciding with ideal conditions for infrastructure investment, and low interest rates globally are one of the key drivers here. While it is expected that there will be a rise in interest rates in the United States, which will have implications across the board, it is coming off a very low base, and it is expected that there will be a very gradual increase, and that, globally, interest rates will remain low in the medium term. Currently, another supportive factor is the abundance of global liquidity. Against a backdrop of volatile stock markets, investors are seeking assets such as infrastructure that offer stable, long-term returns and growth. The linkage to inflation, which is direct in the case of regulated infrastructure assets, is also valued by long-term investors such as pension funds, which draws additional and consistent liquidity allocation.

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Commonwealth Bank was Mandated Lead Arranger, Underwriter and Bookrunner of the A$1.5 billion Senior Secured Syndicated Facilities for the Sydney Light Rail PPP. Image © Transport for NSW

These conditions have resulted in an increasing interest in Australia from all of the global infrastructure funds, with many of them already having investments in Australian infrastructure for a number of years. This is occurring against the backdrop of various state governments’ asset sale programs, and tenders of longterm leases for key infrastructure assets. Interestingly, of the $9.5 billion of direct investment coming into Australia from China last year, $2 billion went into infrastructure, according to data published by KPMG and The University of Sydney. Equally, Australian-based infrastructure funds, which are big investors in Australian infrastructure, are also successfully investing in infrastructure assets outside Australia to improve the geographic diversification of their portfolios. Governments that have an attractive pipeline of greenfield and brownfield opportunities are primary beneficiaries, as investors willingly commit investment resources and capital to these nations. These governments have also become adept at project coordination, ensuring that transactions are brought to market to reflect the availability of financial and human resources. As a result, outcomes are optimised.

Spanish groups Cintra Infraestructuras Internacional and Acciona Concesiones. It is a recent example of a major infrastructure project that is being built predominantly by offshore contractors. Encouragingly, on very large infrastructure projects such as WestConnex, local and offshore contractors have shown a propensity to work together to deliver best-in-class outcomes for government. With a combined capital expenditure program of more than $10 billion across three stages, the WestConnex project is simply too large and complex for one contractor to manage. For Stage 2, known as the New M5, the government recently announced that a Leighton Dragados Samsung Joint Venture had been selected as the preferred tenderer for a $3.5 billion contract. The Leighton John Holland Samsung Joint Venture was awarded a $2.7 billion contract for the M4 East Motorway, for Stage 1 of the project. This greater involvement of offshore construction companies means that there is more competitive tension between suppliers, therefore providing governments with better value for money. For financiers, the combined strength of the joint venturers’ balance sheets is also necessary, given the ever-growing project size and technical complexity.

Contractors

Financiers

Governments and taxpayers will obviously benefit from the global competition among infrastructure investors; however, there is also growing international competition between contractors as they follow their partners around the world. As an example, Nexus Infrastructure, the consortium that won the contract to design, construct, operate and maintain the Toowoomba Second Range Crossing, includes

Many banks retreated from global financing in the aftermath of the global financial crisis (GFC), while others, like Commonwealth Bank, stepped up to fill the gap. Now, a growing number of international banks are returning – some more aggressively than others. The stable characteristics of the infrastructure sector are also attracting significant pools of non-bank funds. Many

equity sponsors have further evolved to accept debt placement mandates, while a number of the global insurers and pension funds are also seeking sizeable, long-dated direct investment opportunities on a private placement basis. What hasn’t changed over time is that when a project becomes problematic, governments tend to look to domestic banks to come up with a solution. So, while it is important to have international parties adding to the competitive tension and driving value for money for the government, the Commonwealth Bank believes that governments value the presence of local banks in greenfield projects. Commonwealth Bank expects infrastructure to become increasingly globalised and increasingly owned by the private sector, with governments responsible for providing a regulatory framework to govern delivery and price standards. The market rewards those governments that provide a stable, evolving regulatory structure with deep, low-cost pools of debt and equity capital. Given that demand for infrastructure is driven by urbanisation, and economic and population growth, a considerable proportion of the demand for infrastructure will also be coming from the developing countries in the Asian and African regions in the medium to long term. Mature economies are expected to continue targeted investment in renewing ageing infrastructure, as a tool to reinvigorate economies via the competitive benefits that modern infrastructure delivers. This provides industry participants like Commonwealth Bank the opportunity to bring global best practices to a range of markets.

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Rod Sims Chairman, Australian Competition and Consumer Commission Key points: • Direct road-user charging would see better utilisation and efficiency across the transport sector. • Like pricing reforms in other utility markets, road-charging reform would better balance supply and demand – and provide sustained funding for transport infrastructure. • With motoring clubs now actively supporting reform, there is an opportunity to progress toward solutions based on time/distance/mass/location-based charging.

Australia’s infrastructure is vitally important for our productivity and living standards. Australia’s declining productivity is disappointing, but not surprising. Poor infrastructure policies and practices on too many fronts, and over too many years, have contributed to this decline – closely linked to the fact that Australia has lost a good deal of its procompetitive culture that was gained from the 1990s’ National Competition Policy. It is easy to conclude that Australia treats its infrastructure sectors poorly. Policies that prevent competition in coastal and liner shipping, inadequate dedicated rail freight paths, a poor policy framework for road investment, limits on supply and competition in urban water, costly past rules for energy network regulation, and other limits on infrastructure competition in many areas are all evident. Into this environment comes the Harper Review of competition policy. It is extremely timely, and has important recommendations on many fronts. The Hilmer reforms of the 1990s were forecast to 44

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boost Australia’s gross domestic product (GDP) by an enormous 5.5 per cent. The Harper competition reforms can also boost our national prosperity significantly. There is the usual pushback from those who benefit from the status quo; for example, from taxi drivers and owners (opposing taxi industry reform and moves to encourage innovative passenger transport services), from the maritime unions (opposed to freeing up coastal shipping), from the Business Council of Australia (opposed to a workable ‘misuse of market power’ provision), and so on. As with the Hilmer Review more than 20 years ago, the Harper reform agenda benefits from its breadth, as it dilutes this opposition, with change able to occur on many fronts. The Harper Review had a lot to say that is relevant to infrastructure. It recommended important and wideranging reforms in energy, water and transport.

The pressing need for road reform Australia’s road policy framework has at least three problems.

Rod Sims

Firstly, the revenue raised from road use does not flow directly to the entities that build and maintain roads. Road users currently contribute to the cost of roads through state charges, such as registration and licence costs, and through the Australian Government’s fuel excise. In addition, the Productivity Commission has found that the combined taxes and fees paid by motorists for road use is roughly equivalent to the annual expenditure on roads. In this sense, road users are already paying for the cost of Australia’s roads. In fact – and this is not widely known – the effective fuel excise paid by businesses for heavy vehicle use is based on past road expenditure. It is an explicit road-user charge. The rebate of this road-user charge for off-road, heavy-vehicle use is described by some as a subsidy. It is not. Why pay a road-user charge when you do not use the roads? Further, an early rationale for the petrol excise paid by motorists was that it was a road-user charge. Why else is the petrol excise at such a high level? Despite these actual or implied road-user charges, the money raised goes into general revenue; money for roads is then funded from general revenue, where it competes for funding with schools and hospitals. Why should roads compete for funding when they are, in many senses, self-funded? This situation leads to sub-optimal funding for roads. The second problem is that the road-user charges are based on past road expenditure. Shifting the focus from this historical cost approach to more of a forward-looking approach would allow for more efficient long-term planning for road provision. This can be likened to other infrastructure sectors, such as rail and telecommunications. In these sectors, forward-looking, long-term plans and forecasts about demand are developed and used to determine economic costs and annual revenue requirements. In short, road plans would more explicitly be based on need and economic value to justify the future level of road-user charges.

The third problem is providing better signals for road use. Mass distance charging and congestion pricing are examples of signals that would see us making much better use of the roads we have. Some attempts at road reform start with congestion pricing. This is the wrong approach, and also brings inevitable political backlash. The best place to start is to set all road-user charges – particularly all petrol and diesel excises – based on future road funding needs, and to pass the money raised directly to those who build and maintain our roads. There need be no fiscal winners or losers because, as just stated, road funding currently roughly equals the level of all taxes and fees paid by motorists. Let’s not complicate the road reform agenda. With these changes, we then have the best platform for a range of other road reforms later on. This is entirely doable and saleable. Motorists will pay no more, and no level of government need lose out. These types of road reforms have the full support of the Australian Automobile Association (AAA), with its seven million members. This is because the AAA knows that this basic reform will give Australia a much higher-quality, more responsive and better maintained road network.

Privatising for efficiency, not maximum sale value Private owners will usually operate assets more efficiently and at lower cost than government owners. It follows that privatisation should benefit the economy. With most governments facing fiscal challenges, however, there is a temptation to privatise to maximise proceeds. This is fine if there is a competitive market, or if there are sound regulatory arrangements in place. With many infrastructure assets, these requirements are not in place. Some of Australia’s key infrastructure assets, including significant ports and railways, are likely to be privatised in the coming years. The value Volume 6 Number 1

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of the assets to be sold is likely to be high, and governments have started to announce projects that they will invest in as a result of the profits generated from these privatisations. This creates a strong incentive for governments to structure their privatisation processes in a manner that maximises the sale price that they receive. In order to maximise sale prices, governments will have little incentive to closely examine whether the market structure and regulatory arrangements that will apply post-privatisation are conducive to competition and appropriate outcomes; but the immediate financial benefit comes at a cost of an effective ‘tax’ on future generations. For example, while privatising two potentially competing assets as a package may increase the sale price (as compared to selling the assets to separate owners), this increased sale price would be received at the expense of competition. In the longer term, a less competitive market structure will lead to higher-priced and lower-quality goods and services for consumers. We are also concerned about the selling of monopoly or near-monopoly assets without appropriate access and/or pricing controls, such as the undertakings of Part IIIA of the Competition and Consumer Act 2010 (Cth), or robust state or territory access regimes. When privatised, such assets will result in the transfer of market power to private hands. Without appropriate pricing and access mechanisms in place prior to the sale, there is a strong likelihood that under non-government ownership, users of privatised infrastructure will face higher prices and restricted access. In the ACCC’s experience, the access undertaking provisions of Part IIIA are effective in facilitating efficient use of, and investment in, infrastructure and competition in related markets. The level of regulation can be tailored to the level of market power held by the acquirer or operator, but, importantly, would include a negotiate/arbitrate mechanism for dispute resolution. Infrastructure assets have been sold in past years with anti-competitive market structures, or poor regulatory frameworks. This will damage Australia’s future economic performance. Let us not add further to the problem with our future asset sales.

Access regulation of monopoly infrastructure The regulation of monopoly infrastructure is an area of particular concern to the ACCC, because natural 46

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monopoly infrastructure can act as a bottleneck in the supply chain, hindering competition and productivity in upstream and downstream markets. A concerning argument is that economic regulation is not required for monopoly or near-monopoly assets, because any monopolistic pricing amounts to a pure transfer of economic rents between parties within the supply chain. On this issue, the Productivity Commission noted in its 2013 inquiry into the National Access Regime that the transfer of economic rents between parties within a commodity export supply chain could occur without any impact on the supply decisions of existing suppliers. This seems to suggest that policymakers should pay no attention to the ability of a bottleneck monopolist to extract rents from upstream or downstream firms in a commodity export supply chain. I take a different view. To produce or extract an important commodity like coal requires a major sunk investment in mining equipment and infrastructure. These sunk investments give rise to what are known as ‘quasi-rents’, which are subject to the threat of hold-up. The threat of expropriation of rents by a monopoly service provider in such a situation does not merely result in a pure transfer; rather, the threat of such expropriation can limit future investment and innovation by the upstream firms. What miner would invest in reducing its extraction costs if it knew that the lower extraction costs would simply be met by higher transportation charges? More generally, what miner would invest in its mines knowing that the benefits of that investment could be expropriated by a monopoly somewhere else in the supply chain? This effect is not just limited to mining. The threat of expropriation of rents by a monopoly service provider may also discourage Australian farmers from investing in, for example, farm machinery or new seed technologies. This is an illustration of a more general point that should be more widely recognised. Monopolies can be harmful in that they can limit investment and innovation in upstream or downstream

industries.

Monopolies,

therefore,

generally require effective economic regulation.

Rod Sims

Rod Sims Chairman, Australian Competition and Consumer Commission Rod Sims was appointed Chairman of the Australian Competition and Consumer Commission (ACCC) in August 2011 for a five-year term. Immediately prior to his appointment to the ACCC, he was the Chairman of the Independent Pricing and Regulatory Tribunal of New South Wales, Commissioner on the National Competition Council, Chairman of InfraCo Asia, Director of Ingeus Limited, and member of the Research and Policy Council of the Committee for Economic Development of Australia. Mr Sims was also a Director of Port Jackson Partners Limited, where he advised the chief executives and boards of some of Australia’s top 50 companies on commercial corporate strategy over many years. Mr Sims relinquished all of these roles on becoming Chairman of the ACCC. Mr Sims is also a past Chairman of the NSW Rail Infrastructure Corporation and the State Rail Authority, and has been a director of a number of private sector companies. During the late 1980s and early 1990s, Mr Sims worked as the Deputy Secretary in the Commonwealth Department of Prime Minister and Cabinet responsible for economic, infrastructure and social policy and the Cabinet Office. He also worked as Deputy Secretary in the Department of Transport and Communications. Mr Sims holds a first-class honours degree in Commerce from the University of Melbourne, and a Master of Economics from the Australian National University.

TO STRENGTHEN COMMUNITIES THROUGH TRANSPORT

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John Pickhaver Executive Director, Co-Head of Infrastructure, Utilities & Renewables, Australia and New Zealand, Macquarie Capital Key points: • The demand for new infrastructure corresponds with a heightened appetite for investment in Australian infrastructure. • The historically very low cost of debt offers a rare opportunity for enlarged infrastructure funding. • Superannuation and other investors enjoy a growing pool of greenfield and brownfield investment opportunities, but there remains substantially more capital than there are investment opportunities.

It would be useful to begin with a quick tour around the world, for an Australian and global economic snapshot, to provide some context for the current themes in infrastructure financing. Let’s start off in the United States, which has seen economic recovery, with jobs recovering to their preGFC levels. This recovery has taken longer than in previous recessions, and it is happening without the traditional matching increase in wages. The result is that consumer spending in the United States is still slow, while the lack of inflationary pressures means that the prospect of an interest rate rise continues to be pushed out further into the future. Consequently, interest rates are going to stay lower for longer in the United States. In the United Kingdom, we’re seeing a very similar theme, with unemployment recovering faster than in the United States, again without the wage increases and corresponding inflationary pressures. The result: the Bank of England still has rates on hold at 0.5 per cent. 50

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In Europe, we are starting to see signs of hope. Unemployment rates, which were much higher at the end of the GFC, have started to turn down, and some of the leading indicators in the eurozone are now turning positive. Things like new manufacturing orders and consumer sentiment are ticking up. Canada, which, given its resources-driven economy, can be seen as a cautionary tale for Australia, has had significant falls in revenues and commodity prices, leading to a severe downturn in its economy. This has been despite the parallel growth in residential building activity. Canada has announced that it is now in recession, with 0.5 per cent drop in gross domestic product (GDP) following the 0.8 per cent drop in GDP last quarter. It is also worth noting that Brazil, another resource-dependent economy, is also now in recession. China, which has been garnering significant global attention recently, has seen slightly lower than expected growth, and our economists are forecasting a 6.8 per cent growth rate for the third quarter

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of 2015. While that is still impressive, it is slightly below global forecasts, which in turn led to the world market sneezing. What we’ve also seen is the run up and then crash of the equity markets, and monetary intervention followed by significant devaluation of Chinese currency, all in an effort to stimulate their economy. The result has been global falls in equity markets, and a big increase in volatility – none of which has been helping investor confidence. Looking at a global picture, the United States, United Kingdom and Europe are on the upswing from the global downturn, while Canada and some of the more developing economies are continuing their slowdowns. Focusing on Australia, we’re currently in slowdown mode and heading towards transition. Growth is still positive, but we’re poised either for a further slowdown in growth or, if the right action is taken, a transition to turn around. Focusing on the Australian economy, 12 months ago, mining investment in Australia was falling off. While this has continued, it has been slightly more gradual than expected. It’s worth noting that this represents between a 20 and 25 per cent annual decline. The June 2015 edition of IPA/BIS-Shrapnel Australian Infrastructure Metric estimates a further 21 per cent drop in mining and resources investment in 2015/16. We’re seeing this in a context of residential building activity (as measured by approvals and commencements) stepping up significantly. However, this is only in the residential sector; infrastructure spending has continued to decline. On the public side, the continued decline has been evident, and is only now starting to pick up in a state like New South Wales. Private investment in infrastructure, while slow through the mid-2000s, has now, in fact, turned down. While various factors have slowed growth in the economy, we haven’t gone into recession; GDP growth is still in positive territory, with the latest release this week showing a 0.2 per cent increase in GDP for the quarter nationally – albeit with some very stark differences at a state level. What we are seeing is that, on a per capita basis, gross domestic income is falling, so this is leading to the possibility of an income recession. In other words, we’re producing more, but earning less. Consumers are feeling the bite; they’re working harder, but they’re feeling poorer for it. One reason that the infrastructure sector is feeling the bite is because, despite an improvement

in residential building, the infrastructure pipeline has continued to slow significantly. The peak was around 2011, with around one and a half years of forward work on people’s books. That’s now dropped to less than a year. This trend is again reinforced by the IPA/ BIS-Shrapnel Australian Infrastructure Metric, which confirms a 28 per cent decrease in infrastructure work won over 2014/15. I’ve talked about the global context and the Australian economic situation as background to the current low levels of investment and activity in infrastructure. It’s now time to turn to some thoughts to what the macro drivers could be to lead to an increase in infrastructure investment. If this is to occur, how is the market placed to respond to that in terms of investing the capital needed to support this new infrastructure? Taking a broader look at our economy, we all talk about the mining boom and bust, but it is easy to forget that our economy is, in fact, powered by services. Since 1990, the services industry has grown from about 66 per cent of the economy to 73 per cent, as measured by gross value added. Mining represents nine per cent. Even if you look through the years of the mining boom, which we’ve taken as starting in 2005, the annual value of services as measured by gross value has increased by $256 billion. The annual value of the mining increase over the same period of time was $51 billion. Even if you look at the total cumulative value of those mining boom years, services contributed more than eight times the value added to that of mining. Services represent things like tourism, education, health, and the knowledge-intensive services: IT, professional services and finance. Services are thus the engine of the economy. It is worth noting where these services are being provided, and the linkage of that location with Australia’s population and our population growth. Our population continues to grow. We have the highest rate of population growth out of all of the developed economies, and this increase in population is largely flowing into our cities. Around 90 per cent of Australians live in urban areas, compared to 81 per cent in the United States and 75 per cent in Germany. In Australia, 64 per cent of the population currently lives in our largest four cities. This growing concentration of population in our cities matches the growing importance of services. Notwithstanding the improved availability Volume 6 Number 1

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of mobile technology and the ability to work from home, people still feel the need to be physically connected to those with whom they’re working, to the services that they’re consuming, and to their jobs. This leads to growing cities, and with growing cities come growing pains. The largest growing pain in the Australian consumer economy at the moment is house prices. While Australia’s population has been growing, the rate of dwelling growth has been falling. This is a particular concern when the driver of growth is within our cities. This situation has led to a significant shift in the affordability of housing, with average prices through the late 1980s and early 1990s averaging around 2.8 times yearly earnings. Post-2003, this average has jumped to around 4.5 times annual earnings. It is interesting to note that this increase in costs is largely to do with the value of land. For the 1980s and 1990s, around 50 per cent of the value was around dwellings – the bricks and mortar – and 50 per cent was in the land. Currently, two-thirds of that value is in the land, and only onethird is in the dwellings. The access to land and to the right to build a dwelling is one of the key drivers of the cost of housing, which is now our largest household expense. In 1984, we spent on average 7.2 weeks per year working to pay for our housing. In 2009–10, we spent 9.3 weeks working to pay for our housing; more than the 8.8 weeks that we would have to work to pay for our taxes. We know that house prices decrease as you move away from the centre of cities. This brings a choice for workers: they could move further away from their centres of employment and centres of urban interaction, but that brings with it increased commuting times and greater congestion. The confluence of housing, transport and congestion is leading to reductions in productivity. In short, commuting steals time and congestion steals time, and that time is being stolen from productive enterprise or leisure. The population growth of our cities, pressures on housing, and transport needs are driving the need to continually develop and invest in infrastructure to support a productive economy. If the need is there, how is the market currently placed to invest in the development of that infrastructure, either directly into the greenfield pipeline or by using brownfield assets that can be recycled for new projects? 52

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The answer to that is: very well placed indeed, if we look at the pool of available capital to invest. This pool continues to grow. As an example, let’s look at the total amount of Australian superannuation assets, which, as at June 2015, were valued at $2.02 trillion. This is forecast to double to $4 trillion in around 10 years’ time. It is not the case that all of that capital is available to invest into infrastructure. One interesting feature of the funds under management at the moment is the amount being held in cash, which is at the highest levels seen in the last 20 years. A good portion of that cash is currently looking for an attractive place to invest and generate suitable returns. When we look specifically at funds set up to invest in infrastructure itself – infrastructure funds that have raised capital – we can see that there is around $110 billion of equity ready to invest in infrastructure projects. Gearing them up at around the 60 per cent level turns the total capital available to $320 billion of debt and equity ready to invest. While the capital is there, it is interesting to note that this capital in today’s environment can be deployed at historically low rates. We have measured rates of return required against infrastructure investors since the mid-1990s, since investors started investing in infrastructure as an asset class in the real sense. The trend has been downward. It ticked up post-GFC around 2009, but that otherwise steady decline of returns required has been due to a couple of factors. First is the increase in competition – there are more funds looking to deploy their capital to this space, and those funds have grown. Allocations of funds towards infrastructure from the superannuation point of view have also continued to grow. Investments in property and real assets represented, on average, around eight per cent of superannuation funds allocations. That’s now grown to 25 per cent as of 2013. The cost of available capital isn’t just limited to equity capital. We are at historically low rates of debt finance in the market and, from the economic discussion earlier, our view is that those low rates will stay low for some time to come. Combining the availability of capital with this low-rate environment makes this the best time in a generation for the financing of infrastructure. As a final theme, the types of infrastructure that investment is attracted to are also evolving. With the competition for assets increasing, there is an

John Pickhaver

increased appetite among infrastructure investors for a different risk return requirement, and to look outside core infrastructure investments to those with higher returns and different structures. Looking at the last 15 years of investments in infrastructure, between 2001 and 2010, core infrastructure – things like transport, energy, ports, roads and airports – represented 66 per cent of the investment made in infrastructure during that 10-year period. In the last five years, that’s dropped to 50 per cent, with the other 50 per cent representing investments in things like resources infrastructure, telecommunications, oil and gas infrastructure, and waste. The spectrum of what is considered infrastructure that can attract private capital for investment is expanding – from the Port of Newcastle to waste collection in New Zealand, and from regulated utilities to merchant wind farms. With an appropriate risk return structure, infrastructure investments in these sorts of assets can be made. These sorts of structures can include a range of different methods to minimise some of the non-

infrastructure-type risks that infrastructure investors won’t be prepared to take. These might include commodity risk or oil price risk, taken out of structures through take-or-pay or tolling arrangements; usage risk through sale and leaseback structures; or single-use risks through the aggregation of assets into a suitably sized portfolio. Such approaches mean that assets not previously considered by infrastructure investors are now available for investment. To draw the various strands of this update together, the demands of a growing population and the reliance on our service industries is a big driver of demand for increased investments in infrastructure – in particular, in our cities, which is ultimately an investment in productivity and our economy. The capital is available to invest at historically low rates, and the range of infrastructure that investors will consider is at the broadest that it has ever been. The combination of these themes presents a once-ina-generation opportunity to drive the next wave of projects off the drawing board and into delivery. Volume 6 Number 1

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Important notice This article is not research, has been prepared by non-research personnel of Macquarie Capital (Australia) Limited ABN 79 123 199 548 (‘Macquarie’), and has not been independently produced by a research team. This article is provided for general information purposes only, without taking into account any potential investors’ personal objectives, financial situation or particular needs. It is not an offer to buy or sell, or a solicitation to invest in or refrain from investing in, any securities or other investment product. Nothing in this article constitutes investment, financial, legal, tax, accounting or other advice. Macquarie, its related bodies corporate and other affiliates, and their respective directors, employees, consultants and agents make no representations or warranties as to the accuracy, completeness, timeliness or reliability of the contents of this article, and accept no liability arising from its contents

(to the maximum extent permitted by law). This presentation may contain forward-looking statements, forecasts, estimates and projections (‘Forward Statements’). No representations or warranties are made that such Forward Statements will be achieved, will prove to be correct or that the assumptions on which they are based are reasonable. Actual future results could vary materially from the Forward Statements. Other than Macquarie Bank Limited ABN 46 008 583 542 (‘Macquarie Bank’), none of the Macquarie Group entities noted in this article is an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of Macquarie Bank. Macquarie Bank does not guarantee or otherwise provide assurance in respect of the obligations of these entities. © Macquarie Capital (Australia) Limited 2015

John Pickhaver Executive Director, Co-Head of Infrastructure, Utilities and Renewables, Australia and New Zealand, Macquarie Capital John Pickhaver has 16 years of experience in the infrastructure sector, both as a civil engineer and in infrastructure finance. While at Macquarie, Mr Pickhaver has advised on corporate and project financings, mergers and acquisitions, and arranging debt and equity for transactions including power stations, electricity transmission, gas pipelines, wind farms, energy storage, rail, light rail and road infrastructure, including public-private partnership transactions. Mr Pickhaver has also provided strategic financial advice to corporates in relation to capital structure reviews, and governments in relation to energy and transport infrastructure assets and financing. Previously, Mr Pickhaver worked for a number of years as a civil engineer in Australia on infrastructure projects, before completing his Doctorate at Oxford University in civil engineering, and subsequently his Master of Applied Finance. Some recent examples of transactions that Mr Pickhaver has led: • Adviser to AGL Energy for the sale of their 50 per cent participating interest in the Macarthur Wind Farm, ongoing 2015 • Adviser to APA Group for their successful US$4.5 billion acquisition of the QCLNG Pipeline from BG Group, and $1.8 billion equity raising, 2014–15 • Adviser to the Bombardier Transportation consortium for the successful $4 billion Queensland New Generation Rollingstock public-private partnership, 2014. Mr Pickhaver holds a Doctor of Philosophy (DPhil) (Civil Engineering) from Oxford University, United Kingdom; a Master of Applied Finance, Securities Institute/Kaplan, Australia; and a Bachelor of Engineering (Civil) (Hons), University of Sydney, Australia.

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PATIENT INVESTMENT: HARNESSING SUPER FOR INFRASTRUCTURE BY MICHAEL HANNA, HEAD OF INFRASTRUCTURE – AUSTRALIA, IFM INVESTORS Australia, like many developed economies, faces significant challenges in meeting current and future demand for essential infrastructure; however, unlike many countries, Australia has significant collective savings held in superannuation, which gives us a significant competitive advantage.

Port Botany

Super fund assets in Australia are expected to grow to $6 trillion by 2030, and our retirement savings model is the envy of many G20 countries. Australian super funds have significant long-term capital available, but often lack favourable long-term investment opportunities. At the same time, governments are limited in funding essential infrastructure by often-changing political needs. If infrastructure continues to be governmentowned, essential upgrades are reliant on increasingly cash-strapped governments that need to balance their requirements against other competing demands. IFM Investors’ view is that ‘asset recycling’ – by which governments sell brownfield infrastructure assets to super funds, and invest the proceeds in greenfield infrastructure – creates ‘social privatisation’ – a virtuous cycle that benefits both parties. The public benefits, both as taxpayers from a budgetary position, and as superannuants

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from a long-term return position. The investment is for the full life cycle of an asset, not for an investment cycle. Through infrastructure ownership, super funds can focus on delivering the best possible outcome for an asset over the long term, without the limitations of shifting government priorities and budgetary pressures. If an upgrade makes sense for the long-term success of an infrastructure asset, a responsible super fund will make the investment. IFM Investors, on behalf of super funds, has invested in infrastructure for more than 20 years, providing benefits to Australia in terms of infrastructure capacity, economic uplift and attractive long-term returns. The New South Wales Government’s 2013 lease of Port Botany and Port Kembla is a prime example of the benefits of asset recycling. New South Wales taxpayers received $5.1 billion from the lease to invest in new infrastructure, the ports are now run

with a long-term focus, and more than five million Australian superannuants benefit from the returns. Equally, in Queensland since 2002, nearly $5 billion has been invested in capital works by the super fund owners of Brisbane Airport, which is currently delivering the world’s largest privately funded runway development, boosting productivity and creating jobs. The long-term return profile of infrastructure matches the long-term needs of super fund members, while super funds are proven to be responsible custodians of Australia’s essential infrastructure. The interests of super funds are closely aligned with governments, in respect of investing in long-term essential infrastructure. There is significant potential for Australian governments to harness our world-leading superannuation system to address our infrastructure gap.

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GREEN AND SOCIAL INFRASTRUCTURE: HOW CAN GREEN AND SOCIAL BONDS ACCELERATE INFRASTRUCTURE INVESTMENT? BY CATHERINE BREMNER, HEAD OF SUSTAINABLE FINANCE SOLUTIONS, ANZ AND KATHARINE TAPLEY, DIRECTOR SUSTAINABLE FINANCE SOLUTIONS, ANZ ‘We have developed the (green) bond in response to investor demand, and to deliver on our commitment to deploy capital for the transition to a lower-carbon economy. Importantly, the continued development of Australia’s green bond market should enable ANZ to increase funding allocated to green projects in the future.’ – Rick Moscati, ANZ Group Treasurer Since 2006, ANZ has provided more than $6 billion of project and export finance to large-scale wind and solar projects. Currently, ANZ has an extensive portfolio of renewables-based project and export finance assets, covering wind, solar, geothermal and hydro across Australia, New Zealand, Vietnam, Taiwan and the Philippines. ANZ is also one of the leading institutional property lenders in Australia. Our clients are international leaders in the construction, design and operation of low-carbon and low–environmental impact buildings. More recently, ANZ announced a commitment to fund and facilitate at least $10 billion by 2020 to support our customers to transition to a low-carbon economy.

Project

Class

Country

Bald Hills Wind Farm

Wind

Australia

Collgar Wind Farm

Wind

Australia

Mumbida Wind Farm

Wind

Australia

Taralga Wind Farm

Wind

Australia

Wonthaggi Wind Farm

Wind

Australia

Macarthur Wind Farm

Wind

Australia

Hallet 5 – Bluff Range

Wind

Australia

Boco Rock Wind Farm

Wind

Australia

Royalla

Solar

Australia

Brookfield Tower Place 1, Perth

Building

Australia

Brookfield Tower Place 2, Perth

Building

Australia

Tower 4, Collins Square, Melbourne

Building

Australia

161 Castlereagh St, Sydney

Building

Australia

Mahinerangi Wind Farm

Wind

New Zealand

Tararua Wind Farm

Wind

New Zealand

Changbin Wind

Wind

Taiwan

Chungwei Wind

Wind

Taiwan

Miaoli Wind Farm

Wind

Taiwan

Burgos Wind Farm

Wind

Philippines

Current Aggregate Volume

~A$1.1bn

By asset class Solar 2%

Building 40%

By geography New Zealand 7%

Solar 2%

Wind 58% Building 40%

Wind 58%

Why green bonds? A green bond is a ‘normal’ bond with a very specific ‘use of proceeds’ clause, which essentially stipulates that the proceeds of the bond will be applied to green projects. What qualifies as ‘green’ in this regard can be broad, and we have seen three primary means of qualification: self-verification, verification

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against the International Capital Markets Association’s Green Bond Principles, and verification against standards issued by the Climate Bond Initiative. Green

Asia 16%

New Zealand 7%

Asia 16% Australia 77%

Australia 77%

bonds can be issued either to finance new assets or to refinance existing assets. In the majority of cases to date, these bonds have been for refinancing purposes.

COMPANY FOCUS

Investor type

Insurance 21%

Investor by geography

Semi’s Private Bank Central 3% 1% Bank 3% Council 3%

Asia 8%

Middle Markets 7%

Banks 6%

Australia 92%

Asset Manager 56%

The green bond market, while relatively small, has demonstrated strong and consistent growth, particularly in the last three years, and it is certainly emerging as a credible means by which to raise capital for, and invest in, new or existing projects with environmental benefits. In 2012, when the Climate Bond Initiative issued its first report, Bonds and Climate Change: the State of the Market in 2012, there was US$3.1 billion of green bonds on issue. The recently issued 2015 report states that there is now US$65.9 billion on issue.

ANZ’s inaugural green bond In May 2015, ANZ launched and priced its inaugural green bond for A$600 million. The five-year fixed-rate bond was priced at 99.384 and an 80-basis-point spread over the swap rate, with a coupon of 3.25 per cent. It is the largest climate-related bond yet by an Australian issuer, and was primarily distributed with Australian institutional investors, as well as funds in Asia. ANZ was the sole lead arranger for the transaction. ANZ Group Treasurer Rick Moscati said, at the time of issuance, ‘We have developed the bond in response to investor demand, and to deliver on our commitment to deploy capital for the transition to a lower-carbon economy. Importantly, the continued development of Australia’s green bond market should enable ANZ to increase funding allocated to green projects in the future’. Assets in the bond comprise loans to wind power and solar projects, and to Green Star–rated commercial property buildings in Australia, New Zealand and parts of Asia. The bond performed exceptionally well, demonstrating strong demand and attracting a diverse range of investors, including, among the domestic super funds and global funds, access to environmental, social and governance (ESG) mandates.

ANZ’s Global Head of Debt Syndicate, Paul White, said at the time of issuance, ‘Strong demand from a diverse spectrum of investors for this transaction highlights the growing number of sustainable and ethical mandates within the institutional investment community. We expect the green bond market will continue to grow, as issuers look to tap the significant liquidity available’.

Verification and disclosure An important aspect of ANZ’s issuance was to test the verification process. ANZ used a third party, Ernst & Young, to assure the green bond structure and underlying asset pool against the Climate Bond Initiative (CBI) Standard – a not-for-profit organisation that promotes large-scale investments to help to deliver a low-carbon economy. As a result, CBI accreditation was awarded to the issuance, and it also qualified for the Barclays MSCI index.

Where will the market go from here? ANZ’s green bond cemented our view that there is investor demand for product to fulfil ESG mandates, and that investors have climate change on their radar. Moreover, the investment opportunities are significant – the International Energy Agency estimates that the cumulative investment in energy supply and efficiency to ensure that the planet is on a ‘two degree’ track is US$53 trillion1. Indeed, since issuing our green bond, we have seen interest in the market emerging across a number of sectors. In the public sector, all levels of government are also exploring ways in which green bonds, and also social bonds, could be used to provide long-term tenor and investment grade risk behind publicly funded infrastructure projects. 1 www.bis.org/publ/qtrpdf/r_qt1403y.htm

Relative to the strong growth across Europe and North America, however, the green bond market across the Asia-Pacific region, and in Australia and New Zealand in particular, is still in its infancy. Pleasingly, the bonds have seen further investor demand, and continued to trade well in the secondary market; they are currently outperforming – by five to 10 basis points – similarly rated AUD five-year fixed-rate paper, which was issued on the same day as ANZ’s green bond. This is consistent with recent research, which indicates that green bonds are trading at a premium in the secondary market2. Tenor is also an aspect that we are monitoring, as green bonds are showing signs of issuing with longer tenors. For example, New York State and Washington DC have each issued 25-year and 100-year green bonds supporting water supply and treatment assets. Likewise, we are seeing development banks such as EIB, IFC and ADB structuring bonds with first-loss tranches. Both of these developments are extremely helpful, particularly in the infrastructure sector. For example, the Institute of Public Affairs (IPA) has reported that Australia needs more than $700 billion over the next decade to fund upgrades to water, waste and power sectors. Developments in tenor and structure also help investors as they seek to reduce risk around asset life and/or project credit standing. Finally, these are key developments for the commercial banking sector, as, given increasing regulatory pressure to reduce riskweighted assets, green bonds could emerge as a highly attractive way to refinance largerscale green infrastructure projects. The emergence of social bonds, also referred to as social benefit bonds, is also interesting. We have already seen issuance supporting social housing and detention centres in Australia, and ANZ is working with the government in New Zealand on issuance of a ‘contract for service’ social bond in the mental health sector. Australian state governments have likewise begun engagement on issuing social bonds, and are looking at both the ‘contract for service’ and investment-grade-style social bonds. As a next step, we expect to see the continued issuance of green bonds and the continued emergence of social bonds in the Australian market over the next year, not only from within the finance sector, but also from the property, infrastructure, utilities and government sectors. The views and recommendations expressed in this document are those of the authors, and may not reflect the views of Australia and New Zealand Banking Group Limited.

2 www.environmental-finance.com

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Towards social markets As governments move from directly delivering services to procuring them in a competitive market, traditional public-private partnership models are evolving Chair: Graham Brooke, Lead Partner – New South Wales Government, KPMG Panellists: • Ben Dempsey, Project Director, Department of Justice and Regulation (Victoria) • Leilani Frew, Executive Director, Head of Infrastructure and Structured Finance, NSW Treasury • Tracy Howe, Chief Executive, NSW Council of Social Service (NCOSS) • Rob Koczkar, Chief Executive, Social Ventures Australia

Key points: • The public sector’s role will inexorably shift from a direct monopoly provider of community and public services, in favour of its new role as a purchaser and regulator of these services, on behalf of the community. • This shift will be led by the ‘push’ from unsustainable recurrent budget costs, but it must be about seeking value for money and outcomes, not simply cost. • Projects like the Northern Beaches Hospital PPP and the Ravenhall Prison evidence early pathfinders of this increasing shift. • The community and welfare sectors will partner on complex reform – provided it is based on solid policy and clear benefit.

L–R: Ben Dempsey, Leilani Frew, Tracy Howe, Rob Koczkar, Graham Brooke

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Towards social markets – panel discussion

Graham Brooke (GB): We are seeing a fairly radical shift in the role of government around Australia and around the world. The role is moving from government being a direct provider of social and other services, to it being a very informed purchaser or commissioner of different types of services in a contestable marketplace. From the infrastructure perspective, this has two implications. Firstly, it means that the traditional public-private partnership structures are definitely evolving, and are becoming more service-driven and outcomes-focused. Secondly, it’s releasing, through efficiencies, lots of money from the recurring revenue budgets of government into the capital programme for more assets to be built in traditional and new PPP methods. Starting with you, Ben, the Ravenhall Prison Project is a really good example of the new breed of social infrastructure PPPs that are appearing in the marketplace. Can you give us some background to that project, and some of the issues and benefits associated with this new structure? Ben Dempsey (BD): I should point out that I am not a correctional expert; I work in infrastructure development. The Ravenhall Prison Project is a 1000bed, medium-security men’s prison to be constructed in Melbourne’s west. It actually does represent a significant change compared to other recent socialsector PPPs, such as other prisons and hospitals. The difference lies in the nature of the PPP itself, and, in

that regard, most other prisons and hospital projects really have been around design, build, finance and maintain, so there’s a real focus on the asset. With Ravenhall, the focus is entirely on service delivery. It’s a full-service prison. It’s the first fully privatised prison in Victoria in about 17 years, and its focus is on achieving correctional and reintegration outcomes. Sure, we’ve got to build the prison to accommodate prisoners, and that’s part of the reason. We’ve got a capacity problem in Victoria, and this will address that. But it’s really about providing services over the long term. In terms of the benefits of that approach, having an operational philosophy or model at the heart of the project really has been instrumental in the development of all other components: the design, the whole-of-life plan, the infrastructure, the service delivery and so on. That really provides a range of innovation and efficiencies, and that’s what we’re seeing – whether it’s through new IT-based prisoner management and information systems, or rostering approaches over the term. We’re trying to address the significant mental health needs of prisoners, firstly; and secondly, we’re trying to address or drive down the rate of recidivism, or the rate of reoffending, and one of the ways we are going about that is by using a payment-by-results approach. It’s also being trialled in other projects – prison projects in other jurisdictions, including the United Kingdom. This is where the project company or the operator really has some skin in the game, and is financially motivated Volume 6 Number 1

Above: Northern Beaches Hospital

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and incentivised to drive down the rate of reoffending, which is measured over 10 years by the police. We’re not only measuring the rate of reoffending; we’re also measuring other key factors that the research has shown really make an impact on people reoffending, such as having stable employment and stable housing, reconnecting to the community, being given continued support going forward, and being involved in other offender-based programmes. This intensive support at Ravenhall is being provided both pre-release (while they are in prison), and once they are released. Obviously, once they are released, it’s voluntary, so the project company really has to work out how to incentivise ex-prisoners to remain involved in these programmes, and to make sure that they have appropriate housing and employment opportunities. It’s quite a shift, and in previous projects there was an almost fractured approach, wherein you had the corrective services – a bunch of not-for-profits, independently, most of the time – trying to provide services. With this approach, everyone’s in there together, trying to provide these outcomes. What it is really about is trying to provide a safer community. The market took some time to fully get its head around this new approach – what we call the operator-focused approach. It will eventually need some sort of change in traditional PPP structuring arrangements. This means you need to have an operator in there, and the operator potentially needs to provide equity in the long term – so that might be a bit of a change, or a challenge. The other thing is long-term flexibility, obviously. It’s a 25-year contract, and to get everything aligned in the 60

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first instance is going to be pretty hard, particularly around support programmes. It’s also difficult for the market to comprehend the nature or the exact scope of the support programmes, in terms of volume and throughput, and how they price it and deliver it. With some of the financiers – equity and debt – they have a good understanding now of construction and delivery risks, but will possibly still be anxious and nervous about getting involved in projects with corrective services, mental health services and reintegration services; but I think they will get there. This also represents a challenge for governments in terms of trying to cost all of this, and then working out what kind of assessment tools they can use to actually measure value for money. In a nutshell, it’s a new style of PPP. In fact, to use an acronym, it’s almost a PPNP, because you have the public sector in there, you’ve got the private sector there, and you’ve got the not-for-profit sector too. At one end of the contract, you’ve got the state, and at the other end, you’ve got the project company, and they’ve got subcontractors, including a state entity, Forensicare, providing mental health services. There is also a range of alliance partners providing reintegration services and support, including Melbourne City Mission, The Gathering Place and YMCA. It’s a fairly new approach, and it’s about getting long-term benefits. There is no doubt that the cost of reoffending in our community, and incarceration, far outweighs the cost of providing these services. GB: Leilani, New South Wales is also at the front of these new developments, with the Northern Beaches Hospital and Grafton Prison, and also the Social Benefit Bonds trial. From a central agency perspective, how do you see these models providing benefits to the state, and what does all of this mean from a budgetary and fiscal perspective? Leilani Frew (LF): The challenges for all of us are the ageing population, the growth of population and the real demand for quality services. The models have enabled us, as government, to be more sophisticated in articulating what the role of government is, and what the Government is in the business for. Our business is to provide services to our constituents, whether it be Victoria or New South Wales or New Zealand, and I’m picking those three jurisdictions particularly, because I think, collectively, we have been at the forefront of being sophisticated in the way that we articulate our role.

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Therefore, we are about outcomes – not just building a piece of infrastructure and delivering it well, but what that infrastructure actually delivers in terms of services, and the outcomes for our constituents. Infrastructure is a means to an end, but the end is actually bigger and broader than the infrastructure delivery by itself. When we come back to the very boring part of it – the fiscal and the budgetary element – this is around the Government’s huge responsibility for taxpayer dollars, and making sure that we use those dollars efficiently, and effectively deliver outcomes. These models enable value for money and enable transparency. We want value; we don’t want cheapest cost. In terms of talking about the prices of services, a lot of people focus on infrastructure: the cost of infrastructure, and how much debt and finance can go into capital expenditure. In the social space particularly, what is really interesting is that infrastructure is a minutia, in terms of the overall cost of the outcomes that we’re trying to procure. The Northern Beaches Hospital in itself is a few hundred million dollars, compared to the few billion dollars for the cost to deliver the health services that we’re actually asking from that piece of infrastructure. From a fiscal and budgetary point of view, how do we make our taxpayer dollars sustainable so we can actually get more bang for buck – or, in a financier’s term, return on investment – where that investment is actually into outcomes, and not into infrastructure itself? The models enable recognition of the twoway conversation (state, and design and construct contractor) that we need to have, and now also the three-way conversation (state, design and construct contractor, and operator). The three-way conversation that we need to have in order to deliver outcomes enables clarity about the roles that each of us play to deliver those outcomes. It helps unlock market participation. We find, particularly in the operator sector, and particularly in the social space, that we have very few people who are prepared to finance and back these projects. We need to help unlock that capacity to deliver the outcomes that we’re looking for. More importantly, it’s around diversity in service delivery and outcomes. I’m not advocating that the public sector needs to deliver, or that private sectors need to deliver – from a diversity perspective, it’s about getting efficient dollars. We all talk about diversity generally in our organisations, and what that brings to the table. From a service outcome

delivery perspective, and from a fiscal perspective, what diversity brings to the table is competition, and it challenges the cost of us providing the services and the outcomes. From a fiscal budget point of view, it’s around transparency, bang for your buck, return on investment, better measurement and enabling us to sit there and say, ‘Your dollars, dear taxpayer, have been put to work to deliver these great outcomes’. GB: There is an issue around the thinness of the marketplace. On traditional PPPs, there is absolutely no issue, but on all of the new-generation PPPs in social infrastructure, there is a thinness in elements of the full service provision. Is the market keeping pace with the growth in this marketplace? LF: We need to continue to have the two-way conversations. Northern Beaches Hospital, for example, was a conversation when the market wasn’t quite prepared to take up the challenge that we, as government, put to them, in terms of risk around the clinical services. We had to refine the way that we did that. It’s captured in the PPP nomenclature, but it’s not really a PPP – it’s a construction contract with a services contract stapled to the hospital, but still driven towards an outcome. We will continue to evolve, and that’s the great thing about this market – that we do evolve as we start to really understand the role that each of us can play.

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GB: The NSW Council of Social Service (NCOSS) has a key role to play in the development of these outcomes-based social markets, and that was evidenced by the memorandum of understanding (MOU) that you signed with Infrastructure Partnerships Australia (IPA) and the New South Wales Government in relation to social housing. From a sector perspective, what do you see as the key benefits to the important people in all of this: the end users and the recipients? What is the benefit to those people from this type of partnership? What do we need to do to expand the opportunities for NGOs and others in this sector? Tracy Howe (TH): I’ve been in this role for a year now. A year ago, when I first came to one of these kinds of things, I felt like I was the only hippie in the room, but I’m feeling less and less so. I feel more and more like I actually belong here, and I have a space here for my constituents. When I talk to Leilani, I know that she speaks my language, and she’s sitting here, talking about the things that interest my membership. I really like this adding the ‘N’; we should start making that the acronym, because that is the bit that is missing in this discussion. And you know what? It’s a powerful and hefty sector. There are 600,000 not-for-profits in Australia. The latest figures we have show that the sector’s contribution to GDP is $43 billion. We’re not just a bunch of nice people doing Meals on Wheels. The latest figures we have show that the income of the sector was $76.6 billion in 2006–07, remembering that 49.6 per cent of that was self-generated by the sector. They’re smart, they know how to create dollars, and they know how to do this work. So, they’re smart, they’re trusted and they’ve done all of this by using their own ingenuity. You need to be in there seeking them out and creating partnerships, so we can have social benefit bonds like Newpin, so we can have the social housing fund. The sky is the limit at the moment, and that is the message that I want to bring to you today: it’s low-hanging fruit – everyone is just ready for it. Addressing the question that you ask about the fund, and what the fund does to the end user; the constituents I represent are the people in the street that actually need housing, and we have a government that is open to talking. They talk about social infrastructure. They talk about people as people. They actually enter into the conversation. What this $1 billion fund says to me is that there is 62

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a real landscape from which that $1 billion should not be $1 billion; this should be the beginning of the long-term conversation that is billions and billions and billions of dollars. That means housing with wraparound services, because Leilani made a good point. She’s saying that when you look at the hospital, it’s not just bricks and mortar. It’s about all the other stuff that is part of our community. This is the time, certainly in New South Wales, for the Government, the private sector and the not-forprofit sector to say: ‘Look, put our prejudices aside, look for the sweet spot, and we will go ahead and we will make the best of this opportunity’. This is good for people. We are going to have thousands of new houses, probably early next year. This is amazing. We wouldn’t have gotten this deal, and I am sure of this, if NCOSS and IPA hadn’t walked in as unlikely partners and had that commitment, and also taken the whacks across the head for having the audacity to do it. It’s about time people started to go, stuff your ideology, stuff all of that, it’s about what we can deliver to the people. That’s why these kinds of relationships have to keep being nurtured. The sector is ready for it. It’s a very skilled sector, but it’s also a sector that’s waiting for the encouragement from you guys. We need to find the common language. You need to get to know this market. Start to invest in your community. Social benefit bonds generate pretty good dividends, right? Newpin delivered an 8.9 per cent return. That’s good! I know things are pretty grim in my bank account, but this is a place where you can generate money and you can see outcomes in your community. GB: We’re moving on to the investment side of things right now. Rob, you’ve been very heavily involved with some of these recent initiatives, including social benefit bonds, and the success does depend on the investor base. From your perspective, what do you see as the issues and the way forward in terms of this kind of social market? Rob Koczkar (RK): Social Ventures Australia (SVA) is a charity. We exist on the good graces of the donations we get. In many ways, the conversation is about the outcomes that we want to drive from the money that we spend on social service provision in Australia. Some work that the Centre for Social Impact and PwC have done estimates the total annual spend on social services, broadly defined as health, education, social infrastructure, and spending

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on housing, at $420 billion. When asked for the best estimate of how much of that money is spent with outcomes articulated and contracted as the delivery mechanism, people sort of stretched up and said, ‘I reckon, at most, top estimate, one per cent’. There is actually only one contract that people can talk about, apart from the Newpin contract – the old Job Services Network contract, which was an outcomesdriven one. $420 billion is a lot of money, which gets spent on the basis of the activities provided, rather than the outcomes we want delivered. That, in a sense, was the birth of the PPP idea in infrastructure 20 or 25 years ago, where the outcome was clear: we wanted an airport, and we wanted a toll road. You could easily define the outcome, you could easily measure success, and you could write a contract down that didn’t have a whole lot of unintended consequences, or ones that you couldn’t manage. Those are the pieces of capability that we need to develop as a group of investors, governments and commissioners of these services. We still need to be able to look at a social outcome that we want to generate. I’ll go back to Ravenhall, where we say that what we ultimately want to do is to reduce the prison population and the rate of offending in Victoria. One of the unfortunate truths is that a predictor of subsequent offences is that you’ve committed offences before, so the reduction of recidivism is an important lever. But if you’re designing that contract just to reduce recidivism rates in Victoria, one way that you can do it is to get all the released prisoners and bus them up to the border, and start housing them in New South Wales. We need to think about the outcome that we want to generate, how success will be measured, and how the contracts can be written in a way that won’t produce a whole lot of unintended consequences. These outcomes that we’re talking about are more subtle and more complicated than just building infrastructure. As we think about the marrying of the social service itself, and infrastructure components, this is where the real opportunity is – both to deploy significant amounts of money, and to generate significant positive benefits. What we see at the moment is the social impact bond trials that are going on, and I would add my applause to what’s been done in New South Wales, but it’s also now being picked up in New Zealand, South Australia, Western Australia, Victoria,

Queensland and federally. This is around taking the service component and thinking about how we can do a PPP just on a service basis, but it’s when we combine the service and the infrastructure piece. One I would point to is Foyer, a youth homelessness model, where you build what feels like student accommodation next to a TAFE, and you populate it with roughly 60 per cent fee-paying, ordinary students, and roughly 40 per cent young people who are at risk or have been homeless. These young people are enrolled into the TAFE courses and given a bunch of wraparound services to build their work skills and employability skills. After a couple of years, they’ve got that basis, and they’ve also got the contact list of all of the people that they met living in that community. They go out into the workforce with a bunch of friends and a bunch of contacts, and they’re up and running. To do that, you need to build the building, and you need to provide the services. It’s that marriage of hard assets with the soft socialservice provision that is where the real potential of this idea comes together. GB: Let’s go to completely off-piste. There’s a lot happening: there is the National Disability Insurance Scheme (NDIS), there’s Newpin, Northern Beaches Hospital, Ravenhall Prison. You’re as qualified as anybody to crystal-ball-gaze and think about what this will look like in five years’ time. Nationally, what does this whole sector look like as a social market in five or 10 years’ time? BD: Speaking in terms of Victoria, right now we have a mixed model in the corrections space; there are public prisons and private prisons. You get competition by comparison. The Victorian system works very efficiently as a whole, and I think that’s because we have a mixture of both. Obviously, it will depend on government policies around core services, but I expect that it will continue to advance. I don’t think there will be any huge shift to privatise all correctional services – or new prisons, even – but it will just depend on a project-by-project basis. LF: In New South Wales, the next five years will be pretty exciting, particularly in this sector. Last year, the Government announced where it wanted to put that money to work if it got the lease of the poles and wires through. Some of that money is going towards the Sydney Metro, which in and of itself is delivering a social service and outcome. It is also being directed towards the justice sector, the education sector, the health sector, and the arts and culture sector. Volume 6 Number 1

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What we’re probably seeing is this real shift away from the economic type of infrastructure into the social space. It’s really quite exciting in terms of opportunities for everyone to make a real difference in the next five years. We are seeing, from a policy perspective, a real focus on social agenda. The work that NCOSS and IPA are doing is amazing. We’re also seeing a lot of policy work and effort going into making a difference in domestic violence and youth homelessness. That creates a great opportunity for us, in five years’ time or so, to see some real bangfor-buck effects out of that. The time seems to have come that we’ve stopped talking about it, and we want to just start doing something about it. Being part of it is quite exciting. I think it’s great. We’ve moved, in the last four years, to being clear about what we want to do. The market is embracing that: embracing the outcomes, and embracing all of these conversations. Some are coming faster and harder than others. Some are still trying to figure out what that means in their particular businesses, and I continue to encourage that thinking. It’s going to be great in the next five years, and I think we will make some real differences. We’ve now stopped talking about it, and we’re trying to get on and do something about it. TH: I tend to agree. I see what’s been happening as almost like people have been getting the room ready to be painted. That takes forever, and you’re setting all the strips around, but we’re actually at the bit where we’re ready to go. From my perspective, I think the social benefit bonds are a really good way of looking at where we are, and where we can be. It’s as if all the work has gone into these very complex instruments, but it’s getting less complex. There are going to be more deals to be made. There is going to be more innovation and potential. Creating those instruments, I assume, will get easier. Then we can have more and more of those. It means that you’re also getting better outcomes for people. There’s an expectation from the service user that they should get some outcomes for the service that you provide. It’s sharpening the work of the sector, too. We’ve kind of had this bottleneck, that’s now gotten out of the way, and it’s in a doing phase. Housing is a huge issue across Australia; certainly New South Wales is no different. What you’re going to see is huge housing reform: social and affordable, mixed tenures, mixed communities. I loved to hear Rob talking about the mixed communities. This is 64

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going to be a new way, and New South Wales is really going to lead the way. We hope it will set a national tone, because I feel like, in some way, they’re so stuck nationally, when at state level we’ve put that aside and we’re just doing. LF: In New South Wales, we’re quite happy to be out there and engaged in leading the way, but it is important that the whole nation comes together. We should also recognise and acknowledge that there is definite intent and activity happening across the nation. There are a lot of interesting things happening in New Zealand, as well, and it’s important that we all continue to talk and bring those ideas to the table. RK: The real benefit of moving to the PPP model is that that you can take a 25-year view; you’re not trying to do things in two, three or four years, for an election cycle or a particular fiscal outcome. That’s where the opportunities are in the social service part of that, as well. We were delighted yesterday that we could announce, with HESTA, a $30 million investment that we’ve made in our next social impact investment trust. This is a great endorsement from one of the major superannuation funds for the potential of this market for social service provision in a better way. That will continue to grow. People will continue to look at the financial opportunities that delivering good social purpose outcomes have, and that will create an investor base that will then enable deals to be created. LF: While we’ve got this momentum, we should absolutely take advantage of it. One step forward is great, but we are talking about taking big leaps and bounds. If we could take big leaps and bounds, this sector would be sorted, and we wouldn’t be here talking about how we could make it better. We see things about initiatives coming out that might bring about 1000 or 3000 or 4000 spaces in social housing, and people say, ‘That’s not very much’. But guess what? That’s 3000 or 4000 more houses than we currently have. That’s actually a great thing, because one step forward is a pathway to great outcomes. In this space, the single steps are really important. GB: Are there any challenges that we’re going to overcome, or any risks that we need to think about? Could each of you just think about one thing that needs to be addressed, or a risk that we need to be aware of in making this happen? BD: It’s just the recognition that we can bring all of those parties together, being the public sector, the expertise of the private sector, and all that the nonprofit sector has to offer – and we’re starting that with

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Ravenhall. [It would be great if] those parties could get together and just work out how that could transfer into other sectors, whether they’re housing or other social needs. LF: It’s sustainability; it’s a long game in the sector – it’s not a short game. The biggest challenge is in making sure that we stay the course, and [that we have] consistency in terms of what we’re trying to achieve, in recognising that there are different ways to get there, and in making sure that we do it, and measure the outcomes. Eventually, we can talk about whether we’re doing things well or we’re not doing things so well, and adjust and be flexible to address it again. TH: It’s about making sure that we keep our eye on the specialty that’s out there in the service system, and that we don’t become generic, but we capacity-build. There’s a real potential in this kind of market for bigger organisations that have scalability, and the capacity to get into the social bonds market, for example, to get the cream. The jewels in the sand are those smaller, specialised services, and that’s the responsibility of my organisation – to build capacity; particularly, I think, of Aboriginal organisations, and community and women’s organisations. There is probably a lack of knowledge around the dollar value that you can attribute to that, and you don’t want to lose that. We don’t want to lose sight of the amazing network of specialisation, nuance and trust that the volunteer network has in the community, and we should tap into what’s already there. RK: Part of the opportunity here about adopting innovative solutions to new problems taps very much into what Tracy was just pointing out there, and what Leilani said. It’s not necessarily about public or private, or insource or outsource. It’s actually about getting innovative solutions taken to scale, to displace less effective models that we see in the market at the moment. One part of that is access to information. We had a presentation on the second anniversary of the Newpin program a couple of weeks ago, where we had a couple of participants in the program – a couple of parents – talk. These stories are horrific. A mother who spoke said that the point when her children were taken into foster care was the point when her husband broke her jaw, and she had to go into hospital. He was subsequently convicted and incarcerated. Then she worked through the process of rebuilding her life, and taking her kids out of foster care. But there’s no linkage between the dad’s release from prison, with information back to the support

environment, that can then ask, ‘How do we support you now, given that your abusive partner or expartner is back in the community?’ The information at the moment doesn’t flow, and it is not available to the agencies. To really produce these innovative, connected and peoplecentred responses is something that I think is a different type of opportunity to address. When we can get better technology, it will help us get there. Then, the real outcomes that we will be generating will be much more sophisticated and better for the whole community.

Rob Koczkar Chief Executive Officer, Social Ventures Australia Rob Koczkar joined Social Ventures Australia (SVA) as Chief Executive Officer in October 2014. He has extensive experience in investing and management consulting, along with a deep understanding of the social purpose sector from serving on the boards of Social Ventures Australia, Goodstart Early Learning, and on Mission Australia’s Corporate Advisory Council. Prior to joining SVA, Mr Koczkar was a managing director of Pacific Equity Partners from 2004–2014, and a principal with Texas Pacific Group. He led investments in a number of companies, including Energy Developments, Spotless, and Collins Foods. Mr Koczkar also spent seven years with Bain & Company, advising clients on issues relating to strategy, mergers, and operating improvements in a wide range of industries. Mr Koczkar received a Bachelor of Engineering (Hons) in Mechanical and Manufacturing Engineering from the University of Melbourne. He currently serves on the boards of Social Ventures Australia, Goodstart Early Learning Limited, Energy Developments Limited and Spotless Group Holdings Limited.

Leilani Frew Executive Director, Head of Infrastructure Structured Finance, NSW Treasury Leilani Frew is Executive Director and Head of Infrastructure and Structured Finance at NSW Treasury. As a senior finance professional who has worked in finance and public administration for more than 20 years, Ms Frew has marketleading expertise in providing strategic, commercial and financial advice to assist in the purchase, sale, procurement and/or financing of significant infrastructure, power and energy assets and businesses throughout Australia, the United Kingdom, the United States and Asia. Ms Frew has previously held senior roles with Queensland Treasury, the Commonwealth Bank of Australia, ABN Amro/Royal Bank of Scotland and Moelis & Company. Ms Frew was recently awarded the ‘Women’s Achievement in Infrastructure’ award at the Infrastructure Partnerships Australia National Infrastructure Awards. Volume 6 Number 1

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Ben Dempsey Project Director, Department of Justice and Regulation (Victoria) Ben Dempsey has more than 30 years’ experience in infrastructure development, leading public-private partnerships across a broad range of industry sectors such as corrections, public transport, water and health. Mr Dempsey is a director of infrastructure advisory firm EIG. In December 2012, the Victorian Department of Justice and Regulation appointed him project director to lead the development and implementation of the Ravenhall Prison PPP Project. Prior to his current role, Mr Dempsey led the development of earlier Victorian PPP correctional projects, including, as a single transaction, the Metropolitan Remand Centre and the Marngoneet Correctional Centre. Mr Dempsey has acted for clients in Australia, Germany and Africa, and has conducted multilateral negotiations at an international level.

Graham Brooke Lead Partner – New South Wales Government, KPMG Mr Brooke is currently leading a number of significant projects in Australia, including the Immigration Detention Services Project, the WestConnex project, the Barangaroo

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Redevelopment, and the Soekarno-Hatta International Airport Link in Jakarta. Mr Brooke’s previous projects include the NBN Implementation Study, Chatswood Transport Interchange, the South Australia Police and Courts PPP Project, the Single LEAP PPP, and the New South Wales Desalination Plant. Mr Brooke previously worked with the National Health Service (NHS) in the United Kingdom, and was closely involved in the United Kingdom’s major public sector reforms in the Thatcher era. His experience covers the structuring of complex transactions, development of payment mechanisms, determining appropriate risk allocations, and advising on alternative sources of finance. Mr Brooke is an Adjunct Professor, Bond University, Department of Sustainability. Previously, Mr Brooke was the National Treasurer of the Australian British Chamber of Commerce (ABCC).

Tracy Howe Chief Executive Officer, NSW Council of Social Service (NCOSS) Tracy Howe is a legally trained advocate with a commitment to human rights, addressing community disadvantage and gender inequality. Previously, Ms Howe has worked in both government and non-government settings, including with Domestic Violence NSW as chief executive officer, and as a senior legal adviser in Federal Government. Ms Howe currently sits on the New South Wales Government’s Social Impact Investment Expert Advisory Group, and is appointed to the NSW Domestic and Family Violence Council and the New South Wales Premier’s Council on Homelessness, and was the New South Wales non-government representative on the National Plan Implementation Panel for the National Plan to Reduce Violence Against Women and their Children. Ms Howe is also a Director of Community 21, a community sector– owned bank. Previously, Ms Howe was a delegate with the Australian Women Against Violence Alliance (AWAVA) at the Commission on the Status of Women (CSW) at the 57th and 58th sessions held at the United Nations in New York. In February 2015, Ms Howe won the Agenda Setter Award at the NAB Women’s Agenda Leadership Awards. In May 2015, Ms Howe was appointed to the Prime Minister’s COAG Advisory Panel on Reducing Violence against Women. Ms Howe holds degrees in gender studies and law.

COMPANY FOCUS

TRANSFORMING OPPORTUNITIES Specialist infrastructure manager Hastings Funds Management is dedicated to transforming global infrastructure investment opportunities that aim to deliver long-term value for its investors. Hastings is a leading infrastructure manager, both in Australia and globally, with a proven investment track record, and continued growth in funds under management (FUM). Established in 1994, Hastings was one of Australia’s first infrastructure fund managers, and has a proven investment and asset management track record through its strong fiduciary culture and focus on core infrastructure equity and debt. Hastings is dedicated to delivering reliable and consistent investment returns to a wide range of institutional investors with FUM of A$10.6 billion. Over the past two decades, Hastings has employed A$9.8 billion of investor capital across more than 40 equity investments, and has actively managed A$2.7 billion of investor capital in more than 80 debt infrastructure assets globally. Hastings asset portfolio predominantly comprises utilities, airports, toll roads and seaports in Australia, the United Kingdom, Europe and the United States. The primary focus is on building a diversified portfolio of infrastructure investments. Recent notable equity transactions include the acquisitions of Porterbrook Rail Finance Ltd, one of the three major rolling-stock leasing companies in the United Kingdom, and the Port of

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Newcastle, which is one of Australia’s largest bulk ports by throughput. Complementing the infrastructure equity capabilities, Hastings executed 23 debt investments across Europe, North America and Australia in the past 24 months to 31 December 2014, with a total committed value of more than A$1.25 billion. Chief Executive Andrew Day says that the group continues to be ‘an active participant’ in global infrastructure transactions identified, executed and tailored to suit investor needs. ‘We continue to focus on building winning consortiums with like-minded partners,’ Day says. ‘We remain active across a worldwide platform – with a local footprint in key geographies – identifying and investing in attractive investment opportunities [that will] deliver value for investors.’ From its headquarters in Melbourne, Hastings has built a strong global footprint, with offices in Sydney, Singapore, Seoul, Mumbai, London and New York, and employs more than 110 members of staff. The Hastings team covers asset management, business development, client services, portfolio construction and origination. Hastings is dedicated to the infrastructure sector, and, with more than 20 years of experience, is one of Australia’s longest-running and most qualified infrastructure managers. It established one of the first infrastructure equity funds, Utilities

Trust of Australia (UTA), in 1994, and one of the first infrastructure debt funds when it launched the Hastings Yield Fund in 1999. Hastings’ flagship fund, UTA, returned 14 per cent net of fees for the year to 30 June 2015. Investors who have been with the fund since its inception more than 20 years ago received net returns of 11.6 per cent per annum. The Infrastructure Fund, also managed by Hastings, likewise continued to outperform, returning more than 10 per cent for the financial year, and more than 14 per cent per annum since Hastings was appointed as its manager in June 2000.

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ExpEriEncEd Global disciplinEd TrusTEd Four reasons why Hastings has consistently been able to identify attractive equity and debt investment opportunities and deliver value to investors for more than 20 years. • Two decades of infrastructure investing experience • A global platform with a local footprint in key geographies • A disciplined approach to investing • A trusted partner of choice globally.

Transforming global infrastructure investment opportunities to deliver long-term value.

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Hastings Funds Management Limited (ABN 27 058 693 388)(Hastings), holder of an Australian Financial Services Licence number 238309. Hastings is a subsidiary of Westpac Banking Corporation (ABN 33 007 457 141). Past performance is no guarantee of future performance. INVESTMENT PRODUCTS: • NOT FDIC INSURED • NOT CDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

COMPANY FOCUS

THE CITY OF CHOICE FOR BIG BUSINESS Competitive commercial and industrial land prices, a wellqualified workforce, and easy access to Sydney, Melbourne, Canberra and Adelaide are just some of the reasons that Albury is becoming the city of choice for big business and industry looking to escape the metro rat race. The resilience of Albury’s economy is reinforced by a diverse industry base, eliminating the reliance on one particular sector for buoyancy, as is often the case in regional cities. Its gross regional product has experienced six per cent growth in the last 12 months, and is currently placed at $2.9 billion, or $5.4 billion when it’s combined with neighbouring Wodonga. Open to development, AlburyCity Council works closely with businesses to facilitate projects, demystify the processes of local government, and reduce the

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complexities of establishing and operating in the City. Council decision-makers have taken this philosophy one step further by undertaking the master planning and development of NEXUS, a 450-hectare estate that is suitable for large and heavy industry, in order to continue the City’s positive economic outlook. Located on the Hume Freeway, only 10 minutes from Albury’s CBD, NEXUS offers customisable land options, and the opportunity for 24/7 operations. A key advantage within NEXUS is the Ettamogah Rail Hub, a common-user intermodal hub located on the Melbourne–Sydney rail line, which provides access to rail services along the east coast. Businesses also benefit from access to a catchment population of 180,000, as well as domestic and international markets through existing transport infrastructure, including Albury’s regional airport, which services Sydney and Melbourne. These links make NEXUS an ideal distribution site from which 75 per cent of the Australian population, including three major shipping ports, can be serviced by next-day delivery. NEXUS has been specifically designed for large industrial development, and, with

manufacturing as Albury’s largest industry sector, a number of established companies are already operational on site, including the Norske Skog Paper Mill, Overall Forge, the Ettamogah Rail Hub, Bourgault Australia and QR National Freight. Colin Rees, owner of the Ettamogah Rail Hub, is optimistic about operations at NEXUS. ‘The Hub is capable of handling up to 30,000 containers annually, and we have the capacity and plans for continued growth in the coming years,’ he says. ‘Investment to date is around $15 million, with further development being tailored to meet the growing market demand, along with on-rail warehousing to provide the total logistics solution for the Albury–Wodonga region.’ With a long-term vision in place for industrial development, and the associated supply-chain advantages of the City’s strategic location, Albury is proving to be a winner for businesses, with the nous to move beyond the metro city limits. For more information on NEXUS and doing business in Albury, contact AlburyCity Economic Development: 02 6023 8268 ecodev@alburycity.nsw.gov.au www.alburycity.nsw.gov.au/nexus

The Hon Andrew Constance MP New South Wales Minister for Transport and Infrastructure Key points: • At $68.8 billion over the forward estimates, New South Wales is able to fund a record level of infrastructure because of asset and budget reforms. • The high level of committed investment in New South Wales does not yet include the projects funded from the electricity leases. • Strong partnerships with industry and the community sector are an important way to lead and shape the reform discussion. • The enlarged level of infrastructure activity in New South Wales is testing the public sector’s project management capabilities, but leaving a legacy of skilled procurers.

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We need to get politics out of infrastructure. Previously in New South Wales, politics took charge of infrastructure, and the community was left at an enormous disadvantage. Going forward, in New South Wales and all states, major political parties need to be on the same page in relation to infrastructure. This consensus is fundamental to reform. The poles and wires transaction in New South Wales is important to the community, and critical to the future prosperity of the state. The transaction was prosecuted successfully because the community understands that, through the recycling of capital, the Government is able to invest in more productive infrastructure. The other options were to raise debt or increase taxes to build infrastructure. However, our government chose to put in place mechanisms to recycle capital to start to reshape and rebuild New South Wales, and the results are now starting to show. The community is witnessing milestone mania in Sydney, with construction milestones achieved for the Sydney Metro Northwest and the International Convention Centre Sydney this week alone. The community is witnessing the Government getting on with building the programme promised to them. New South Wales is a growth state, and the progress is something to be excited about. As Minister for Transport and Infrastructure, my role is to ensure that we carefully plan our pipeline, and that we deliver our projects on budget and on time. As a government, we carefully consider the independent advice given to us by Infrastructure NSW and within the State Infrastructure Strategy, which was recently updated. This is an important tool that makes our long-term vision clear. To give us more visibility across the infrastructure programme, we’re implementing enhanced project assurance across the Government. We’re making sure that the right skills sit within agencies, and that the right

The Hon Andrew Constance MP

governance structures are in place to manage projects

poles and wires transaction. The New South Wales

well. The assurance function has become particularly

State Budget released earlier this year brought

important, allowing us to seek independent advice

forward around $590 million for the planning and

and expertise to identify risks, which must be

development of key Rebuilding NSW projects, to

addressed before we proceed with key decisions on

really turbocharge the Rebuilding NSW programme.

major projects.

A key feature of – and the game-changing public

There are currently more than 600 projects –

transport project within – the Rebuilding NSW plan

each with an estimated total cost of more than $10

is the Sydney Metro, which is advancing at a rapid

million – underway across the state. Over the forward

pace. The Sydney Metro project is going to be one of

estimates, the New South Wales infrastructure

those signature projects that will completely reshape

programme is some $68.6 billion; that is before the

the city. Sydney Metro will provide high-frequency,

$20 billion that is expected to be realised from the

turn-up-and-go, single-deck, driverless train services

Above: Sydney Light Rail concept Volume 5 6 Number 1

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The Hon Andrew Constance MP

from the north-west sector through Chatswood, and across Sydney Harbour. A separated line through the city will provide new stations at Barangaroo, Martin Place, Pitt Street and Central, and will continue to Bankstown. Sydney Metro is important because it will increase the capacity of the rail network by 60 per cent across the morning peak, enabling 200 trains to get to the city each morning instead of 120. We are excited about this project because it offers real improvements across the network, and therefore to the quality of life of citizens across the city, who will now be able to see more of their families, and get to work on time. Congestion is going to cost the state economy $8 billion every year by 2020, and regional communities will also be affected if we don’t do something. The Commonwealth Government should look very closely at supporting public transport, because the impact of congestion on the national economy is potentially huge. We have to improve productivity, and a key way to achieve this is to advance key passenger transport projects in our state capitals. Another important and visible project being delivered by the New South Wales Government is the CBD and South East Light Rail through George Street. I’m conscious that this project has the ability to impact upon the delivery reputation of this Government, so we’ve formed a strong partnership

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with the delivering consortium, and we’ve consulted extensively to ensure that the project is delivered in line with community expectations. We’re investing very heavily in a public awareness campaign to ensure that the community is aware of the disruption. I’m confident that when the project is delivered, George Street will become one of the great boulevards of the world. The developments in Sydney, both planned and underway, are going to create a truly remarkable transformation of the city. We have the new AMP building at Circular Quay, new hotel developments in and around the CBD, and upgrades and redevelopment in and around Wynyard Station, Barangaroo and the International Convention Centre. There are around 96 projects happening across the city at this time. It’s an extraordinary time for Sydney, and also one that requires careful management. That is why the Government has appointed the CBD Coordinator General to manage the difficulties that the city is going to experience during this challenging construction period. We believe we can make it work. From 2011 to 2031, Sydney will grow by 1.6 million people. There will be more than 27.5 million journeys occurring every weekday, as well as around 1.6 million freight and commercial trips. That population growth is equivalent to a population bigger than the size of Auckland, so planning has to

The Hon Andrew Constance MP

be done right, and projects have to be delivered that both address the growth and set us up for the future. Of course, the Government needs to work in partnership with the private sector to be able to do that. The private sector brings a level of innovation and discipline that the Government needs to leverage if we want to deliver the program successfully. From a regional perspective, $6 billion is earmarked for regional New South Wales from the poles and wires transaction. The agricultural and mining sectors need to be supported by that investment. Regional producers require efficient and reliable access to markets, and regional communities need quality and reliable services. In delivering projects, both in the city and in regional areas, it is important that investments have sound benefit–cost ratios, and provide wider economic benefits. New South Wales is an exciting place to be because, even by international standards, what is happening here is unprecedented. In the past, from a transport perspective, governments have embarked on one mega project every 10 years or so. At the moment, we are planning or delivering more than 30 high-profile projects across government, as well as the nation’s largest urban road and rail projects. Sydney has not seen this type of infrastructure investment before.

It is also important that we ensure that there is a perpetual cycle of infrastructure investment, which is very much about looking at the mechanisms of infrastructure funding, and extracting better outcomes from the infrastructure that we already have. The Government is spending $1 billion on Sydney’s Rail Future plan, which focuses on improvements to the Western Line. This project considers the intersection of freight and passenger rail, and invites better productivity outcomes and better use of existing transport assets. We need to look at other reforms, too, including value capture. This is an important concept, and one that we need to really look at more in the future; sharing the profit margin created by our investment in infrastructure, and using this to sustain our infrastructure delivery programme. Another factor that will contribute to sustaining a perpetual infrastructure investment cycle is the relationship between the Commonwealth and the states, and I am focused on working closely with the Federal Government to facilitate and grow infrastructure rollouts. It’s an exciting time to be the Minister for Transport and Infrastructure, and I look forward to working with my Ministerial colleagues and yourselves to deliver enormous benefits for generations to come.

The Hon Andrew Constance MP New South Wales Minister for Transport and Infrastructure Andrew Constance was elected to Parliament as the Member for Bega in 2003. Following the election of the O’Farrell Government in 2011, he was sworn in as the Minister for Ageing and Disability Services, where he championed the person-centred reforms that were necessary steps towards the National Disability Insurance Scheme (NDIS). In 2013, Mr Constance became the Minister for Finance and Services, with responsibility for many areas across government such as WorkCover, CTP, Sydney Water, Government Property, Department of Finance and Services, Office of State Revenue, Land and Property, and IT. His reform agenda included the decade of decentralisation, better utilisation of government property and assets, implementing the government’s IT strategy, and involving the private sector in service provision to improve efficiencies and savings to the New South Wales taxpayer. In April 2014, Mr Constance was sworn in as Treasurer, and added Industrial Relations to his responsibilities the following month. He handed down the 2014–15 State Budget, which delivered increased funding for infrastructure and child protection, and oversaw the scoping study for the ‘poles and wires’ transaction. Following the election of the Baird Government this year, Mr Constance was sworn in as Minister for Transport and Infrastructure. The Minister oversees some of the biggest infrastructure projects in the country, including Sydney Metro, which will see the construction of a second harbour rail crossing delivering more trains and faster services for the entire city.

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ROADS AND MARITIME SERVICES LEADING INNOVATION IN DELIVERY MODEL PARTNERSHIPS Roads and Maritime Services is an agency operating within Transport for NSW, and is responsible for implementing strategy and delivering customer-focused services in a costeffective manner. Roads and Maritime Services’ core business is to: • BUILD – delivering roads and maritime infrastructure • MANAGE – optimising customer journeys on our networks • MAINTAIN – maintaining more than $70 billion of New South Wales’s roads and maritime assets. Roads and Maritime Services’ purpose is in ‘enabling safe and efficient journeys throughout New South Wales’. Roads and Maritime has an enormous delivery task in the next five years, with an aim to build and maintain some of the country’s largest infrastructure projects. In June, the New South Wales Government announced a record $7.5 billion investment in roads, maritime and freight infrastructure, which was an increase of $2 billion from last financial year. The $7.5 billion total includes $4.1 billion for regional New South Wales projects, including fast-tracking the Pacific, Great Western and Newell Highway upgrades; $180 million to ease congestion in the Sydney CBD; and $1.5 billion for maintenance projects. ‘Roads and Maritime has been given a clear mandate from government: deliver a massive and growing program of major road infrastructure improvements on time and on budget,’ Chief Executive Peter Duncan says. ‘To achieve this, we will call on the skills and resources from public and private sector engineering industries. ‘New models and approaches for delivery are already being trialled across the New South Wales infrastructure sector. ‘We have had great success with alliance partnerships on some of the larger and more complex sections of the Pacific Highway upgrade, and we have entered into a delivery partner model for the final 155 kilometres.’ The Pacific Highway upgrade is one of the largest road infrastructure projects in New South Wales and Australia. The project includes providing a fourlane divided road between Hexham in

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Newcastle and the Queensland border by 2020 – weather permitting. Since 2011, the New South Wales Government has invested an extra $2 billion to the upgrade, with the Australian Government restoring the 80/20 funding split in 2013 (representing a federal contribution of $5.6 billion). About 397 kilometres (60 per cent) of the 657-kilometre upgrade is now completed, with about 150 kilometres, or the distance of the M1 Motorway from Sydney to Newcastle, currently being built. The remaining sections of two-lane highway, including from Glenugie to Ballina, are being prepared for major work. The Pacific Highway program office is responsible for overseeing the 657-kilometre upgrade, and is viewed as the benchmark for delivering major infrastructure projects across the state. The office has a strong focus on delivery resulting from a drive to lead a positive legacy. ‘A clear benefit of the program office is that it provides a single point of contact for the general public and key stakeholders, while also offering an integrated and collaborative office tasked with developing and delivering the upgrade program,’ Duncan says. In order to realise Roads and Maritime’s vision of ‘driving a better highway upgrade’, the program office has adopted a delivery partner model to successfully deliver Australia’s largest regional infrastructure

project – the final link in the Pacific Highway upgrade program: Woolgoolga to Ballina. ‘The delivery partner model is based on the approach used to oversee construction of infrastructure for the London Olympics, and supports collaboration and innovation by bringing businesses, workers, consumers and suppliers together,’ says Duncan. It encourages the best ideas and solutions from the private sector, while also drawing on knowledge to ensure better engineering and design, customer outcomes and public value, including: • greater access to resources and optimising resources from within the public and private sectors • greater flexibility in resource use, to better respond to delays and disruptive events such as flooding • better customer outcomes, through a consistent and coordinated approach • economies of scale, and better access to competitive suppliers and subcontractors • direct engagement of design, management and construction skills to fast-track the upgrade. ‘Using this model, delivery partner Pacific Complete (comprising Laing O’Rourke and Parsons Brinckerhoff) will work closely with the Pacific Highway Office to oversee the project and handle multiple contracts for professional services and building the $4.36 billion upgrade,’ Pacific Highway

General Manager Bob Higgins says. ‘Pacific Complete’s role is similar to a managing contractor/project manager role: packaging the work, carrying out the procurement and managing the contractors. ‘Roads and Maritime will remain the proponent and custodian of technical standards and policies, retain the “public face” for the project and make payments to contractors engaged by Pacific Complete.’ Pacific Complete has based its main office in Grafton, adjoining the Pacific Highway program office, with a number of additional satellite offices along the route. The total project value of the 155-kilometre Woolgoolga to Ballina Upgrade is more than $4 billion, and it is to be delivered by 2020. ‘In the past we have developed partnerships with the private sector to build major infrastructure. With such a large program of work to deliver, we are innovating by establishing partnerships to tap into management knowledge as well,’ Higgins says. ‘The development of the Pacific Highway Delivery Partner model has been built on the advice and collaborative feedback received from an extensive pre-expression-of-interest (EOI) process industry consultation. ‘The delivery of the Pacific Highway program has been paralleled by increasing sophistication in contractual relationships, and has fostered a growing appetite and appreciation for partnership.’

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Procurement models used for the upgrade include: • construct only • design and construct • design, construct and maintain • alliance partnerships. Choosing the right model for delivery includes consideration of key criteria, including: • project size and complexity • industry appetite and market forces • state of the delivery program • availability and cash flow of funding • improved public value for the funding.

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Important lessons have been learnt from the London Olympic Delivery Authority experience, such as: • certainty of funding is critical to fostering innovation and partnership • the objectives of the client must be clearly aligned with those of the delivery partner • the role of the client and the delivery partner must be clear and defined, yet complementary • the structure of remuneration and rewards must be designed to add

incentive to the delivery of the project objectives • the selection process for the senior management, and cross-fertilisation and sharing of key staff. The project objectives are clear: • significantly reduce road crashes and injuries • reduce travel times • reduce freight transport costs • support economic development • engage the community in the delivery of the highway upgrade and consider their issues, interests and needs • deliver the project in accordance with ecologically sustainable development (ESD) principles • manage the upgrade with a commitment to the safety of workers and the community • provide the best value for money • reduce the time frame for delivery of the project. The contract framework for the Woolgoolga to Ballina delivery partner contains unique features to ensure the smooth collaboration between the Pacific Highway program office and Pacific Complete. The contract framework also aims to maximise the benefits of having an agency and private sector partnership. Some of the features include: • management fee – direct costbased fee • delivery partner margin – incorporating corporate overheads and profit, and ensuring that staff are incentivised and retained • risk allocation, with a commensurate rewards structure based on delivery against key performance indicators (KPIs); Roads and Maritime Services secures principal arranged insurance covering loss and damage to works, along with public liability, while the delivery partner must obtain professional indemnity insurance (importantly, the management fee is not at risk under the proposed framework) • the tenderers have been asked to propose an incentive scheme designed to foster cost-saving and time-saving solutions. ‘We have come a long way in the development of our relationship with private sector partners,’ Duncan says. ‘This awareness has resulted in the development of respect and trust, and an appreciation of the skills and expertise available to us from private sector infrastructure providers. ‘This growth and strengthening of partnerships has led to the implementation of a new partnership approach, which was

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successfully used in the delivery of the London Olympic Games by the Olympic Delivery Authority.

‘In 1987, special legislation was enacted for the first major private sector partnership, with Transfield Kumagai Joint Venture to

design, build and operate the Sydney Harbour Tunnel. Since then, we have developed our appreciation for the role of private sector expertise. ‘In time, we have developed partnerships that have assisted our in-house teams to define scope, achieve cost savings through value engineering, and help with tender evaluation and project delivery. ‘We started with the contracting of construction packages. We moved to design and construct projects. We then developed design, construct and maintain projects. ‘For motorway expansions, we led Australia in build, own, operate, transfer (BOOT) contracts with the M4, M5, M2 and Eastern Distributor motorways.’ Roads and Maritime has moved towards increased collaboration with industry, and has developed contracts with equitable risk sharing. The agency has also moved towards seeking earlier private sector involvement during the procurement process. ‘It is certainly an exciting time to be part of the infrastructure delivery task in New South Wales,’ Duncan says. ‘The next few years will provide both challenges and innovative solutions as we meet the government’s mandate.’

Pacific Highway upgrade • • • • • • • • •

Sixty per cent of the highway has been duplicated to four lanes between Hexham and the Queensland border. About 150 kilometres of highway is currently being built, which is the distance of the M1 motorway from Sydney to Newcastle. There are about 3000 workers employed directly on Pacific Highway worksites. At peak building, there will be 4000 direct jobs and 12,000 indirect jobs on Pacific Highway projects. More than 2000 nest boxes have been installed along projects currently underway, to minimise impact on native animals. A total of about 14 million cubic metres of material will be moved as part of building the Woolgoolga to Ballina project. To put that in context, there are about 2500 cubic metres in a standard Olympic-sized swimming pool. Journey times for light vehicles have been reduced by almost 1.5 hours. Journey times for heavy vehicles are down by 1.75 hours. The number of fatalities has been cut by more than half, from the high 50s to the low 20s.

General The New South Wales road network is 184,859 kilometres, and includes: • 18,000 kilometres of state roads, including 4300 kilometres of national road network • 150 kilometres of privately funded toll roads • 2900 kilometres of regional and local roads • 5200 bridges and major culverts, and 23 tunnels • 4000 traffic signals, and more than 12,000 other road traffic facilities • 5000 square kilometres of enclosed waters • 27,691 square kilometres of coastal waters to 12 nautical miles • 49 commuter wharves • 3418 aids to navigation, including 191 courtesy moorings, on New South Wales waterways.

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Key points:

The Hon Bill English New Zealand Deputy Prime Minister

New Zealanders try very hard not to give Australians advice. In fact, we never do. I know there has been a lot of discussion in Australia regarding reform, and also the New Zealand economy. As nations, our numbers are very similar, and we’re both dealing with the same parts of the business cycle now, with sharp drops in commodity prices, unemployment rates flat to potentially rising a bit, and the challenges of ongoing microeconomic reform that is going to underpin future productivity. One of the important differences over recent years was the New Zealand experience of the global financial crisis and the Christchurch earthquakes. From a politician’s point of view, these were decisive and unambiguous events that required change. The New Zealand Government that was elected into office in 2008 did not have to make the argument that New Zealand had to do some things differently and better. The public had already voted on it, moving on from the previous administration, and was ready to make the changes it needed to make. By contrast, Australia holds the longest record of any developed country for not having a recession. It is a real challenge for politicians to make a case for change when it’s not obvious to the public that 80

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• New Zealand is changing the structure of its national budget reporting from cash surplus (like Australia) to better reflect whole-of-life, whole-ofgovernment costs. • Transparency about the problem will guide better policymaking for infrastructure and for recurrent budget costs. • New Zealand is now beginning to reform its social housing sector, with its first projects in the market. • New Zealand is working with IPA and the Australian Government to develop common market settings and mutual recognition to make it easier to access investment opportunities between Australia and New Zealand.

there is a requirement for change. Australia is still the lucky country. People are still getting their pay rises, and Sydney is in the heart of an infrastructure boom that is going to run for 10 years or so. There are many signs that justify optimism about the Australian economy, even if some states are struggling because of the economic impacts of the mining downturn, or the drop in the coal price. Economic circumstances in New Zealand made it a lot easier to do some of the things we’ve done – such as the tax switch, where the goods and services tax (GST) was increased and the income tax was decreased. We have had a major recession, and New Zealanders understood that reform was necessary; and because this was in exchange for a cut in income tax, investment and employment were encouraged. In New Zealand, we are very keen to see the ongoing development of a trans-Tasman infrastructure market. While the New Zealand market does have some unique characteristics, our key message is to think about New Zealand not as a distinctly different market, but as part of the Australasian infrastructure market. There are some that use the analogy of New Zealand being an extra Australian state. In that sense, we want to develop a greater

The Hon Bill English

commonality of understanding around contracts and how they’re written; for example, by standardising the terminology used. For context, one of the least obvious reforms on which New Zealand has recently embarked is to have the best public balance sheet in the world. We have spent a lot of time understanding what it is that the government owns, to lift the performance of the balance sheet. Public service and government capital generally drops out of the sky; wasting it is usually politically useful, because you get to cut ribbons. We have a balance sheet of NZ$250 billion (A$222 billion), which is much smaller than some Australian state governments. The fastest-

growing part of the balance sheet is ‘funds under management’ through some of our larger future liability funds, such as the Accident Compensation Corporation (ACC) and the New Zealand Superannuation Fund. The fastest-shrinking part of the balance sheet is commercial businesses. One of them, a coal company, has just gone into voluntary administration. While such businesses are owned with the best of intentions, governments are very poor at managing commercial risk. Our infrastructure policy sits in that context. What is most important to us is not only the new projects – although, of course they matter, and we come to Australia regularly to learn. What matters more is the

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The Hon Bill English

management of existing infrastructure. What a lot of governments don’t understand is that the operating spend, like in many businesses, is significantly driven by the failure to effectively manage capital. Week after week, the cheques we are writing out are because of poor decisions made at any time up to about 50 years ago. Social housing is currently a large challenge in New Zealand. The politics around social housing have locked us into the demographics of the 1960s. We haven’t been allowed to sell anything because of a deep belief we have in New Zealand that you can’t sell a state-owned house. We have embarked on a large-scale reform programme. New Zealand’s state housing is a $22 billion ($19.5 billion) asset that needs substantial upgrades. The New Zealand Government is the owner of one in every 16 houses in Auckland, but home ownership is not a specialised activity. Ordinary people own around 95 per cent of our houses, and they are not regulated or licensed, they have no public policy experience, and they seem to manage the asset rather well – in most cases, better than any government. Social housing will potentially be the biggest and most obvious area of investment opportunity in New Zealand over the next decade. There are around 10 projects in the pipeline that I believe could be of interest to industry. The New Zealand Government’s commitment to better management of existing infrastructure was detailed in the recently released New Zealand Infrastructure Plan. The Plan has a number of similarities to the Australian Infrastructure Audit published by Infrastructure Australia. The difference, as told to me by Australians, is that in New Zealand, the Plan can be executed because we have built a strong consensus in industry. In regards to underperforming infrastructure assets, the New Zealand Government can approach these issues more effectively if we focus on performance, rather than on ownership. The worstperforming sector is water. Water is owned by a very wide range of small, and some large, local councils, which want to retain ownership. The New Zealand Government is developing metadata standards to enable comparison on performance, given that approximately 50 per cent of the water network is classified as unrated. 82

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The Hon Bill English

There is a big job to do. A lot of the skills we are seeking are not in project management, but are in the analytical capacity to transparently measure performance across the balance sheet, right across the asset base – not just in new projects. We are developing corporate, Treasury-like disciplines for our physical balance sheet. We want to be able to report quarterly on exposures across the balance sheet. We are exposed to interest rates, exchange rates and earthquake risks, all of which drive our operating expenditure. In addition to a strong focus on the physical balance sheet, we are focusing on what we call a ‘comprehensive balance sheet’. The comprehensive balance sheet combines the physical balance sheet – roads and other infrastructure – with our future liabilities in assets and the projected cash flows, to give us a comprehensive net worth of the Government. It is my view that this is a better indicator of the health and resilience of government finances over a 25- to 30-year period. We don’t expect to govern for the whole time, but there will be a government in place, and an annual cash measurement of a surplus or deficit. The net present value of future tax flows, as well as the net present value of liabilities, is assessed on the comprehensive balance sheet. There is an actuarial calculation for liabilities. For example, 285,000 people on welfare, which, in the last six-monthly report, was a cost of NZ$76 billion (A$68 billion). We know that we will spend NZ$76 billion (A$68 billion), in today’s dollars, paying out welfare to the current population. Looking across the balance sheet, this liability is the most amenable. Looking at the future burdens on the operating cost of government, while improvements to physical infrastructure – such as project transparency and whole-of-life asset management – are important, the liabilities are not as big as improving human capital. We have the opportunity to model predictions around human capital much better now than ever before. We have 50,000 people in New Zealand with bad backs and depression, and their future liability is around NZ$17 billion (A$15 billion). Currently, the only thing that the Government does with these people is pay them a long-term benefit. We will be able to afford more infrastructure and support more people on pensions if we can spend small amounts of money to fix the 23-year-old with a bad back and depression. These 50,000 people currently stay on

our balance sheet for 22 years. If we do nothing, the main reason they leave is because they die, or receive superannuation. We can change that, and, in many respects, this issue is easier to address than a lot of the other problems that the Government is trying to deal with. We are just taking the kind of investment analysis that the business sector uses every day, and applying it with negative signs instead of positive signs to our welfare and other liabilities. In another six or 12 months, we will be able to show individual liability and data on welfare, housing, and correctional and educational underachievement by family. For about 15 per cent of the population, we will be able to do this by individual. Then we will do what you would do with any asset, and that is to work out what up-front capital investment you can make that will have an impact on reducing large negative cash flows. Most new social spending, which is of a much greater quantum than the operating maintenance and finance cost of physical infrastructure, is the product of poor and ineffective prior spending. Government is the only institution in developed countries that consistently rewards failure handsomely by giving it more money to make sure that it fails again. Often, what a government can do to enhance productivity and growth in the economy is run its own business properly.

The Hon Bill English New Zealand Deputy Prime Minister The Hon Bill English is the New Zealand Deputy Prime Minister, Minister of Finance and the Minister Responsible for Housing New Zealand Corporation. He was first elected to Parliament in 1990 as MP for the Wallace electorate (later re-named CluthaSouthland), and served as the local MP for 24 years until he stood down as an electorate MP in 2014. Mr English has held ministerial posts in education, health, revenue and finance, and he was leader of the National Party from October 2001 to October 2003.

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DOWNER – RELATIONSHIPS CREATING SUCCESS Downer is a leading provider of infrastructure services in Australia and New Zealand, supporting its customers through the life of their assets – from initial feasibility and design, through to construction, production and operations, as well as eventual decommissioning. Downer builds strong relationships of trust with its customers, truly understanding and predicting their needs, and bringing them world-leading insights and solutions. Zero Harm is embedded in Downer’s culture. This means sustaining a work environment that supports the health and safety of Downer’s people, and minimises Downer’s impact on the environment. Downer’s extensive infrastructure capabilities include: • Road services – Downer offers one of the largest non-governmentowned road infrastructure services in Australia and New Zealand, maintaining more than 40,000 kilometres of road in Australia, and more than 32,000 kilometres of road in New Zealand. • Rail – Downer has more than 100 years’ experience delivering total rail asset solutions for its passengers and freight customers. Downer has an extensive national footprint in key rail locations across Australia, and its through-life-support service includes a 24-hour fleet control centre. • Light rail – The Keolis Downer joint venture is Australia’s largest provider of multimodal public transport. Keolis Downer operates and maintains the world’s largest light rail network, Yarra Trams in Melbourne, and also the Gold Coast light rail system in Queensland. • Technology and communications services – Downer provides an endto-end service, with offerings across fibre, copper and radio networks in Australia and New Zealand, for customers including nbnTM, Telstra, Foxtel, Chorus, Spark and Vodafone. • Renewable energy – Downer is one of Australia’s largest and most experienced providers in the renewable energy market, offering design, build and maintenance services for wind farms, wind turbine sites, solar farms, landfill, methane generation plants and biomass-fired cogeneration plants. Downer’s experience in wind farms

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includes Collgar (Western Australia), Boco Rock and Taralga (New South Wales), Lake Bonney (South Australia), and Mount Mercer and Ararat (Victoria). Power and gas – Downer maintains more than 62,000 kilometres of electricity and gas networks across more than 115,000 square kilometres in Australia, and every year it connects 35,000 new power and gas customers. Over the past three years, Downer has erected more than 1000 steel lattice transmission towers. Water – Downer provides complete water life cycle solutions for municipal and industrial water users in Australia and New Zealand, with expertise including waste and wastewater treatment, pumping

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For more information about Downer, visit www.downergroup.com.

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Digital engineering: New Generation Rollingstock project – Maintenance Centre, Ipswich Queensland

CHALLENGING THE IMAGE OF THE CONSTRUCTION INDUSTRY Laing O’Rourke is a $7 billion global construction company that has been involved in the delivery of major infrastructure projects across Australia for more than 50 years. As Australia’s largest privately owned construction and engineering organisation, Laing O’Rourke has delivered some of the largest and most technically complex projects in building construction, railway services, materials handling, and marine and civil infrastructure. It has also provided a range of support services to the oil and gas, resources, transport, defence, health, commercial and industrial sectors. Laing O’Rourke is committed to challenging the image of the construction industry wherever it goes to work – whether it is through technology and innovation, materials, methods and processes, procurement routes, strategic partnerships or the industry’s best people. In an Australian first, Laing O’Rourke – as part of an entity known as Pacific Complete – will deliver the New South Wales Government’s Woolgoolga to Ballina Pacific Highway upgrade using a delivery partner model. This approach is similar to the one that Laing O’Rourke helped to deliver for the London 2012 Olympics, and was crucial to the Games’ infrastructure being commissioned on time, and within budget. Laing O’Rourke’s commitment to digital engineering will play a large role in the Woolgoolga to Ballina project, as it does across the company’s diverse portfolio of work.

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The company’s use of state-of-the-art digital prototyping technology enables the integration of data about a project’s design, construction and future function to develop the most efficient methods of delivery and operation. Laing O’Rourke believes that by using such advances, projects can be more efficient, cost-effective, safe and sustainable. This not only benefits Laing O’Rourke, but also its clients and end users, transforming the way that projects are delivered and operated for the built environment. This ‘build twice, once virtually’ mantra facilitates better design, and helps identify and eliminate risks that might arise later down the line – offering greater predictability of price and program. Digital engineering has become integral to the way that the company operates, and is increasingly being adopted as the standard of the future. Design for manufacture and assembly (DfMA) is also integral to the way that Laing O’Rourke delivers projects. Developed

within the business almost a decade ago, it is a demonstrated method for improving project outcomes, and for providing improved worker safety, increased product quality, and increased surety of project delivery. The prevalence of remote projects in Australia poses a significant project resourcing issue, which provides many opportunities for the application of DfMA. Laing O’Rourke’s investment in modularisation allows the company to address construction and engineering challenges before work begins on site – instilling confidence in methodologies, program and budget. Using automated processes to manufacture construction components in a controlled off-site environment, DfMA allows the calculation of material requirements with absolute precision, eliminating waste from the outset. Laing O’Rourke is committed to the continuous pursuit of innovation to secure Australia’s sustainable infrastructure future.

Pacific Highway Upgrade, Woolgoolga to Ballina All remaining sections of the Pacific Highway on the north coast will be upgraded to four lane divided dual carriageway under the $4.3 billion Woolgoolga to Ballina project.

Laing O’Rourke Engineering the future Roads and Maritime Services has engaged the Pacific Complete consortia, including Laing O’Rourke, to partner with the Pacific Highway Office to deliver the Woolgoolga to Ballina Pacific Highway upgrade. The $4.3 billion project is Australia’s largest regional infrastructure project and

is being delivered using a Delivery Partner model similar to the role we played in program managing the London 2012 Olympics infrastructure. The project involves the duplication of 155 kilometres of road to a four-lane divided road on the Pacific Highway.

NGRS Maintenance Centre, Wulkuraka Laing O’Rourke is delivering a purposebuilt $190 million train maintenance centre, as part of the Queensland Government’s New Generation Rolling Stock Project

Stadium Rail Project, Burswood Laing O’Rourke and AECOM – as the PRISM Alliance – are delivering Perth’s newest transport link, the $100 million Stadium Station.

Moorebank Units Relocation, Sydney

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Laing O’Rourke will this year complete the $870m Moorebank Units Relocation project for Defence - the largest capital works project for the military since World War II.

The Hon Anthony Albanese MP Shadow Minister for Infrastructure and Transport, Shadow Minister for Cities, and Shadow Minister for Tourism

Key points: • Public sector debt is a sound and prudent way to fund the intergenerational costs of major infrastructure. • The growing and unmet demand for infrastructure services, particularly public transport in cities, will practically require national government assistance. • Infrastructure Australia is an important agency, and has an ongoing role to champion reform and depoliticise key aspects of the infrastructure debate.

At a time when our economy needs extra activity to make up for the drop-off in investment associated with mining, our nation needs to invest in infrastructure to drive productivity growth. However, there is a problem with the process of identifying, developing and funding major infrastructure projects in this country. Australian Bureau of Statistics figures show that infrastructure work conducted for the public sector has declined by 19 per cent since the 2013 election. This year’s Budget included a $2 billion cut in infrastructure spending over the next two years. This makes no sense. Interest rates are at record lows. Private-sector investors are looking for opportunities. The amount of money held by superannuation funds in this country is approaching 88

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$2 trillion. Despite these factors, investment is not happening at the required pace. My starting point to address this problem is consistent with the approach that I have raised over many years. Adherence to a proper process when it comes to selecting which infrastructure projects receive government funding is important. The Commonwealth needs to work with state governments on delivering the infrastructure projects that have the greatest potential to lift our economy. That means investment in roads, and investing in urban rail to properly address worsening traffic congestion. As a country, we also need to get more serious about facilitating private investment. However, there is no need to reinvent the wheel here – a new system isn’t needed. We just need to extract the politics from the existing system. This needs to be done strategically and urgently, especially at a time when the national economy has grown below trend for 12 straight quarters, and when the domestic economy has been consistently weak since 2013.

Deficit The rhetoric of our times flouts reality in relation to asset recycling. There is no additional Commonwealth funding associated with asset recycling. The money

The Hon Anthony Albanese MP

that the Federal Government says it has made available was, in itself, recycled – taken out of the Building Australia Fund and the Education Investment Fund. What is being presented as some kind of increase in funding is, in fact, a means for the Commonwealth to raise more revenue, because when a public asset is sold, the instrumentality stops paying dividends to the state government, and begins paying tax to the Commonwealth. There is no new money. Indeed, on projects like the Pacific Highway and the Bruce Highway, the Federal Government has put arrangements in place that have reduced state investment in these important upgrades. Every project under construction on the Pacific Highway right now, including the Frederickton to Eungai, Warrell Creek to Nambucca Heads, and Nambucca to Urunga sections, is funded under a 50/50 agreement between the Commonwealth and the states. The Commonwealth is now saying that states only need to contribute 20 per cent of funding for road projects, and New South Wales is already above that reduced threshold across the project. That means that New South Wales can minimise its contribution to the rest of the upgrade of the Pacific Highway, and that the Federal Government is slowly shifting its funding to future years, for the remainder of the Woolgoolga to Ballina upgrade sections.

Labor’s record In 2007, the former Labor Government created Infrastructure Australia as an independent adviser to Government, tasked with assessing the merits of major projects seeking Commonwealth funding. Infrastructure Australia used cost-benefit analysis to give decision-makers clear evidence about which projects had the greatest potential to add to national economic productivity, with a simple aim to break the link between the infrastructure cycle – which, by its nature, is long-term – and the political cycle, which is shorter. Infrastructure spending was lifted to record levels. When the former Labor Government took office, Australia was 20th among OECD nations when it came to infrastructure investment as a proportion of gross domestic product (GDP). When we left office, Australia was first. We doubled the roads budget, and we allocated more investment to public transport than all other governments combined since Federation.

Erosion of process By 2013, Infrastructure Australia was up and running. Based on its research, the organisation was producing the annually updated ‘Infrastructure Priority List’. Of the 15 major projects recommended by Infrastructure Australia on the basis of its independent analysis, Labor funded all 15. Among those projects were major urban public transport projects, including the Melbourne Metro project and Brisbane’s Cross River Rail project, both of which were assessed positively by Infrastructure Australia. Two years later, it is concerning that the current government has abandoned the Infrastructure Australia model. The Infrastructure Priority List has not been updated since 2013, and only a handful of new project assessments have been completed in the past two years. Prior to the 2013 election, the Coalition backed Infrastructure Australia. It promised that it would not fund any project worth more than $100 million without a full, published cost-benefit analysis. But after the election, it withdrew all funding for public transport projects, including the Infrastructure Australia-approved Melbourne Metro and Cross River Rail projects. This money was then allocated to a range of road projects that had not been analysed by Infrastructure Australia. Part of the reason for creating Infrastructure Australia was to establish a pipeline of Volume 6 Number 1

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projects that had already been assessed as worthy, to which both sides of politics could commit. I know that if I were an investor looking at the possibility of investing in public infrastructure, I’d want to be certain that projects coming forward stacked up. If I couldn’t satisfy myself that a project stacked up, I’d take my money elsewhere. I fear that is what is happening right now. That great fictional detective Sherlock Holmes once highlighted the folly of acting without evidence, saying, ‘It is a capital mistake to theorise before one has data. Insensibly, one begins to twist facts to suit theories, instead of theories to suit facts’. There is a fair bit of fact-twisting going on right now in Canberra.

Public transport I suspect that if Sherlock Holmes had a chance to examine the current state of Australia’s transport infrastructure, he would argue for significant investment in public transport. The recently produced update of Infrastructure Australia’s National Infrastructure Audit said that traffic congestion was costing Australia $13 billion this year, and that the figure would climb to more than $50 billion by 2031. Yet, our Federal Government refuses to invest in public transport – only roads. Our nation will never defeat traffic congestion unless we invest in a properly integrated transport system that includes rail and roads. If traffic congestion, or indeed any other problem, was costing the nation more than

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$50 billion a year, I would have thought that any competent Commonwealth Government would feel compelled to act in the public interest. But on public transport, we are seeing the opposite: a withdrawal of funding, and a return to the soul-destroying blame game that dominated the dying days of the former Howard Government. Frighteningly, congestion is getting worse. In previous decades, jobs growth was at its strongest in the outer suburbs of our cities, in sectors like manufacturing. Average workers could find work in the suburbs near their homes. But the digital age has changed the equation, and jobs growth is now accelerating in the inner suburbs of our cities in the services sector. Many Australians, therefore, are being forced to work in the city and commute from drive-in drive-out suburbs where they can find a house, but can’t find a job. This is a problem affecting millions of Australians who are watching their quality of life go down the drain on a daily basis.

Debt One of the downsides of the strongly partisan nature of Australian politics in recent years has been the irrational demonisation of debt. After years of scaremongering about an alleged debt and deficit crisis, the current Government has convinced many Australians that all government debt is bad. While debt does need to be kept low, it is time for an honest conversation about the significant

The Hon Anthony Albanese MP

difference between debt raised for capital expenditure and debt raised for recurrent expenditure. Capital expenditure that increases revenue and national economic activity over time can be fiscally responsible. Making investments to support future sources of growth and drive productivity improvements is as much a part of a business development strategy as it is a part of smart management of the national economy. It can be argued that such spending is economically and fiscally necessary, even though it imposes short-term costs on the Budget. This applies across the spectrum of Commonwealth expenditure – from public investments in human capital (such as education), to investments in physical capital (such as productivity-enhancing infrastructure projects). If a project delivers significant productivity benefits, the productivity gain should be factored into the equation when considering funding options. If a project drives gains that produce jobs and economic growth, we should factor the value of those jobs into our evaluation. Governments should be prepared to have the argument about borrowing to invest in productivity-enhancing infrastructure. The first step towards having that discussion is an acceptance that the nature of the expenditure and investment needs to be assessed and considered differently. However, if such an approach is to be taken, we need to be doubly sure that we identify projects that have genuine community benefit. Once again, that brings us back to the Infrastructure Australia model. It stresses research. It allows for rational decision-making. Australian families borrow money all the time – usually to buy their homes. They don’t decide that because they have to borrow money to buy a home, they won’t bother and will rent for the rest of their lives. But before they borrow, they do their research and ensure that they pay the right amount for their home, that it meets their family needs and that, over time, it will appreciate in value. There is no reason that the situation should be different when it comes to government investment in infrastructure.

Financing In July 2013, I released a suite of policies aimed directly at facilitating new private-sector investment in infrastructure. These arrangements were developed by the Infrastructure Finance Working Group, which included Infrastructure Partnerships Australia’s Chief

Executive, Brendan Lyon, along with senior public servants and representatives of the infrastructure, banking, superannuation and taxation sectors. Let me take the time to explain those arrangements, because they will be the starting point for a future Labor Government. The proposals included: • Australian Government guarantees for private debt relating to major projects to improve their overall creditworthiness • phased payments and availability payments, allowing government injections of capital at critical stages during projects, including once a project is operational • Commonwealth seed funding to get projects off the ground • capital recycling, whereby the Commonwealth provides concessional loans to industry and uses the repayments to fund other infrastructure projects • infrastructure tax incentives, such as allowing the uplift of carry-forward losses determined by the 10-year government bond rate, to remove tax system impediments that work against investment. Building on these, in May this year Labor announced that, if elected, we would ensure that Infrastructure Australia’s mandate be extended so that it plays a key leadership role in facilitating infrastructure projects. It will work with the states, private sector financiers, super funds and constructors to broker deals, get more projects underway, get them financed, and have them delivered. To take the politics out and restore faith and confidence in the infrastructure process, we also undertook to consult the Coalition on all board appointments.

Flexibility in practice In 2013, as Transport Minister, I reached an agreement with the New South Wales Government and Transurban for construction of the F3 to M2 link, later renamed NorthConnex. NorthConnex is an example of an unsolicited bid that will produce nation-building infrastructure with little impact – or perhaps even no impact – on the Budget in the short term, and a positive impact in the medium and longer term through enhanced growth, increased productivity and a reduction in urban congestion. Under the project arrangements, the Commonwealth and the New South Wales Volume 6 Number 1

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Government are each providing a guarantee of $405 million to ensure that a project that had been talked about for decades, but had not progressed, could occur. Another example of working with the private sector is the Moorebank Intermodal Terminal in western Sydney, which will provide major productivity benefits, as well as taking 3300 trucks off the road network every day. This required the establishment of a government-owned company to invest in the site, and do the early work prior to it being leased to a private operator. The former Labor Government also reached a deal with the Queensland Government to provide $715 million in seed funding for the Cross River Rail project. The money was to have been paid over five years. We also agreed to pay half of the capital cost portion of the availability payment stream for a public-private partnership (PPP) component over about 30 years, and to provide a debt guarantee in relation to the private debt raised for the project by the PPP consortium. I am very disappointed that the current Government abandoned this project; but what is truly stunning is that the Government has not taken advantage of the great work of the Infrastructure Finance Working Group in informing its subsequent decisions.

It should be linked from day one to the south-west line at Leppington and the main western line, which would not only benefit commuters to the airport and employment precinct, but would also create a loop line around Western Sydney that will have enormous wider benefits. If we are smart, we can deliver on this ambition without a significant public cost for the railway line. The cost of this rail line should be factored into the lease price for the operation of the airport, whether it is operated by the Sydney Airport Corporation or some other operator. The existence of a railway line will increase the value of the airport and the lands around it. That’s an uplift factor that the Government can include in the contract price, and that the operator can include in sublease arrangements over surrounding land.

Conclusion Infrastructure development is about more than building roads. It’s about nation-building, and positioning our economy to create the jobs of the future. It’s also about thinking about how different pieces of infrastructure fit together. Most of all, it’s about having a long-term view. It’s hard to take a long-term view if decisions

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about infrastructure are compromised by short-term

To its credit, the current Government has committed to developing a second Sydney airport. The Badgerys Creek Airport will boost national economic productivity and provide much-needed jobs for residents of Western Sydney. A project like an airport, with all of its accompanying issues, can’t get off the ground without bipartisan support. That is why Labor is backing this project. It does not make sense, however, to open an airport without rail connections in place. Some have rightly observed that without a proper rail connection, the airport risks not fulfilling its objectives. The Commonwealth needs to broaden its thinking. The Badgerys Creek Airport can be an ‘airtropolis’ that drives economic development and jobs growth throughout Western Sydney for decades to come. It should be more than just a runway and a terminal. It should be surrounded by businesses in industries like logistics, tourism, engineering and aviation services. It should facilitate high-value jobs, like the Macquarie Park precinct has for the area around Ryde.

political considerations. That’s why the former Labor

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Government created the Infrastructure Australia system to reduce the influence of politics in decisions about infrastructure. After two years of the current Government, it’s now clear that there has been more infrastructure talking than infrastructure building. As the mining boom moves from the construction to the production phase, this is the very last thing we need. Australia must invest scarce public resources wisely, and the Commonwealth and states must work together in the public interest. There must be a genuine partnership with business, based on flexibility and on ensuring that the projects that are put forward produce decent returns. The

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infrastructure is proper research. That is why Infrastructure Australia needs to be at the centre of government, where it belongs. This is an edited transcript of Mr Albanese’s address.

The Hon Anthony Albanese MP

The Hon Anthony Albanese MP Shadow Minister for Infrastructure and Transport, Shadow Minister for Cities and Shadow Minister for Tourism Anthony Albanese was re-elected the Member for Grayndler at the September 2013 election, and is currently the Shadow Minister for Transport and Infrastructure, the Shadow Minister for Cities and the Shadow Minister for Tourism. Mr Albanese has been a Member of Parliament since 1996, and believes strongly in the need for government to invest in local communities. This includes Federal Government investment in public transport to address the issue of urban congestion. Following the election of the Federal Labor Government in November 2007, Mr Albanese became the Minister for Infrastructure and Transport, and Leader of the House of Representatives. Mr Albanese was named Infrastructure Minister of the Year for 2012 by London-based publication Infrastructure Investor. In June 2013, he became Deputy Prime Minister, and also took on additional responsibility as Minister for Broadband, Communications and the Digital Economy. Mr Albanese is committed to growing our communities in regional and metropolitan areas, and believes that infrastructure and transport have a crucial role to play in achieving this.

PORT OF GEELONG 13 million tonnes of cargo a year supporting 5,000 jobs

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PILBARA FROM

Whether we’re working on track in the Pilbara or an inner-city passenger line, we provide turnkey solutions to the transport services sector. Responsible for the operation or maintenance of more than a third of Australia’s rail network, John Holland offers a whole-of-life approach to railway infrastructure. That’s why we’re one of Australia’s leading engineering, contracting and service providers, providing innovative, high-performance engineering and construction solutions for more than 65 years.

PASSENGER TO

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GETTING MELBOURNE MOVING – LEVEL CROSSING REMOVAL PROJECTS IN FOCUS A level crossing removal is never simple. The delivery of level crossing removal projects is a specialised skill – a skill that John Holland has been honing for nearly 10 years. It is all part of the history of a business that has grown, diversified and innovated for more than 65 years.

The Executive General Manager for Rail, Richard Stewart, says that John Holland has an extensive history in the delivery of level crossing removal projects, including the Middleborough Road Rail Separation and Mitcham Level Crossing Removals projects in Melbourne. ‘Level crossing removal projects have significant community benefits – they improve safety, they improve network efficiencies, they reduce congestion on our roads and they often increase rail patronage by creating a less interrupted journey,’ Stewart says. ‘John Holland has more depth in this field than any other contractor, with our combined experience in rail, building and infrastructure. We can lay the track, and build the stations and dig the tunnels.

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‘Our rise to become a market leader in the rail sector has been a result of a vertically and horizontally integrated strategy to railway infrastructure delivery, including civil, buildings, stations, rail operations and train operations, resulting in a unique value proposition in the market. ‘I do believe we are unique in the market – there are railway operators, railway maintainers and railway constructors, but there is no other company that offers the full life cycle. ‘Our portfolio, which includes operations and maintenance of more than 30 per cent of Australia’s rail network, means we understand the network owner’s needs. We know how vital it is to keep the trains and their passengers moving.’ Given the brownfield nature of these projects, level crossing removals can cause

disruptions and disturbances in the local area and community. As such, the importance of meeting and improving on projected schedules is critical. ‘When you’re causing these disruptions to local communities, the quicker you can get out of there and let them get back on with minimal disruption, the better it is. I think we’re well recognised for achieving that among the communities in which we’ve worked,’ Stewart says. ‘Through our ability to self-perform the majority of works, and a large in-house engineering and project management capability, we utilise innovative brownfield construction techniques to keep the rail lines and neighbouring roads open as much as we can, and to maximise productivity through modulisation,

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prefabrication off site, and direct control of scope delivery.’ Other recent projects to benefit from the John Holland service offering include the North Strathfield Rail Underpass in Sydney, and the Perth City Link. ‘The North Strathfield utilised our integrated tunnelling, track, signalling, power, overhead wiring and civil infrastructure capability to successfully tunnel under live operating, to separate the freight and passenger rail lines at North Strathfield. The project was undertaken within a complex inner-city section of the rail network,’ says Stewart. ‘The Perth City Link reconnected the city centre with Northbridge for the first time in more than 100 years, which is an incredibly important development for the local community. ‘The project involved sinking a 600-metre section of the Fremantle rail line to reconnect the CBD with Northbridge, the construction of a new pedestrian underpass connecting Perth and Perth Underground stations, and major upgrades to Perth Station. ‘John Holland’s growth in the rail sector has been driven by the innovation of its people. Our tagline is “Powered by People” – I think that is at the centre of our work culture. ‘Innovation and care are two of our core values, and we are really focused on enhancing the wellbeing of our people, and the communities in which we work. ‘As part of our projects, we consider it crucial to give back to the community. On the Regional Rail Link project, we developed a community mural and built an outdoors gym for local residents. ‘Our employees have also undertaken many hours of volunteering, and assisted many local organisations, including schools. ‘On the South Morang Rail Extension project, we ran bus tours, commuter coffee mornings and information sessions. The project team worked with Camp Australia to host a school holiday program for children from local schools. The two-day program was located on site in a designated safe area, and the children received a backpack full of goodies, including their own hard hat, vest and disposable camera. Activities involved a site tour, games and a visit from a reptile handler.’ John Holland was recently purchased by China Communications Construction Company International Holdings (CCCC). CCCC is one of the world’s largest infrastructure construction companies, and is currently ranked number 187 on the Fortune 500 list, and fourth in Global Contractors by Engineering News Record (ENR). It is well recognised for technical expertise and execution of complex infrastructure, including bridges, high-speed rail, deep-water port development and social infrastructure.

‘The new ownership offers us an exciting opportunity to provide customers access to global supply chains and engineering technology, further enhancing our unique service offering. This means we are exceptionally placed to build upon a legacy of delivering life-changing projects here in Australia, and internationally.’ John Holland’s experience covers a wide range of contracting and services capabilities, from building and civil construction solutions in the infrastructure sector, to the delivery of major tunnelling, water and environment, energy, minerals and industrial projects in the energy and resources sector. It is also a

leading provider of services to the transport sector, with industry-leading expertise and capability in railway construction, operations and maintenance. The business is a market leader in the provision of railway construction, maintenance and operations services. With specialist capabilities in construction, maintenance and operations, the business provides the full range of track, structures, facilities, power, overhead traction, signalling and communication systems services. John Holland has also launched its own work train operations to more efficiently meet client needs.

Project focus – Melbourne Level Crossing Removals John Holland’s latest level crossing removal work is being conducted as part of an Alliance with VicRoads, the Level Crossing Removal Authority, Metro Trains Melbourne, Public Transport Victoria and Kellogg Brown and Root (KBR). It involves removing four level crossings: at Burke Road on the Glen Waverley rail line, and at North Road, McKinnon Road and Centre Road on the Frankston line. The project also includes the reconstruction of Gardiner Station on the Glen Waverley line, and of Ormond, McKinnon and Bentleigh Stations on the Frankston Line. This $530 million initiative is the largest dedicated level crossing removal project ever undertaken in Victoria, and it represents the first four sites out of 50 that will be delivered by the state government through the Level Crossing Removal Authority by 2022. With almost 180 level crossings in the Melbourne metropolitan region, removing 50 will drive a step change in the safety, reliability and operability of the road and public transport network. The Alliance Manager for the Level Crossing Removal Project, Stephen Litterick, says that the partners have previously collaborated from 2006 onwards to remove four level crossings on the Belgrave/Lilydale rail line. ‘The successful completion of those projects has given John Holland an unmatched track record and capability, which was a main feature in our tender for the new project,’ Litterick says. ‘We recognise that no two sites are the same. The Burke Road site is dominated by high traffic volumes and constrained geometry, and it’s the first site that features trams, as well as train and road. The Frankston line sites contain an unprecedented scale of works that will involve lowering the rail line in a cutting, with an excavation volume of approximately 300,000 cubic metres. This will need to be excavated while in a rail occupation of only five weeks to form the cutting, and reinstate rail services seven metres below the current level. Such a scale has never been attempted before, with the excavation volume being almost four times the previous maximum.’ Mr Litterick says that constant innovation is required to successfully deliver these projects. ‘Our approach is a blend between using tried and tested “kit of parts”, and identifying new innovations that address particular conditions at each site. An example of innovation being implemented at the Frankston line sites will be the use of Giken piling rigs to install steel sheet piles, which will form the retaining walls for the rail cuttings. The Giken machine uses an innovative “press in” method, which reduces the levels of noise and vibration experienced near residential and adjoining properties. This method can be used in the very narrow space between rail and property boundary to reduce rail disruption. ‘Level crossing removals are a combination of civil, rail and station construction works, which mirrors John Holland’s infrastructure, rail and building business groups. These projects differ from other rail jobs because of the volume of civil works and station construction close to and within road environments. Internal collaboration between the groups, and our unrivalled capability to self-perform a large part of the scope, makes the projects a very comfortable fit with our business model, and the skills of our people. ‘As a self-perform organisation, we have shovel-ready capability, which was proven recently when we were able to mobilise a design, management and supervision team of 180 people within just a few weeks of the project award, and to begin construction works within eight weeks of the project award.’

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AUSTRALIA TOWARDS 2030 BY MIKE MRDAK, SECRETARY, DEPARTMENT OF INFRASTRUCTURE AND REGIONAL DEVELOPMENT

What will it be like to live in Australia in the coming decades? Will Australia be able to meet its economic potential in the 21st century? Most importantly, what kind of infrastructure will it need? Estimates by Infrastructure Australia indicate that if congestion in our cities is not addressed by 2030, costs could rise as high as $53 billion annually. The Bureau of Infrastructure, Transport and Regional Economics projects significant growth in our freight task, with truck traffic alone expected to increase by around 50 per cent by 2030, and the 2015 Intergenerational Report predicts that Australia’s population will grow to 39.7 million by 2055, and will include twice as many people aged older than 65 as there are today. Over the past 40 years, Australia has enjoyed strong economic performance. This has been underpinned by a growing population, and a series of major economic reforms that have helped to create a more efficient, innovative and outwardly focused environment for business. Now, however, as the longest and largest mining boom in Australian history tapers off, we can no longer rely on increasing terms of trade to sustain our economic growth, and we operate in an environment of increasingly volatile global markets. The messages are clear. If we do not create the kind of infrastructure that is capable of meeting these projections, our productivity, economic competitiveness, and the livability of our cities and our regions will suffer. In a fiscally constrained environment, we must focus on increasing our productivity across the whole economy, and enable our non-mining businesses to rise to the opportunities ahead. We need to create a safe, secure, effective and efficient transport system to address the increasing congestion in our major cities, and the lack of connectivity in our regions. And we need to re-evaluate how we develop, deliver and manage our public infrastructure.

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For these reasons, the Government’s first Budget in 2014 committed a record $50 billion for current and future transport investments, of which $42 billion is in the national Infrastructure Investment Programme. Recognising the fundamental importance of a strong and effective infrastructure base for economic growth, which, in Australia’s case, is essential for full engagement in the Asia-Pacific region, the Government also put in place a five-pillar plan to build on our economic strengths: agriculture, manufacturing, smart technology, education and mining. The Government deepened these commitments in the 2015 Budget, and further refined its approaches to infrastructure investment – because spending money on infrastructure only builds productivity when it is the right infrastructure, it is used efficiently, and it provides for greater public amenity and livability. Alternative sources of funding for major infrastructure projects continue to be vigorously pursued, and private sector investment has been encouraged, in tandem with a focus on improving planning and project selection. The recent Infrastructure Australia audit of national infrastructure is helping the government and industry to assess the nation’s infrastructure needs over the next 15 years. This audit is robust, evidencebased and, importantly, independent. It gives the nation, for the very first time, Australia-wide information on the adequacy, capacity and condition of nationally significant infrastructure. The audit shows that much of our future growth will be in our major cities. This presents challenges for infrastructure, and housing accessibility and affordability. Not surprisingly, the audit’s key message is that without action, Australia’s productivity and quality of life will be tested, as population and economic growth are set to cause increasing congestion and bottlenecks. Right across the country, investments in major urban projects such as WestConnex in New South Wales, the Gateway WA project, and upgrading the Bruce Highway in Queensland will reduce congestion, increase connectivity, improve the movement of freight and make our roads safer.

The Infrastructure Australia audit also acknowledged that a focal point for Australia’s freight growth pressures will be its ports. A key finding in the transport sector shows that container movements through Australia’s ports are projected to grow by 165 per cent between 2011 and 2031, while non-containerised trade is projected to grow by 138 per cent over the same period. The Government wants to see more freight carried by rail, by ensuring that it is as competitive as it can be, and that it achieves its full potential. This means that governments and industry need to work together to address some of the constraints that are preventing freight rail from exploiting its many advantages – intermodal connectivity is a big part of this. Improvements that make it easier, cheaper or faster for freight to get from market or port to a rail hub will only enhance the case for using rail. The 1700-kilometre Melbourne to Brisbane Inland Rail will go a long way to ensuring that Australia has the logistical muscle and infrastructure backbone needed for decades to come. Inland Rail will provide an efficient freight connection between Melbourne and Brisbane; it will substantially improve the rail connection between Perth,

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Adelaide and South East Queensland; and it will enable freight to avoid the congestion of Sydney. It will deliver what the market has said that it wants – a competitive price with road freight. It will also make our roads safer. By 2050, the equivalent of 220 B-doubles per day are expected to be diverted to Inland Rail, and by 2070, this number could rise to more than 600. The Government’s infrastructure ventures don’t stop at road and rail. After 50 years of discussion and debate, new regulations naming Badgerys Creek as the site for Western Sydney’s airport prepare the way for a full-service airport operating around 10 years from now. The development of an airport for Western Sydney is among the most impressive and exciting civil engineering projects of the next decade, and beyond. Already 400 jobs have been created as the first road projects of the $3.6 billion Western Sydney Infrastructure Plan are now underway. The roads package and proposed airport will create up to 7600 further jobs during construction. Invigorating Australia’s regions, and building better connections between our regions, our cities and the world, are common threads joining all of these efforts. The Roads to Recovery, Black Spot and Heavy Vehicle Safety programmes have had additional funding, reflecting the importance that the Government places on building last-mile infrastructure. The new Bridges Renewal Programme is making a vital difference – for too long, bridges have been a seriously overlooked part of our national infrastructure base. And the National Stronger Regions Fund is directing new investment into Australia’s regions by supporting projects that provide economic growth, and address disadvantage. It is well recognised that governments alone cannot meet all infrastructure needs. The Department of Infrastructure and Regional Development has an inter-agency partnership with Austrade to promote, attract, facilitate and retain foreign direct investment in Australian infrastructure. We know from engaging with pension funds and institutional investors around the world that they want to invest in Australian infrastructure. The money is there, and the market is ready to invest. Our challenge is to create the policies and projects that give them the certainty to do so. The first-ever concessional loan for a major road project in Australia is allowing the new M5 section of the project to be brought forward, and delivered essentially at the same time as the M4 East section. In another first, this is the first use of distancebased heavy-vehicle charging to fund investments in our road network, and we are working with the Western Australian Government on the delivery of the Perth Freight Link. This project will serve as an

‘By establishing the right conditions to encourage innovation and investments, we can start to tackle the costs of living far from major cities, and create jobs for the future’ example for progress towards heavy-vehicle charging, and future commercial investment in roadworks in Australia. Efforts also include providing incentives to the states and territories to recycle mature assets into new greenfields infrastructure through the Asset Recycling Initiative. New South Wales and the Australian Capital Territory have already taken up the offer, with the Rebuilding NSW Plan and Capital Metro light rail project respectively. The Government is continuing to work with the other jurisdictions to identify more potential options for asset recycling. These activities represent important steps towards the longer-term provision of road services in this country. Research suggests that there are clear economic benefits to be gained from closing the loop between the use of roads, the collection of charges from users, and the reinvestment of these charges back into road services to meet the needs of users. Getting the policy settings right will demand careful consideration and collaboration with government, industry and the wider public. One of the government’s key initiatives in the 2015 Budget is realising the potential of northern Australia, which currently accounts for 11.7 per cent of Australia’s GDP, and is responsible for more than two-thirds of Australia’s minerals and fuel exports. The recently released White Paper on Developing Northern Australia is a 20-year blueprint to boost northern Australia’s development and investment. It is putting the right policies in place, at the right time, backed with an initial investment of $1.2 billion, in addition to the $5 billion loan facility that was previously announced for northern Australian infrastructure projects. The government’s approach is to encourage investment in infrastructure through targeted programs to reduce the costs of doing business in the north, and to improve the opportunities for success. By establishing the right conditions to encourage innovation and investments, we can start to tackle the costs of living far from major cities, and create jobs for the future.

Programs include the $600 million Northern Australia Roads Package, which will address the reliability of transport networks and improve connectivity across the region – including connecting ports and regional communities to key agricultural and resource areas. Another major program is the $100 million Northern Australia Beef Roads Fund. Moving cattle in the north involves some of the longest land transport distances of any Australian commodity, on roads that are subject to floods and seasonal road closures. The Department will work with the three northern jurisdictions, as well as industry experts, to target upgrades that can strengthen the supply chain, allowing more efficient use of existing infrastructure. As part of the package, $5 million is available to undertake freight rail feasibility studies, starting with the proposed Mount Isa to Tennant Creek rail line. Road infrastructure in the Cape York region is already being upgraded under the $208.4 million Cape York Package, providing Indigenous Australians and other residents with better access to health, education and other community services. The $5 billion Northern Australia Infrastructure Facility will stimulate investment in new infrastructure by providing concessional loans to private and state proponents. This is a good example of how the Government is seeking to unlock private sector investment in infrastructure. Alongside these initiatives, the Department is working with agencies in Western Australia and the Northern Territory to develop a 15-year planning and investment pipeline of projects, including aviation, telecommunications, water and energy. The three prongs – evidence-based integrated planning, ensuring value for money, and unlocking private sector investment – are the keystones of the Department’s strategy for reform in land transport investment. If we can drive better practice in our approach to infrastructure investment, we will be well placed to meet the enormous demands that we know are on the horizon for our national infrastructure in the 21st century. Volume 6 Number 1future future building building Volume 6 Number 1

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National priorities, state projects: Australia’s new machinery of government

L–R: David Webster, Phil Davies, David Quinn, Jim Betts, Jonathan Kennedy

Chair: Jonathan Kennedy, Executive Director – Policy and Strategy, Infrastructure Partnerships Australia Panellists: • Jim Betts, Chief Executive, Infrastructure NSW • Phil Davies, Chief Executive, Infrastructure Australia • David Quinn, Chief Executive, Building Queensland • David Webster, Deputy Secretary – Commercial, Department of Treasury and Finance (Victoria)

Key points: • The creation of the ‘I-bodies’ across national and major state governments creates the beginnings of better cooperation between jurisdictions. • The independence of these agencies means they can engage the public on complex and potentially unpopular longer-term changes, to enable better infrastructure services. • There is an important role in deepening the sophistication of project assessment tools. • The need to evolve procurement and service delivery models will test the depth and reach of skills in the public sector.

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Jonathan Kennedy (JK): As we have heard from today’s proceedings, there is now a very palpable sense of expectation in the sector and the wider community about the outlook for project selection and prioritisation, and arguably for infrastructure reform more broadly. The creation of independent agencies both at the federal level and the state level has clearly been the key driver of this expectation. In this context, what are the levers that the independent agencies have at their disposal, in terms of actually delivering community expectation? How do you, as agencies, respond if governments take a different view? Jim, as the longest-serving Chief Executive on the panel, I will ask you to go first.

National priorities, state projects: Australia’s new machinery of government – panel discussion

Jim Betts (JB): Infrastructure NSW has been through an interesting evolution over the last four years, since it was established. The balance that we’ve had to strive on is, at one end, to be independent, because that’s a critical part of the value that we add. On the other hand, it’s to be part of the team that is making deliberative decisions about large amounts of taxpayers’ money, particularly in the context of once-in-a-generation opportunities like the lease of poles and wires. Yes, we should be independent, but the critical discussions will generally take place behind the closed doors of the Government, not in the pages of the media, and that’s where we think we can add significant value. In the back half of last year, we put advice to the Premier around an updated State Infrastructure Strategy. That was, in many ways, a deeply contested process, since we were engaging in a very collegiate way with the key agencies, but also contesting the data – making sure that the critical questions were addressed and answered. By the time our advice went to the Premier, it had been tempered in the fire of debate between different agencies, but that was done in such a way that we emerged with enhanced collaborative relationships on the other side. There is a balance that can be struck between independence with a majority private-sector independent board, on the one hand, and being part of discussion within government that is collegiate and constructive, on the other. JK: David, would you share the view that it’s more of a more collegiate approach than a front-page approach on these things? David Quinn (DQ): Definitely. Building Queensland is effectively a brand-new entity that is just being established. There’s a real focus by the new Labor Government in Queensland to establish an independent body to try and depoliticise the process. The board that is shortly to be appointed for Building Queensland will be majority private sector. The real focus of the Government was to try and pull together a pipeline of projects moving forward. We’re quite objective; we’re charged with providing that independent expert advice to the Government. The projects that we look at will still be owned by the agencies, or owned by the Government-owned corporation. At the end of the day, it won’t be me who’s fronting up to Cabinet seeking funding for a project – it will be the agencies. The agencies have to

have that confidence that we’re looking at a project in an objective manner. That’s the biggest lever that we have to pull at this point in time. In terms of [a situation occurring in which] government doesn’t accept our recommendations, we have to be pragmatic about that. We have a lot of obligations in relation to publishing project summaries, and publishing a very well-articulated cost-benefit analysis to our website, so that if government elects to make a decision that’s counter to what we recommended, it will ultimately be very visible. That’s the right of a democratically elected government – to do what they want to do. JK: Phil, as Anthony Albanese’s speech illustrated, pressure to deliver on this expectation is perhaps greater at a Federal level than an Infrastructure Australia level. What’s your view on that? Phil Davies (PD): The stars are the aligned in terms of that independence. We have a newly invigorated IA with independence, with its own board that has the right to appoint the Chief Executive. Off the back of that, the most important step has been the construction of this evidence base, which manifested in May, in terms of the Northern Australia Audit, and particularly the Australian Infrastructure Audit. This is a Partnerships conference; we’ve got an opportunity here for a strong partnership across the whole sector, across each jurisdiction. We’ve got an evidence base to work off to develop the 15-year Infrastructure Plan, which is the basis for this stronger pipeline of projects that we’re working to. If everyone lined up here is on the same page in terms of needing a more strategic approach than perhaps in recent times, we need to look at the bigger picture, and do a better job of articulating the strategic merits and strategic contexts for some of these longer-term solutions. JK: David, the legislation creating Infrastructure Victoria was passed by Parliament yesterday. From a central agency perspective, what is the added value that you are hoping IV will bring to the table? David Webster (DW): While the independent bodies come across in terms of more contestable advice, I don’t think anything that they come out with is going to be unknown to the bureaucracy and government. What they can bring to the table – we have already talked about the lack of trust in the decision-making process – is actually lifting the hood on some of the discussions that happen inside government, some of the analysis that goes on in Volume 6 Number 1

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Above: David Webster Right: Phil Davies

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government, and some of the trade-offs that have to be made. Independent bodies can actually have that dialogue with the public, and bring them along on the decision-making process. In a way, it’s much more difficult these days for governments to do that, and even more so for the bureaucracy. JK: A theme that’s also quite current is project coordination across jurisdictions. This is a further emerging theme, particularly given the growing pipeline of greenfield and brownfield assets coming to market. How realistic is a nationally coordinated approach, given competing state priorities, and how desirable is it as a goal? JB: The creation of a national infrastructure market, in terms of making sure that good practice is being spread and shared across jurisdictions, is really important. We’re looking at a major correctional facility in northern New South Wales at the moment; we’re turning to Ravenhall and getting great support from the Victorians at an official level, in terms of intellectual capital, sharing of documentation, and so on. That’s the kind of collaboration across state borders that is really valuable, and we’re very much open to that, as well. It’s important that we generate project pipelines that are explicit, so that we can see where there might be unhelpful overlaps, or work where we might be in danger of overheating the market or generating skill shortages. I don’t think it’s a show stopper; it’s a shame that we don’t collaborate more, but certainly among people on this platform, and increasingly among bureaucrats across jurisdictions, there is a will to share information. Knowledge of Volume 6 Number 1

what’s happening with the Melbourne Metro is not going to significantly impact the New South Wales approach to the delivery of its commitments for the Sydney Metro project. But it’s helpful to share the information, particularly if two major rail PPPs are being brought to market broadly at the same time. JK: Just to pick up on that point, Jim, about best practice in information sharing – Phil, do you see that as IA’s role, in terms of not necessarily sequencing projects across the Federation, but driving best practice, serving as a vehicle for information collation? PD: Yes, certainly. It was interesting listening to the Deputy Prime Minister of New Zealand, who spoke of a big focus there on data and analytics. That’s an area that we identified through our audit. There’s more work to do in terms of getting better use out of existing infrastructure – that’s not been a strong focus for us – but, going along with that, there’s also work around developing best practice and sharing data, as Jim said. That’s not to say being in each other’s pockets, but just making sure that we’ve been as smart as we can be. There’s a role for IA in that, in terms of facilitating and encouraging that. That will only strengthen over the coming years. JK: David, just a slightly different take on the question: there’s a contrasting position between the Commonwealth and the states on issues such as public transport – road versus rail. Does that contrast make coordination less feasible? DQ: It certainly makes it challenging, there’s no doubt about that. In the Queensland context, you’ve heard from the Government a very strong desire to see urban rail feature quite prominently on the

National priorities, state projects: Australia’s new machinery of government – panel discussion

Queensland landscape, particularly in South East Queensland, where population pressures are going to drive us to have to do something. The audit that Phil released earlier this year spoke about the significant cost of congestion in South East Queensland, and it also spoke about population growth. In South East Queensland, the population will grow by roughly 1.5 million people between now and 2030 – that’s effectively 100,000 people per year. We’re going to have to find a happy medium; the Government is certainly very desirous of seeing some funding coming through. At the moment, the project that is front of mind is the second stage of the Gold Coast light rail, where the Queensland Government is involved in discussions with the Federal Government regarding whether there can be some funding contribution made by the Commonwealth. Cross River Rail, which Mr Albanese referred to, is again effectively the number one priority for the new Labor Government going forward. We’re going to have to find a solution here somewhere. We do need roads, and we do need rail. An interesting example that was given to me the other day was the Pacific Motorway, heading down towards the Gold Coast. At one section of road, we have the equivalent of 14 lanes of traffic, including service lanes. You can’t just keep on adding lanes. Eventually, you need to address the problem in a number of different ways, and that includes finding a solution to public transport. So, it is a challenge, but it’s one that we have to address. JK: Jim, it’s something that I know you’ve been quite vocal on. JB: I managed to get my name in the Daily Telegraph, criticising Prime Minister [Tony Abbott], so I think I’ve spoken on that one. It seems a very arbitrary cut-off point to me, not to include urban public transport, when you look at the major contribution that functioning cities will make to the national economy. JK: David, if you could put your IV hat on rather than your central agency hat, what do you consider the optimal role of IA and the Commonwealth to be, and are we there yet, or do we need further work? DW: These state bodies will obviously reflect state priorities. If you look at the truly national projects – and we’re talking the Hume, the Bruce Highway, inland freight – there are things of national significance that IA should be lifting their eyes up to, above the narrow gaze that we, as states, will have.

JB: Not to the exclusion of the other investments; I’m sure you would agree with that. DW: The focus on productivity-enhancing infrastructure at the state level is good for the national economy. IA can’t ignore the sheer amount of GDP that comes out of the Sydney and Melbourne CBDs, so the focus should be on where the dollars go to get the most bang. JK: Another issue that has been raised over the course of today is capacity constraints; specifically, constraints on public services, and on the capacity to procure and deliver a growing pipeline of work. How extensive are these constraints, and what can government – and the private sector, for that matter – do to address them? Jim, representing the state with the largest pipeline of work, this is probably particularly pertinent for New South Wales. JB: Yes, it is. When I think about the things that jurisdictions have done right, [one of them is] to hold on to their best talents. Think of Rodd Staples delivering the North West Rail Link (now Sydney Metro Northwest), moving on with a large team of people who’ve learned, the hard way, the skills associated with delivering major rail projects. That creates a phenomenally capable resource within the New South Wales public sector, and also a known quantity in terms of the private sector’s interaction with us, and the confidence that they can derive from that. In Victoria, [the same is done by] people like Corey Hannett. Holding onto the talent that we teach as they come through is important. We sometimes swim against the tide of remuneration constraints, and so on. Without wishing to sound too starry-eyed about it, to be in the room at the moment when you have a government doing what is going on in New South Wales is a real turn-on for people who want to get involved where the action is in national infrastructure, and build stuff that will be there for 100 years. We’ve got a selling proposition in the public sector that is a pretty compelling one, even if we can’t compete on dollars all the time. DW: Building on that, we also need to get better at having fluidity between the private sector and the public sector. I don’t think that we have that fluidity, which Europe certainly does, and both sides can benefit from the insights of having worked on the other side. JK: In Queensland’s case, is there a risk that there will be a brain drain to New South Wales and Victoria? Volume 6 Number 1

Top: David Quinn Below: Jim Betts

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SECURING QUEENSLAND’S FUTURE Planning for infrastructure presents unique challenges for every government, and nowhere is this more evident than in Queensland. As Australia’s second-largest state, it is nearly seven times the size of Great Britain, and more than double the size of Texas. While the current population is approximately 4.7 million, Queensland has a population density of just 2.7 people per square kilometre. By comparison, the population density of New South Wales is around nine people per square kilometre. By 2036, Queensland’s population is expected to grow to more than seven million, with growth centred primarily on South East Queensland (SEQ) and coastal centres. Around 1.7 million extra people are forecast to call SEQ home by 2036, which is an increase of 54 per cent on the current population. Across the state, people are living longer, and with more people reaching retirement age in the coming decades, there will be an increased pressure on health services, and more demand for different housing types and new dwellings. Meeting the infrastructure needs of this vast geographic area and growing population has become challenging in recent times. Growth in SEQ means that road connections are increasingly under pressure, with congestion and delays reducing economic efficiency. The Australian Infrastructure Audit estimates that the cost of delays caused by congestion on the Brisbane–Gold Coast– Sunshine Coast transport network in 2011 was around $2 billion. In the absence of any additional capacity, the cost of delays across the region is projected to grow to around $9 billion in 2031. A diverse climate, characterised by extended periods of drought and extreme weather events such as floods and cyclones, tests the resilience of both communities and assets. Recent infrastructure investment has been geared towards recovering and rebuilding in the wake of natural disasters, particularly in regional areas. Between 2010 and 2013, transport network reconstruction costs came to a total of $6.4 billion to repair

8741 kilometres of state-controlled roads (more than 25 per cent of the total), and 1733 bridges and culverts. The Queensland economy is also undergoing a period of structural change and diversification, as it transitions from the historic surge in resources investment towards broader-based drivers of growth. A slowdown in the global economy, along with declining revenues in the mineral and energy export sector, has impacted employment and economic growth. Beyond Queensland,

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the world economy is also changing. The rise of Asia and its growing middle class is creating new opportunities. Queensland is well positioned to capitalise on these opportunities, with demand for key exports such as resources, tourism, agriculture and education expected to grow strongly in the coming years. The decline in mining sector investment, and the impacts of droughts, means that diversification in these areas will be essential to the long-term economic sustainability of many regional communities, which are home to one-third of Queensland’s population. Economic growth in these areas depends on the success of supply chains and connections to port, rail and road infrastructure. Developing Queensland’s knowledge industries in association with key universities at Rockhampton, Cairns and Townsville has the potential to expand the reach of the state’s globally recognised tropical expertise. New markets will also help to drive a more sustainable and broader-based tourism industry in these regions.

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Meeting the challenge Efficient, resilient and productive infrastructure will be critical to addressing these challenges, and will ensure that Queensland’s economy continues to grow, and that living standards are maintained for generations to come. The Queensland Government plays an important role in helping to meet the ever-increasing service needs of the community, and improving productivity and competitiveness for industry. So far in 2015, a lot has been done to boost business confidence, support job creation, and encourage investment in productive infrastructure. The 2015 State Budget, which was delivered in July, features a $10.1 billion capital works programme for 2015–16, supporting 27,500 jobs throughout the state. This includes $3.9 billion on roads and transport, $2.4 billion on energy and water, and $1.3 billion on health and community infrastructure. Much of this investment is focused on building resilience to drought and extreme weather in local communities, and providing employment opportunities in regional Queensland. A number of major road projects have also kicked off in 2015, including the landmark $1.6 billion Toowoomba Second Range Crossing, the congestionbusting $1.162 billion Gateway Upgrade North project in Brisbane, and upgrades to improve the safety and capacity of the Bruce Highway, the state’s key freight route. All of these are being delivered in partnership with the Australian Government, and with involvement from the private sector. Over the next four years, more than $18.8 billion will be invested in Queensland’s overall transport infrastructure under the Queensland Transport

and Road Investment Programme (QTRIP), sustaining almost 15,000 jobs over the life of the programme. Elsewhere in the state, the Queensland Government is continuing to invest in new and upgraded venues for the 2018 Commonwealth Games, which is to be held on the Gold Coast, and is progressing important planning work for a number of other key projects, including the Queen’s Wharf Brisbane Integrated Resort Development, and the Townsville Integrated Sports and Entertainment Centre. To ensure that environmental impacts are properly managed, the Coordinator-General continues to assess a number of significant projects. Work is also underway to develop a Gas Supply and Demand Action Plan, reinforcing Queensland’s status as a leading jurisdiction for onshore gas supply, market development and demand issues.

The establishment of Building Queensland (BQ) as a statutory body will provide the Queensland Government with independent advice on infrastructure matters. BQ will be overseen by an eight-member board, with representatives from the private and public sectors providing depoliticised advice to the state government. A key role of BQ will be assisting with business cases for projects between $50 million and $100 million, and leading business cases for projects that exceed $100 million. Initially, this will include the Cross River Rail project, which is designed to increase capacity on Brisbane’s inner-city rail network; the Sunshine Coast (Beerburrum to Nambour) Rail Upgrade; the Train Control System Upgrade Project; and a number of Health ICT projects. Business cases led by BQ will confirm the productivity gains anticipated from projects, timeframes for delivery and the net economic benefit to the state.

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The Queensland Government is also working closely with Infrastructure Australia (IA), and has recently submitted an updated Infrastructure Priority List, which includes seven new priority projects and five existing projects. The submission includes Stage 2 of the Gold Coast Light Rail project, which will provide a vital connection between the existing light rail and heavy rail lines in Australia’s fifth-largest city. Other priority projects include the Mount Isa–Townsville Rail Corridor Upgrade; upgrades to the Ipswich Motorway; and Cunningham Highway and Pacific Motorway/Gateway Motorway merge. The state is also seeking to take advantage of the economic development opportunities highlighted by IA’s recent Northern Australian Audit and the Australian Government’s ‘White Paper on Developing Northern Australia’. Almost three-quarters of northern Australia’s population lives in Queensland, and the state government is investigating a range of opportunities related to transport, water, ports and other economic infrastructure in North Queensland that may form the basis of future submissions to IA’s Infrastructure Priority List.

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Underpinning this planning and investment in infrastructure is the government’s Advance Queensland initiative. Advance Queensland is a comprehensive suite of programmes designed to encourage new industry and research collaborations, and create the knowledge-based jobs of the future. The Queensland Government is investing $180 million over four years, to position the state as an attractive investment destination with a strong innovation and entrepreneurial culture. The state has released new, streamlined assessment processes and clear guidelines for market-led proposals, to make it easier for the private sector to partner with government to build and fund innovative solutions to Queensland’s infrastructure needs.

A new approach to infrastructure planning While much work is already underway, rapidly emerging technology, the changing service needs of Queenslanders and competing priorities for limited funds mean that a fundamental shift is required in the way that Queensland plans, prioritises and delivers infrastructure.

Long-term infrastructure planning has a critical role to play in facilitating the shifts in the economy that will stimulate growth and job creation, and encouraging private sector innovation into the future. After three years without an infrastructure plan, the Queensland Government is getting on with the job of delivering a State Infrastructure Plan. The State Infrastructure Plan outlines a bold new strategic direction for infrastructure in Queensland – one that fosters innovation in planning, investment, delivery and use of infrastructure, and better communication and engagement with stakeholders. The Plan identifies what the government ultimately wants from its infrastructure (objectives), and how this can best be achieved (directions). The objectives and directions will help to guide and align planning across government and industry, and decision-making across government. The Plan also outlines a range of responses that the Queensland Government will adopt to help address the challenges that Queensland will face over coming decades. Some of these responses, either in the short or long term, will require built infrastructure or changes to existing infrastructure. Other responses will challenge traditional concepts of service delivery to make better use of existing infrastructure, or alleviate the need to build new infrastructure. Importantly, the State Infrastructure Plan is designed to provide confidence and certainty to business, industry and the community by outlining the programme of proposed government infrastructure over the next four years. An additional five- to 15-year programme provides an opportunity for the private sector to understand the state’s challenges, and to develop innovative solutions. Annual updates to these programmes will provide a clear understanding of government-proposed investment, and future opportunities for industry’s business and workforce planning needs. While the programme focuses on infrastructure delivered by the Queensland Government, the State Infrastructure Plan is also a valuable tool for planning infrastructure across government and the private sector. The Plan recognises the significant investment that local government makes in infrastructure, and the programme provides local authorities with a thorough understanding of key state government projects and regional priorities. The draft State Infrastructure Plan has been released for consultation, with the finalised Queensland State Infrastructure Plan to be released in early 2016. Visit www.dilgp.qld.gov.au to view the Plan.

Setting the direction for infrastructure in Queensland Through a host of initiatives, the Queensland Government is delivering infrastructure that supports growth, connects our communities and improves prosperity and liveability. • $10.1 billion capital works program in 2015-16 – supporting jobs and local communities.

Enhancing our supply chains

• Building Queensland – a new advisory body to provide independent advice on infrastructure priorities. • Market-led proposals portal – for the private sector to submit innovative solutions to Queensland’s infrastructure needs. • Advance Queensland – a $180 million investment over four years to create the jobs of the future.

Supporting a growing population

• The State Infrastructure Plan – providing confidence and certainty to industry, and fostering innovation in planning, investment, delivery and use of infrastructure.

Connecting our communities

www.dilgp.qld.gov.au Authorised by the Queensland Government, George Street, Brisbane.

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DQ: To answer both questions, the first answer is yes – like Jim and David, I am all for developing capability internally. One thing that we are very keen to see happen with projects is teams that go right across the full spectrum of procurement, from the early stage through to business cases, procurement and delivery, so that you get that continuity. Capability is one thing that we are very keen to develop, and at the same time, we also need to tap into the private sector, because of the contemporary knowledge and skills that can be found there. In relation to the circumstances of Queensland at the moment, I don’t think our concern is so much losing people from the public sector to the southern states; our bigger concern is losing that external capability that is now turning its back and heading south where the projects are. As projects come onstream in Queensland, we do have that concern – will the right expertise be available to the Queensland market at that point in time? That leads to why the Government is very keen on releasing a 15-year state infrastructure plan in early 2016. In years one to four of that infrastructure plan, we talk about funded projects so people have visibility of the projects that are coming to market, and the projects that are funded in that one- to four-

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year time horizon. Years five through to 15 are going to identify the challenges and the opportunities [of the plan]. We’re encouraging agencies to start getting their heads around finding solutions, but we’re also giving the private sector the opportunity to start looking at market-led proposals so they can start engaging government to say: ‘Look, you’ve got a constraint in year six or year seven; we believe we have particular expertise in that area, and we would like to sit down with the Government and talk about how we might be able to address it’. So, yes, it is a challenge. JK: Phil, the Commonwealth obviously doesn’t procure quite the same level of infrastructure as the states – or anywhere near it, for that matter. The capacity constraint theme is more specifically of unsolicited bid frameworks and their refinement. Will that fall into IA’s agenda at some point? PD: More broadly with the capability, the feedback we’ve been getting in the last few months talking about the audit and the Plan is that we’ve got to get back to fundamentals. We need to build that strong pipeline of early projects all the way through to well-developed solutions, and give confidence to everyone – really give confidence to the supply chain – to say, ‘This is what the forward programme

National priorities, state projects: Australia’s new machinery of government – panel discussion

looks like, so you can be confident in organising your resources around that’. In a national context, there have been an awful lot of resources moved to New South Wales from Victoria in the last year or so, to work on all of Jim’s projects. My sense is that people are more mobile, certainly in the last few years, than they have been in the past. Equally, we’ve lost some capability overseas, and one of the areas that we are challenged in is better use. That’s an area where we can probably be smarter and, again, having a national focus on things like that is beneficial, to think about which problems we are trying to solve. How can we get the capability to actually help us with some of that? That’s difficult in the context of the agenda here in New South Wales, for example, where you’re building new infrastructure – and you can only do one thing at a time, as well. This Plan, which we will pull together before the end of the year, will hopefully give us confidence, so we can see what’s ahead, and people can build their capability around that. Equally, the whole supply chain can have confidence and build its response. JK: Project assessment is another emerging theme. To a degree, project assessment will always be both an art and a science, but that doesn’t preclude improvements. Is that something, Phil, that you think IA can show some leadership on? PD: Yes, IA has had a role since it was established to assess projects over $100 million on behalf of the Federal Government. My sense in recent times is that we’ve been, as a nation, very project-focused. The opportunity is to take a broader strategic look at some of these projects, and the contribution that they’re making not only within systems and networks, which could be better, but also in terms of our cities. Particularly, how are these going to provide an opportunity for urban regeneration or development in areas like Western Sydney, which was talked about earlier? There’s a broader strategic merit assessment that we do as part of our process. Often, that’s a smaller part of the process. We’re trying, through this planning process, to do a better job of working with colleagues here and elsewhere to define the problem that we’re trying to solve. That’s often where we can skip over that last step. We need to define the problem that we’re trying to solve; think more at a system level and a network level and work through assessing options and getting them through a full business case.

DW: Certainly, for some of the city-shaping infrastructure, the starting point should be something along the lines of, ‘What sort of city do we want? How do we want it to operate?’ Then, work out from there the best infrastructure to actually deliver that. For the vast majority of transport infrastructure, traditional cost-benefit analysis is adequate. When you’re talking about the really transformational infrastructure, if we’re serious about talking about productivity-enhancing infrastructure, then we’ve got to really think hard about wider economic benefits (WEBs), how we articulate that, and where we go from our WEBs debate. JK: Jim, do you think there’s a case at a state level for a broader suite of tools to assess projects on their merits? JB: Cost-benefit analysis is like any tool: it’s useful up to a point, and it’s a valuable discipline for making sure that you’re not building some really stupid stuff. The starting point has to be, as David said, a macro view about what sort of city you want to live in, and the infrastructure that is going to support that vision. Then you apply the disciplines at the back end. Some institutions can get trapped in cost-benefit analysis for a period of time – including Infrastructure Australia, if I can say that, which was receiving proposals and then evaluating them into really, really fine levels of detail. So, we’re arguing about whether the benefit-cost ratio (BCR) for Melbourne Metro was 1.2 or 1.21 – that’s not a particularly productive use of anybody’s time. One of the things we did in the State Infrastructure Strategy was to state what makes sense and what hangs together as being a good prioritisation, and then apply the discipline for the final investment decisions, taken through things like cost-benefit analysis and assurance processes. JK: Stepping back from projects for a moment, and to broader reform – particularly to those reforms that really target funding and growing capacity – David, in Queensland’s case, the funding challenges are fairly clear, and they’ve been spoken of today quite extensively. Given that asset sales are off the table for now, what funding options are available to the current Government? DQ: It’s challenging in relation to what the Queensland Government is looking at. There are various measures being clearly examined, and debt restructuring is going on in relation to the balance sheets of Government-owned corporations to try to free up the capital. Clearly, value capture is Volume 6 Number 1

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National priorities, state projects: Australia’s new machinery of government – panel discussion

another area that we want to explore very actively; it’s something that has been used very successfully overseas. Again, [these are] different population demographics and sizes, but we want to look at value capture. Other funding streams that aren’t necessarily in the reform area, but should be considered, are market-led proposals. We really want to engage the private sector. There are savings that the Government is going to have to identify. The Gold Coast light rail, for instance, is an example of where the Queensland Government has said that, subject to getting some Federal Government assistance, [it] will find savings internally within Government to fund the state’s contribution. There are myriad options to consider. We don’t have a ‘one big bang’ approach. We don’t have that avenue available. Therefore, it’s going to have to be a series of levers and buttons that we are going to have to push or pull in order to fund the infrastructure, because – and I go back to my earlier comments – we cannot afford to do nothing. That’s not an option for us, so we’re going to have to take this forward. JK: If I could ask each of you to see yourselves in five years’ time, looking back, what sort of legacy would you hope to have left from your current role? JB: I’ve been very lucky to land in a jurisdiction that’s doing everything that’s been going on in the last two years in New South Wales – a fantastic plan, fully funded across all different sectors of infrastructure. The critical challenge now is to translate a world-class plan into world-class delivery. I know that sounds like a cliché, but we need to get the best talent here, we need to get the best systems. We’re ramping up external assurance through Infrastructure NSW. We’re going from the advisory body and planning body, into an assurance body, and potentially a delivery body, as well. We will be judged by the success of the projects that are delivered, and their impacts on the community over that five-year period. Every day at the moment in New South Wales, there are new milestone announcements being made. When you’ve got such an ambitious agenda, the scale of the risk associated with that increases, and the scale of public expectation increases, and it’s incumbent upon people like me to be part of the solution, assisting the Premier in delivering that agenda. DQ: From a Building Queensland perspective, in five years’ time I want us to have developed that suite of priority projects for the state. I want us to 110

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be seen both within government and externally as a body that does apply best practice, and actually develops projects – in some cases taking them through procurement and delivery. It really is about demonstrating that you can show value for money and meet community needs; they’re probably the two major drivers for me in relation to how I’d like Building Queensland to be seen in the future. If we can achieve that, then we’ve gone a long way towards securing the needs of the state going forward. PD: From an IA perspective, hopefully we will have launched two plans in five years’ time – one at the end of this year. Fundamentally, outcomes for me will be a very strong partnership with everyone here, and those who aren’t, in terms of Federal, state and territory relationships, with a very strong pipeline of projects that have everything from a concept all the way through to boots on the ground. We’d also want to see a sustainable pipeline there well into the future. IA is a facilitator, but also a source of best practice and the champion of change, and a source of data to actually support some of the decision-making. DW: Obviously, the infrastructure plan and best practice processes are things that I am keen to see succeed, but I also would like to see a greater degree of public trust in the process. I want to see the public buy into what we’re collectively achieving for Australia in terms of better infrastructure decisions, growing productivity and growing GDP.

Philip Davies Chief Executive Officer, Infrastructure Australia Philip Davies is the Chief Executive Officer of Infrastructure Australia, with a fresh mandate to provide independent expert advice to all levels of government on infrastructure policy and planning. Infrastructure Australia publicly advocates for reforms on key issues including means of financing, delivering and operating infrastructure, and how to better plan and utilise infrastructure networks. Infrastructure Australia also recently released the Australian Infrastructure Audit, the nation’s much needed, comprehensive independent review of Australia’s infrastructure, and our future needs across transport, water, energy and telecommunications.

National priorities, state projects: Australia’s new machinery of government – panel discussion

Before joining Infrastructure Australia as Chief Executive Officer, Mr Davies led AECOM’s Infrastructure Advisory business in Asia Pacific, providing government and privatesector clients with infrastructure policy, strategy, business, program, planning and operations advice. While Director of Traffic Operations for Transport for London (TfL), Mr Davies developed a long-term vision for proactive, long-term integrated transport management in London, including the development of the London Transport Command and Control Centre. He is a Chartered Engineer and a Fellow of Engineers Australia.

Jim Betts Chief Executive Officer, Infrastructure NSW Jim Betts is the Chief Executive Officer of Infrastructure NSW, an independent statutory agency that provides specialist advice to the New South Wales Government on infrastructure investment and prioritisation. Most recently, this included making more than 80 recommendations to Government on the next round of critical infrastructure for New South Wales – set out in the State Infrastructure Strategy Update 2014. Mr Betts joined Infrastructure NSW in June 2013, following five years as the Secretary of the Victorian Department of Transport, and four years as the Director of Public Transport at the Victorian Department of Infrastructure. Key personal achievements during this time included the delivery of the $38 billion Victorian Transport Plan, and the overhaul of Victoria’s legislative framework to integrate the planning of transport and land use. Mr Betts’ 25 years of experience spans strategic transport planning, infrastructure delivery, and transformational structural reform, including privatisation, private finance and regulatory reform, and also includes senior roles in the British Government.

David Webster Deputy Secretary, Commercial, Victorian Department of Treasury and Finance David Webster is Deputy Secretary, Victorian Department of Treasury and Finance, where he is responsible for providing strategic commercial, financial and risk management advice to the Victorian Government. Activities include managing the state’s balance sheet, prudential supervision of the public financial corporations, public-private partnerships (PPPs), infrastructure investment,

commercial and property transactions, and the monitoring and governance of the state’s major Government Business Enterprises. Prior to joining government, Mr Webster had 20 years’ experience in equity, advisory and debt transactions in economic and social infrastructure and transport (including airports, rail, road, hospitals, schools, water and wastewater), and project finance oil and gas. Prior to joining the Department of Treasury and Finance, Mr Webster worked for the Royal Bank of Scotland’s Funds Management in Sydney as Executive Director, running the RBS Australia Social Infrastructure Fund. Previously, Mr Webster was Investment Director at EISER Global Infrastructure Fund in London, and Head of Infrastructure Advisory at RBS London, before which he held a number of senior structured finance positions in banking, also in London. Mr Webster qualified as an Australian Chartered Accountant in 1987 and has an MBA from London Business School.

David Quinn Chief Executive, Building Queensland David Quinn has more than 20 years’ experience across a range of sectors including transport, utilities, heavy manufacturing, fast-moving consumer goods (FMCG) and mining. His diverse industry experience has been gained through roles with Asciano (both Patrick Ports and Pacific National Rail), the APA Group, BHP Billiton and Kraft Foods. He has also worked as a Major Projects lawyer for Herbert Smith Freehills, financing and delivering infrastructure projects both nationally and internationally. Most recently, Mr Quinn led the Queensland Government’s commercial advisory and procurement arm, Projects Queensland. Prior to this appointment, Mr Quinn was undertaking operational and strategic consulting for Tasmanian Railways. Qualified in both Law and Economics, Mr Quinn has experience that extends widely, from senior human resources, operational and general management roles through to negotiating and delivering major projects across both the private and public sectors.

Jonathan Kennedy, Executive Director – Policy and Strategy, Infrastructure Partnerships Australia Jonathan Kennedy is Executive Director, Policy and Strategy at Infrastructure Partnerships Australia.

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COMPANY FOCUS

WORKPLACE HEALTH AND SAFETY Health and safety in the workplace is an important consideration for both private enterprise and government organisations. Recent amendments to health and safety regulations aim to further reduce serious accidents and consequently improve productivity. But are these reforms adequately addressing this complex and multi-faceted issue?

Evidence suggests that the reforms are succeeding, with reductions in injuries over the past few years. According to the Australian Bureau of Statistics, serious workplace injuries have declined by more than 15 per cent since 2003; however, Safe Work Australia estimates that workplace injuries continue to affect Australia’s annual gross domestic product (GDP) by as much as $57.5 billion annually – or 5.9 per cent of our total economy. So what else can we do to reduce workplace accidents? One key component is obviously workplace safety training, but another largely ignored factor is the safety of the equipment being used every day by workers. While the use of personal protection equipment (PPE) such as reflective vests and protective eyewear has skyrocketed in recent years, the utilisation of tools that include safety features has been somewhat limited. Many companies pride themselves on providing products that lead the way in safety. Most would be familiar with the automotive industry and its initiatives to improve occupancy safety. The Australian New Car Assessment Program (ANCAP) provides a safety ratings system for new cars marketed in Australia. The ANCAP rating has become a key consideration for Australian consumers when making a purchasing decision on a new vehicle. Automotive manufacturers pride themselves on achieving additional ANCAP ‘stars’, and their continued innovation has made today’s automobiles safer than ever. One company that is heavily involved in the automotive industry, and specifically safety features, is German firm Bosch GmbH. Bosch is the leading producer of automotive components worldwide, and has been a key

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developer of features often taken for granted, such as anti-lock braking systems (ABS). Bosch is currently developing the next generation of safety features, such as collision avoidance and reversing control systems. Another division of Bosch that has become a market-leader in safety within its industry is its Power Tools and Accessories Division. One specific power tool with which the Bosch brand has become synonymous is the angle grinder. Angle grinders are used to grind, shape and cut various metals, but they are also commonly used on applications such as the grinding and cutting of masonry surfaces. Due to their wide range of uses, angle grinders are used by most tradespeople quite commonly. While these tools are

extremely versatile, they are extremely dangerous when used incorrectly. Utilising its expertise in automotive technology, and specifically ABS, Bosch Power Tools developed the ‘Kickback Stop’ feature for its angle grinders. This industry-leading safety feature protects the user from the ‘kickback’ phenomenon. Kickback occurs during cutting applications when the disc jams. The Kickback Stop is an electrical system that immediately cuts off the power to the machine when a jam is detected. This will significantly reduce the force transferred to the user and thus avoid any serious shoulder, elbow and wrist injuries. Additional features on the Bosch Safety Angle Grinder range include Dead Man Switches, Twist-Proof and Multi-Position Guards, Re-Start Protection and Vibration Control. While safety features are extremely important, any angle grinder is useless without the cutting and grinding discs they are designed to function with. The Bosch heritage of producing quality angle grinders has recently seen a new addition, with the launch of an Australian-specific range of cutting and grinding discs. These quality Bosch products comply with, and exceed, all Australian and European quality and safety standards, which include speed and burst tests. Combined with the safety features on Bosch Angle Grinders, they ensure the highest possible levels of safety for end users. The next time you purchase an angle grinder or cutting and grinding discs, ask yourself this question: do they meet the safety standards you require?

BOSCH HAS SAFETY COVERED

Safety Angle Grinder Features Dead Man Switch a specifically designed switch, which shuts the grinder off once the switch/trigger is released. Kickback Stop a safety feature similar to ABS,

detects if the tool is jammed and immediately switches the grinder off.

Restart Protection prevents the grinder from

restarting automatically after a power cut, the grinder will need to be switched on again to continue working.

Multi Position Locking Guard twist-proof

protective guard – quickly and easily adjustable and provides protection if the grinding disc shatters.

Spindle Lock and Constant Speed Electronics faster, simpler disc/tool change. Power booster for heavy loads – constant speed, even under load.

Vibration Control patented vibration damping system that reduces oscillations and vibrations.

> New comprehensive range covers most applications

> Easy to choose colour coded, application based packaging: Blue: Standard Metal Applications Black: Stainless Steel and Inox Green: Masonry Multi-colour: Multi-purpose > Bosch quality manufactured and tested to Australian Standard AS1788.1-1987 to European Standard EN 12413

> Sizes range from Sizes range from 125 mm (5”) – 230 mm (9”)

For further information please visit: www.bosch-pt.com.au

100 mm (4") ‒ 355 mm (14")

Commercial Lighting

Infrastructure Solutions Advanced Lighting Technologies have been supporting consulting engineers, project managers and developers in infrastructure projects in the

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Call 03 9800 5600 or visit www.adlt.com.au

Advanced Lighting Technologies have been supporting consulting engineers, project managers and developers in infrastructure projects in the Australian marketplace for over 20 years. For practical and energy saving lighting solutions

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for your next project, contact our team of specification sales engineers.

Call 03 9800 5600 or visit www.adlt.com.au

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110 Lewis Road, Wantirna South, VIC 3152 8 Boeing Place, Mount Maunganui Block 4008, Ang Mo Kio Avenue 10, #04-06, Techplace 1

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Future Building 2015

Articles inside

National priorities, state projects: Australia’s new machinery of government – panel discussion

Rod Sims | Chairman, Australian Competition and Consumer Commission

Steve McCann | Group Chief Executive Officer and Managing Director Lendlease

The Hon Andrew Constance MP | New South Wales Minister for Transport and Infrastructure

Towards social markets – panel discussion

Kerrie Mather | Chief Executive Officer and Managing Director Sydney Airport

John Pickhaver | Executive Director, Co-Head of Infrastructure Utilities & Renewables, Australia and New Zealand, Macquarie Capital

Chairman’s Foreword | Adrian Kloeden, Chairman Infrastructure Partnerships Australia

Politics, projects and people – panel discussion