Future Building 2023 by Infrastructure Partnerships Australia

futurebuilding The Australian Infrastructure Review

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Contents

futurebuilding The Australian Infrastructure Review

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Contents 2

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

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Partnerships – 2023 sponsors CEO welcome | Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

12 18 28 34

Treasurer’s address | The Hon. Tim Pallas MP, Treasurer of Victoria Panel discussion | Respected leaders Keynote interview | Dr Alan Finkel AC

In conversation with | Mark Collette, Managing Director, EnergyAustralia

In conversation with | Scott Charlton, Outgoing CEO, Transurban

54 62 70

Macquarie Capital economic update Panel discussion | Victorian major projects Panel discussion | Chief technology officers: the real AI conversation

Minister’s address | The Hon. Jacinta Allan MP, Premier (then Deputy Premier, Minister for Transport and Infrastructure, and the Suburban Rail Loop), Victoria

Editor: Kirsty Timsans Infrastructure Partnerships Australia E: contact@infrastructure.org.au Future Building is published by: Executive Media Pty Ltd ABN 30 007 224 204

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Foreword

Chairman’s foreword In September, Infrastructure Partnerships Australia hosted its signature conference Partnerships, which has evolved over the past 18 years into an important annual milestone for the infrastructure sector. Partnerships is a conversation – at the highest levels of our industry – about where we’re at and where we’re heading. I am delighted to present the latest iteration of Future Building, which reflects this conversation taking place among respected political, public service, and business leaders about navigating the opportunities and challenges ahead. These challenges and opportunities were well canvassed by each of our experts on the day of the conference, and have been captured in this publication. Leading this conversation was the Treasurer of Victoria, the Hon. Tim Pallas MP, who opened the conference with an update on the state economy and launched a new procurement approach to expedite the delivery of infrastructure projects in Victoria. This set the scene for many prominent voices to weigh in on some of the industry’s key issues. In an update from his 2022 oration, Australia’s former Chief Scientist, Dr Alan Finkel AC, reflected on the progress of Australia’s energy transition to date, and the key enablers and barriers to success. Respected industry leaders Jim Miller, Clare Savage, Michael Brennan and Joanne Spillane took a temperature check on the broader sector as it continues to balance a huge pipeline of infrastructure commitments in a fiscally constrained market. Then-Victorian Deputy Premier, Minister for Transport and Infrastructure, and Minister for the Suburban Rail Loop the Hon. Jacinta Allan MP highlighted the work underway to transform Melbourne into a global city, as well as the challenges ahead as infrastructure investment seeks to solve the twin challenges of population growth, and housing supply

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and affordability. The focus on our host state continued into a panel discussion on the Victorian major projects pipeline by the leaders working together to deliver it – Joe Barr, Kevin Devlin and Cressida Wall. The ‘In conversation’ sessions with EnergyAustralia’s Mark Collette and Transurban’s Scott Charlton delved into some of the industry’s biggest talking points through a private sector lens, and each leader’s respective experiences at the helms of their businesses. Meanwhile, Macquarie Capital’s Tim Joyce presented global economy and markets trends, and the staggering opportunity for infrastructure investors that is the energy transition. This year’s Partnerships conference also boldly delved into artificial intelligence, with leaders at the forefront of this technology at ANZ, John Holland and Microsoft cutting through the noise and imparting real insights on its practical applications in the infrastructure space. You are most welcome to revisit the conversations from Partnerships 2023. I hope this will provide some food for thought in your professional lives as you go about solving the many challenges, and seizing the opportunities presented in the following pages.

Sir Rod Eddington AO Chairman Infrastructure Partnerships Australia

Partnerships – 2023 sponsors

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Planning for the future – delivering places for people By Derrick Hitchins, Chief Technical Principal – Transport Planning and Advisory, SMEC The role of transport in sustainable development was first recognised at the United Nations (UN) 1992 Earth Summit. The UN General Assembly further noted that over the next 20 years, transportation would be expected to be the major driving force behind a growing global demand for energy. Long-term planning and vision, as identified by these bodies 30 years ago, continues to be crucial in delivering the outcomes our communities and the environment need. The transport sector is a fundamental part of the built environment, and now, more than ever, we are working to integrate an ever-increasing range of sustainable solutions into our projects. The global attention to transport has gained momentum in recent years with the advent of new technologies such as artificial intelligence and vehicle

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automation, and the role these will play in our transport landscape. In Australia, we are in the midst of a transport boom, but it is important to note that, according to the CSIRO, up to 70 per cent of the infrastructure required by 2050 in Australia is not yet built.1 For engineers, planners and scientists, this provides an opportunity and, more importantly, a responsibility to ensure that our approach to future infrastructure considers future adaptability and lasting sustainability.

Sustainability from a public transport perspective

Achieving sustainability in transportation requires a concerted effort by everyone involved in the transport sector. We must achieve a meaningful shift in individual and societal behaviour, promote sustainable business models, and

encourage innovation and investment in clean technologies. Encouraging walking and cycling, and integrating these modes into our urban planning solutions, can contribute to behaviour change and overall sustainability. There also needs to be a holistic commitment from all levels of government to deliver policies that support global best practices and collaboration with the community. A key element of sustainable transportation is minimising the pollution and greenhouse gas emissions caused by transportation activities. This includes promoting the use of low-emission vehicles, improving fuel efficiency, and encouraging the adoption of alternative energy sources, such as electricity, hydrogen and biofuels. As we continue to embrace these emerging technologies, we should also be looking towards the

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implementation of transit-oriented developments (TODs) and sustainable mobility management (SMM) methodologies as catalysts for change. TODs promote the creation of sustainable communities by establishing residential, commercial and leisure space within walking distance of public transport. TODs are an important part of the urban fabric of a city. They provide equitable access, reduction in car dependency and vibrant urban communities rather than isolated developments. SMM has a broader focus that encompasses various strategies and measures to promote sustainable transportation options and behaviours. It includes not only land use planning, but also initiatives like promoting carpooling, implementing congestion pricing, and enhancing active transportation infrastructure. At SMEC, we are passionate and committed to making a meaningful impact on our communities and environment. Our global team has successfully worked within rigorous development frameworks to deliver global best practice solutions in relation to TODs. Through ambitious station developments, such as Sydney Metro’s Crows Nest Station, and Cox’s Bazar Railway in south-eastern Bangladesh, SMEC has built an iconic portfolio of activated and environmentally sustainable station precincts that incorporate the latest smart technology solutions with a focus on future community wellbeing and growth.

Innovation-centric design

Bringing together technology, existing infrastructure and new developments while also delivering a value-for-money, sustainable outcome is achievable. Regardless of where a project is in its life cycle, there are opportunities for improvement and optimisation; however, optimal outcomes are achieved when all parties come together at the earliest opportunity. SMEC, in partnership with others, first assisted Transport for NSW with the rollout of 50 new electric buses across the Sydney metropolitan area

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back in 2021. This first tranche of work laid the foundation for the transition of the state’s remaining 8000 vehicle bus fleet to zero emission technology by 2030 and achieving the state government’s commitment to net zero emissions by 2050. The team provided advice and guidance on adaptations required to the existing bus depots to make space for the zero emission buses and their charging technology. Each depot layout was designed to maximise the number of buses able to be stored while considering the electrical and ongoing operational requirements of the fleet. Our role was to support the planning stage of the project, providing detailed design services and technical advisory in relation to infrastructure and operational requirements, helping to facilitate a seamless transition to the new green-powered bus fleet. The first stage of the transition will begin in 2023, and will introduce 1200 new electric buses for Greater Sydney customers by 2028. Under the Zero Emission Buses Transition Plan, the transition will be complete in Greater Sydney by 2035, in outer metropolitan

regions by 2040, and in regional New South Wales by 2047. To achieve the outcomes and reach the set targets, early involvement and effective planning is essential, especially when the rollout covers a 20-year period.

Conclusion

Sustainability in transportation involves a comprehensive approach that addresses environmental, social and economic aspects of transportation systems. It requires a combination of technological advancements, supportive policies, and changes in individual and societal behaviours to create a more sustainable and resilient transport system for the future. And as the UN 1992 Earth Summit set the scene for decades of forward planning, we, too, are making the decisions today that will enable us to thrive as a community in the future. ♦ 1

Keck, E. (2017), ‘The 20th century saw a 23-fold increase in natural resources used for building’, CSIROscope, www.csiro.au/en/ news/all/articles/2017/february/20th-centurysaw-23-fold-increase-natural-resourcesused-building.

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Sydney Metro New South Wales

Delivering technical excellence and innovation to contribute to Australia’s future Through our specialist expertise, we deliver advanced solutions across the renewable energy, transport and urban markets for our communities, clients and partners. Leveraging our 70-plus year history of delivering nation-building infrastructure, we provide technical expertise and advanced engineering, design and planning services to resolve complex challenges within roads, highways, rail, metro, ports, airports, hydropower, renewable energy and urban markets. Through our network of global specialists and by collaborating with local partners and communities, we connect you with the best teams and capabilities to deliver highly innovative and sustainable solutions.

We’re redefining exceptional

Discover more about how SMEC is contributing to a sustainable future. smec.com/insights

CEO welcome

Welcoming address Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

Infrastructure Partnerships Australia Chief Executive Officer Adrian Dwyer welcomes attendees to Partnerships 2023

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CEO welcome

Welcome to Partnerships 2023, the first Partnerships conference we’ve held on the ground here in Melbourne since 2018, when things – I’m sure you’ll agree – were quite different. But more on that later. This is Infrastructure Partnerships Australia’s 18th birthday year. It is fitting that the 18th birthday party is at the Partnerships event this year, and is not a salubrious affair, but rather a serious and sober policy dialogue between the most senior leaders of the sector we represent. It is fitting because it goes to the core of what Infrastructure Partnerships Australia is: a think tank and member network that has established itself as the pre-eminent leader in Australian infrastructure discourse. It is also fitting because the times we are in call for serious ideas discussed by serious people to solve serious challenges. There are, of course, a number of people and organisations that have been with and behind Infrastructure Partnerships Australia across its journey to adulthood, and I would like to take this opportunity to acknowledge a few, such as Tony Shepherd AO, the Hon. Nick Greiner AC, and Adrian Kloeden, who also served as Chair of Infrastructure Partnerships Australia throughout its tween years. I’d also like to acknowledge our Life Member Brendan Lyon, and I’d like to recognise our Founding Chair, the Hon. Mark Birrell AO, who was central to Infrastructure Partnerships Australia’s formation, and remains very close to everything we do. I alluded to the organisations that have supported us over the journey. There are many, but the 2023 event’s gold sponsor, Macquarie Capital, deserves particularly special recognition. Macquarie has been the signature sponsor of this event from its inception, and has been an unwavering supporter over that time. Of course, the support predates this event, with Macquarie – through Nicholas Moore at the time – really underwriting the first few years of a fledgling Infrastructure Partnerships Australia. That support endured through the past few years of disruption, and I want colleagues from Macquarie to know that that commitment is deeply appreciated by Infrastructure Partnerships Australia, our Board, and our broader membership. Macquarie Capital was joined by a range of other key sponsors that have made the 2023 event and our wider program possible. I’d like to thank our silver sponsors – ANZ, John Holland and Transurban – for their support and contribution to Infrastructure Partnerships Australia. And finally, our bronze sponsors – the APP Group, the Victorian Department of Transport and Planning, and the Victorian Department of Treasury and Finance. I spoke earlier of how things are somewhat different from when we last gathered in 2018. I’ll spare you the full retrospective, but we gathered at a time of rudely healthy state balance sheets underpinned by economically rational reform, expanding

transport programs, and growing Commonwealth investment in infrastructure. Completing this picture, economic growth seemed to come easily, supply chains flowed, inflation was so low that it was never even discussed, and our people shortages seemed isolated only to the apocryphal rail signalling engineers. It wasn’t all roses, but now, in the rear-view mirror, the challenges seem almost quaint. Today, the contemporary challenges are evident. In the near term, they’re well canvassed, so I don’t need to retrace them now. Over the medium and longer term, the 2023 Intergenerational Report (released in August) lays bare a future that, without course correction, will see structurally lower growth, declining productivity, and reduced participation from an aging population. But those challenges arrive hand in hand with substantial opportunities. Perhaps the biggest of those is the energy transition. If the global challenge of our generation is decarbonisation, then the infrastructure to support it is the opportunity of our lifetime. And the event’s agenda reflected the optimism and drive to meet that goal. We heard from respected leaders who reflected on the transition, and those who are in the middle of implementing it right now. We also heard from one of Victoria’s longest-serving treasurers, who canvassed the economic and fiscal position in Victoria, providing an important backdrop for the discussions that followed. Our annual Respected Leaders’ Panel extended the conversation on the upcoming challenges and opportunities as we face a new generation of infrastructure delivery. We were also joined by one of Australia’s greatest scientific minds, Dr Alan Finkel AC, who rejoined us after his landmark 2022 oration to reflect on the journey to date in the energy transition. While the pivot to energy is clear, it would be naive to simply assume that the wave of transport and social infrastructure investment is behind us. At the time of the event, 70 per cent of major infrastructure expenditure was transport related. While that proportion will fall, the actual quantum of dollars continues to rise over the near term. That’s why this year’s Partnerships’ agenda also covered the current pipeline and delivery of Victorian major projects. The Deputy Premier of Victoria (now Premier of Victoria) provided her vision for the state’s infrastructure and the big build that remains ahead. As Partnerships is a gathering of the sector’s leaders, it was fitting that we were joined by some of our most senior peers – Mark Collette, Scott Charlton and Tim Joyce – who each provided their respective insights on the current state of play, as well as the forward outlook for the economy, reflections on reform, and the future of the sector. Partnerships was rounded out by a real and tangible conversation about artificial intelligence (AI). The chief technology officers from some of Australia’s leading businesses detailed how they are currently using and implementing AI, and the possibilities for the future.

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The growing role export credit agencies can play in funding energy transition ANZ’s working with export credit agencies worldwide to fund renewable energy projects – and create more opportunity for companies. Companies involved in renewable energy projects should consider including export credit agency (ECA) financing in their funding mix, given the scale of investment required for decarbonisation. Aaron Ross, Global Head of Project and Export Finance at ANZ Banking Group, believes ECAs will play a larger role in funding renewable energy projects as governments worldwide increase funding for decarbonisation. ‘The amount of capital required to decarbonise economies is unprecedented,’ says Ross. ‘The export finance market is rapidly evolving to help meet this challenge. ECAs are continuing to innovate their financing arrangements on both tied and untied

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programs to ensure they become more competitive, and increase support for key energy transition projects.’ More than 100 countries provide export credit financing through government-mandated ECAs.1 Their services range from direct finance to guarantees, bonds and insurance products. ECAs work with small enterprises through to corporates that use syndicated loans for infrastructure projects. Export Finance Australia (EFA), for example, has supported renewable energy infrastructure projects in the Indo-Pacific.2 EFA also supports Australian small and medium-sized exporters. ECA-backed volume in the first half of 2023 jumped to

$84.5 billion – just $18 billion less than in the whole of 2022. 2 Ross says ECAs are an essential supplement to bank and other private capital sources that are financing the clean energy transition. ‘By leveraging sovereign balance sheets to catalyse private sector investment, ECAs can help accelerate the pace of transition to a low-carbon future.’ ECAs can support decarbonisation in three main ways. First, by increasing capital available to finance projects. Second, by sharing risks with the private sector in emerging technologies, such as green hydrogen or thinly traded products like rare-earth elements. Third, by signalling to the private sector that the project has government

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support, which, in turn, strengthens its investment case. ‘ECAs provide maximum impact for taxpayer funds,’ says Ross. ‘They support renewable energy projects that are in the national interest of EFA, while helping companies raise their required capital and diversify their funding mix. ECA financing can make a significant difference when banks cannot provide the full funding required due to project, sector or country risks.’ ECAs already finance most parts of the energy transition value chain. This includes batteries, critical minerals extraction and processing, component manufacturing, construction of renewables generation, and hydrogen manufacturing. ‘ECA finance will be critical to establish a hydrogen and ammonia export industry,’ says Ross.

Raising awareness

Roland Randall, Director of Corporate Finance at ANZ, says that the bank has had more inquiries this year from overseas companies seeking ECA support for renewable-energy projects in the Indo-Pacific; however, Australian companies are lagging behind international trends in the use of ECA funding. Randall says greater awareness of ECAs – and their evolving role in renewable-energy projects – is needed. ‘Companies in Japan and South Korea, for example, are familiar with ECAs and export finance,’ says Randall. ‘That isn’t always the case in Australia, particularly in sectors outside mining. Some companies might not understand the funding options available through ECAs, and how ECAs are changing.’ Randall says there is an outdated perception that ECA funding has longer lead times, and is mostly ‘tied’ to contracts for goods and services provided by a contractor from the ECA’s home country. ‘ECAs have become more agile and are providing more finance that is not tied to goods from the home country, and issued on the basis of strategic national interest.’

Change in ECAs is accelerating. In 2019, amendments to the Export Finance and Insurance Corporation Act 1991 (EFIC Act) expanded EFA’s mandate. EFA’s key functions include providing finance and facilitating private sector finance to support Australian export trade and Indo-Pacific infrastructure development. The change to the EFIC Act also provided greater clarity on EFA’s role in financing transactions supporting the national interest in areas such as defence and critical minerals. EFA manages the Australian Government’s $2 billion Critical Minerals Facility. Australia is also a participant in an Organisation for Economic Co-operation and Development (OECD) agreement to expand export credit support for green projects. In an update announced this year, the Arrangement on Officially Supported Export Credits now allows participants to provide more generous and flexible financing terms for climate-friendly projects. Australia is one of 11 participants in the agreement. Randall says the OECD agreement responds to rising demand for export credit finance. ‘In some respects, governments worldwide are playing catch-up. They recognise governments can fill a gap in capital markets for renewable energy projects in emerging technologies, and that there is much to gain from greater collaboration between ECAs and banks.’ Randall says ECAs can contribute to funding innovation. ‘It’s not just about finance. For some projects, ECAs could underwrite power purchase agreements (between an electricity generator and a customer), or provide a floor price for critical minerals in markets lacking pricing transparency. This additional support would help banks finance clean energy projects with higher risk.’

ANZ’s competitive advantage in export finance is underpinned by its international resources and networks. The bank has export finance staff across Asia, Europe, the United States and Australia. This team has extensive connections with ECAs worldwide, and understands their requirements. ‘We do a lot of work with ECAs in Australia and overseas,’ says Ross. ‘We have helped many companies arrange ECA funding, helped coordinate ECAs in different countries on a project, and structured ECA funding within financing provided by ANZ or through a loan syndicate.’ Ross says Australia is a priority for overseas ECAs. ‘ANZ has been visited by several overseas ECAs that see significant investment opportunities in renewable energy projects in the Indo-Pacific. ECAs want to get involved in decarbonisation opportunities in our region.’ ANZ is also providing more export finance for intra-Asia projects, where a company in an Asian country develops a clean energy project in another Asian country. Pacific Island countries are another focus, given ANZ’s longstanding network of offices in the region. The Australian Infrastructure Financing Facility for the Pacific is helping develop climate-resilient infrastructure in the Pacific. Ross encourages companies to consider ECAs. ‘There’s significant support available, and it continues to grow as governments recognise the need to work closer with their customers and key banks to finance the transition to a low-carbon world.’ ♦

Leadership role

As the only Australian bank with a dedicated export finance capability, ANZ has a long history of helping companies access ECA finance both here and overseas.

To learn about how ANZ export finance can help your business, visit anz.com and search ‘export finance’. PwC (2023). ‘Export Credit Agency Financing’, March 2023 2

Exile Group PLC TFX Intelligence. Market status Export Finance

Export Finance Australia website, 27 September 2023

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Treasurer’s address – The Hon. Tim Pallas MP

Treasurer’s address The Hon. Tim Pallas MP, Treasurer of Victoria Key points: • • •

The Victorian economy has proven resilient in the face of economic headwinds, with the lowest unemployment rate in the country. Further private sector investment in infrastructure will be enabled as public infrastructure investment reaches its peak and declines. A new whole-of-government procurement framework aims to reduce the complexity and costs of procuring infrastructure in Victoria.

Treasurer of Victoria the Hon. Tim Pallas MP

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Treasurer’s address – The Hon. Tim Pallas MP

I’ve spoken many times at this forum since 2014, in the nearly 10 years since the Andrews Government took office.

marking the completion of structural works on the main hospital tower.

We are still feeling the effects of the pandemic, the war in Ukraine, and the tremors from high interest rates and inflation. Yet, the Victorian economy has demonstrated strength and resilience in the face of global instability.

Our projects have launched careers for thousands of workers in construction and engineering – providing an invaluable training platform for the next generation of skilled workers.

Victoria’s strong economy is providing opportunities for workers and confidence for businesses. And there’s plenty of positive news, with the September 2023 Australian Bureau of Statistics data showing Victoria has the lowest unemployment in the country.

Victorians have entrusted us to get on with the job of delivering these projects, and we haven’t wasted a second.

There are more than 3.65 million Victorians in work, and the unemployment rate in August fell to 3.5 per cent. In addition to this, Victoria’s population growth is now the fastest in the nation. Demographic projections indicate that population growth has returned to the trajectory that would have occurred had a pandemic not affected the country. The Victorian economy has put on more than 504,000 jobs since September 2020 – that is 115,000 more new jobs than the second-ranked state, New South Wales. When it comes to really big, game-changing infrastructure projects, I don’t have to tell you that there’s been a long lead time to see the results. We’ve more than quadrupled the rate of investment as we’ve tried to close our infrastructure gap. But it should come as no surprise that we’ve reached our forecasted peak for expenditure, and this will have to start coming down from here on. It is my expectation that by the end of the last financial year, we will see capital expenditure by the public sector sitting around $21.5 billion. This number will start to abate and, based on my projections, will be brought down to around $17 billion a year by the end of the forward estimates. In practical terms, this gives breathing space to private sector effort and investment. There is a law of diminishing returns if public and private sectors continue to compete for skills and resources for their own respective infrastructure programs. After a long time in the making, trains are right now being tested at maximum speed inside the Metro Tunnel, in its twin nine-kilometre train tunnels. The West Gate Tunnel Project is also on the home stretch, with the final span of the new elevated freeway in place and below ground, and more than 80 per cent of the road deck installed. It’s another game changer for Melbourne, and one that will slash travel times to the city’s west. At Footscray, our new hospital site was home to the most cranes in the Southern Hemisphere for most of 2022, and the precinct has reached its maximum height,

We’ve got the ball rolling on the next phase of investments, with the Health Infrastructure Delivery Fund supporting development of new and refurbished hospitals, and projects like the Suburban Rail Loop and North East Link are all currently out to market for significant packages of work. The Health Infrastructure Delivery Fund will support the biggest hospital redevelopment in Australia’s history, with upgrades to the Royal Melbourne and the Royal Women’s hospitals in Parkville, and a new campus of both hospitals in Arden. Our infrastructure pipeline needs to support Melbourne’s rising population, with new transport, education, health, cultural and housing projects on the way. But our future pipeline will need to be scaled over the medium to long term. We will continue to invest in economically productive infrastructure, and we will do so in excess of what we inherited in 2014 – but it’s clear that we’ve hit our peak in terms of annual expenditure. Whether its competition and productivity policy, skills and training agreements, or our infrastructure pipeline, the Victorian Government wants a true partnership with the Commonwealth Government. Our federation works best when we work together. This includes maintaining our funding share on corridors of national significance and more willingness from the Commonwealth to be active stakeholders in jointly funded projects, including those that are impacted by cost pressures. We need to increasingly acknowledge that the work of the Commonwealth and states must be seamless. Victoria has an impressive track record of using new and innovative procurement approaches to successfully deliver large and complex projects. To deliver a pipeline that covers the size and scope of ours, we cannot afford to be dogmatic about our choice of procurement model. Different contract models have been used for different projects, with great success. This includes using the Alliance model to remove some of our most dangerous level crossings, the Managing Contractor model to upgrade operating health facilities, and the Incentivised Target Cost model to deliver the Suburban Rail Loop East tunnelling packages. Victoria has also been a leader in leveraging private investment to complement state infrastructure investments. The

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Treasurer’s address – The Hon. Tim Pallas MP Treasurer of Victoria the Hon. Tim Pallas MP delivers the opening address for Partnerships 2023

commercial drafting, so that teams can focus their time on unique project risks. They build on the hard lessons learnt over time, and they offer wins for industry and for the state. These new contracts will be progressively delivered, with tranche one including a new Partnerships Victoria deed, an Incentivised Target Cost contract suite, and a modern Enhanced Design and Construct deed. People and perseverance have driven the success of Victoria’s application of private capital across our pipeline, new Partnerships Victoria Ground Lease Model has also been used to deliver new and rejuvenated public housing. The recent social housing Ground Lease Model Project 1 was the first of its kind in Australia, and was structured as a Precinct Partnership public-private partnership model applied to a build‑to-rent project.

with 37 Partnerships Victoria projects contracted worth over

This structure allows revenues generated from market rental dwellings to offset the costs of social and affordable housing.

diversified pipeline and ongoing role for private capital.

Private investment through the Partnerships Victoria model drives innovation, efficiencies and enhanced value. It does this by keeping a greater and whole-of-life lens focus on long-term service delivery and performance.

streams – Precinct Partnerships, Community Partnerships and

Victoria’s success at using innovative procurement models means that government and industry are in continual dialogue about fine-tuning the process.

established practices. They capture emerging opportunities to

Industry has been calling out for step change in how projects are delivered, with standardisation at the heart of these calls. We have listened – and I’m happy to announce the release of a new whole-of-Victorian-Government framework that will provide a simplified and consistent approach to procuring infrastructure. The framework includes three categories of procurement – lump sum, cost reimbursable and whole of life – each with its own set of approved procurement models.

$50 billion in capital investment. While there have been some recent changes to the faces of those leading Partnerships Victoria, I want to assure you of my commitment – this government’s commitment – to supporting a Our framework will add three new Partnerships Victoria Economic Partnerships – reflecting the diverse application of the Partnerships Victoria model. The new streams combine recent market innovations with secure benefits for the community and value for the government. These

reforms

create

modern,

consistent,

and

transparent approach to procurement across all departments and delivery agencies. I think this government’s collaboration with the private sector has been key to our success with growth, job creation and building a better Victoria. While it’s our differences that are reported, the success stories blend seamlessly into our everyday life across the state. Our partnerships will continue to evolve, finding new ways

The updated procurement guidance supports agencies to select the optimal procurement method and packaging approach when preparing a business case.

to serve the public better, and to attract investors.

The new cost reimbursable procurement requirements outline the mandatory government approval requirements and best practice expectations for high-value, high-risk projects delivered through cost reimbursable models. The key feature of these reforms is a commitment to deliver a set of standard form contracts for each model, reflecting industry feedback and market conditions.

these arrangements.

These standard form models will be organic and consistently adjusted based on input from industry, as we recognise the shifts in risks and appetite for risk based on prevailing economic and industry conditions. But it’s a good way to start a conversation.

It strips away stale and defunct processes, and helps us do

This suite of standard contracts will be progressively delivered, minimising the need for bespoke legal and

because there is still so much work to do for us all as we build

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The sharing of risk and profit, service quality, and accountability are arguments that have always shaped Today, the tough economic times we’re in require us to work smarter and harder than ever to meet the needs of a fast‑growing population. The innovation, agility and ambition of the private sector does a great job of sharpening and improving government. things quicker, better and for less. With our new framework, we hope to make the path smoother for industry, and more rewarding for both sides – Victoria for the future.

Committed to being your

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Water quality

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TRILITY Group builds on sustainability strengths Water and environmental services group expands its First Nations focus. As part of its Reconciliation Action Plan (RAP), TRILITY Group worked with David Booth, a local First Nations artist. The aim was to help TRILITY employees better understand First Nations people’s connection to Country as a place of belonging. The company held a series of internal workshops during National Reconciliation Week, where TRILITY employees each created their ‘storytelling artwork’. Booth used elements of that work in his creation of TRILITY’s RAP artwork, which represents the lands, connection to community, and moving forward on a new journey. The artwork was one of TRILITY’s first RAP and Reflect plan initiatives, which strengthened its commitment to reconciliation. ‘The Reflect plan has been an incredible learning journey for us,’ says TRILITY Managing Director Francois Gouws. ‘We want to build on that work and make it part of TRILITY’s values for many years to come. Reconciliation is a long and complex journey.’

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Gouws was heartened by the response to the Reflect plan. ‘Our organisation is fortunate to have an energetic Reconciliation Committee championing this issue, and our people have embraced this plan.’ For his part, Gouws participated in a cultural and language workshop where he and other employees learnt about the Kaurna people, whose traditional lands include the Adelaide Plains of South Australia (TRILITY has a number of operating, manufacturing and administration facilities in South Australia). Other TRILITY employees have also begun learning Kaurna words and, over time, TRILITY is planning to broaden Indigenous language and cultural sessions to other states. ‘Even knowing a minimal amount of an Indigenous language, as I do, gives one a better sense of their culture,’ says Gouws. ‘By encouraging our people to learn Indigenous words and occasionally use them at work, we can play a part in the language revitalisation efforts.’ TRILITY’s RAP targets extend beyond words. As a leading

Trans-Tasman water and environmental services provider, TRILITY is working with the Operation Flinders Foundation to provide a water treatment facility for the participants of its programs and its Indigenous lands in the Flinders Ranges, which is expected to become operational next year.

Skill building in water infrastructure

Previously, TRILITY has supported the upskilling of local communities in Doomadgee, a predominantly Aboriginal community near the Northern Territory border in North West Queensland. TRILITY routinely sent one of its operators to help the community build skills to operate and maintain water treatment assets. ‘As a water services company, TRILITY passionately believes water and wastewater facilities should be available to every person in this country,’ says Gouws. ‘Sadly, that isn’t the case for many remote First Nations communities. We can and must do more to address this problem.’

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Indigenous procurement is another focus for TRILITY. One employee recently suggested supporting Indigenous-owned organisations that provide accommodation when TRILITY employees travel to remote locations, or using Indigenous-owned suppliers in other parts of the business. ‘As an organisation, TRILITY can contribute to employment opportunities for Indigenous peoples in Australia and New Zealand,’ says Gouws. ‘It’s an area we continue to work on and believe we can make a difference in.’ Gouws says TRILITY’s Reconciliation strategy is strongly aligned with its operations. ‘We have Indigenous employees, and work across urban and remote communities; sustainability is central to being a water services organisation.’ He says TRILITY has much to learn from Indigenous culture. ‘The traditional owners of this land have sustainably managed Country for over 60,000 years. We can all learn from First Nations’ cultures’ rich contribution to the Australian community.’ These learnings will inform the next stage of TRILITY’s RAP journey – the Innovate plan.

Innovation in action

TRILITY’s work on its RAP strategy headlines a strong period of growth and innovation for the organisation – and coincided with the company’s 30th anniversary of its Australian operations. In that time, TRILITY has designed, built and/or operated more than 70 water treatment plants in this country, with a combined capacity of 1800 megalitres per day. Its projects extend from Australia’s northern tip to southern Tasmania. TRILITY continues to expand geographically and by service. In 2020, TRILITY was awarded a contract to deliver wastewater services to the Rotorua Lakes Council in New Zealand, and this provided a foundation for TRILITY to grow in New Zealand. TRILITY has established a small factory in New Zealand to manufacture bespoke, modular water treatment

plants, some of which have been installed at hospitals and other New Zealand sites. ‘New Zealand is a priority for TRILITY,’ says Gouws. ‘As the country embarks on water reforms in the next few years, TRILITY can help New Zealand communities with water infrastructure. We also hope to learn about Reconciliation from New Zealand, which is a long way ahead of Australia in this regard, and apply some of those learnings across our organisation.’ As it grows its Trans-Tasman presence, TRILITY is expanding its services, including training, network services and water quality consulting in the water industry. TRILITY began an expansion of its training operation by becoming a registered training organisation. Gouws says the training strategy was customer-led. ‘Our clients mentioned that training for their water assets was becoming a bigger concern. We were already doing chlorine awareness training and have experienced staff who can share their knowledge. The training operation is a good way to give back to our industry.’ In Queensland, TRILITY is doing more work on disinfecting pipeline networks through our network services. Having long done this internally, TRILITY now offers the service to its clients. It has mobile units

on trailers that use environmentally friendly ozone gas to disinfect networks, and it intends to provide the service across Australia. The water quality consultancy has been performing well, and continues to provide vital services to regional and rural areas nationwide. Longer term, TRILITY wants to become a dominant player in renewable energy – principally hydrogen projects and waste-to-energy assets. Further growth in New Zealand and entry into South-East Asian markets are other priorities in the next five years. ‘TRILITY’s goal is to continue to be a partner of choice and provide sustainable solutions across more segments of the water industry in our region,’ says Gouws. ‘This will require deep collaboration with communities, organisations and other stakeholders.’ For now, TRILITY’s work on its Reconciliation plan shows what can be achieved through collaboration with Indigenous communities. ‘TRILITY’s work on its RAP is now in its “innovation” phase, and we’ve already gained so much from this journey,’ says Gouws. ‘We can’t change the past; however, we can all influence the future by acting to support First Nations communities and culture.’ ♦ To learn more about TRILITY, visit www.trility.com.au.

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Panel discussion – Respected leaders Macquarie Capital Global Head of Private Capital Markets Joanne Spillane moderates the annual Respected leaders panel

Panel discussion Respected leaders Key points: • • •

In the current fiscally constrained market, the challenge to deliver the pipeline is not about government funding capacity, but whether the economy can deliver all commitments. Leveraging regulatory frameworks is important to address community concerns, ensure consistent decision-making and improve the process of gaining social licence. Fiscal discipline has an increasing role in driving project selection, particularly as the energy pipeline grows and technology develops.

Panellists: ► ► ►

Michael Brennan, Immediate Former Chair, Productivity Commission Jim Miller, Chair, Infrastructure Victoria Clare Savage, Chair, Australian Energy Regulator

Moderator: ►

Joanne Spillane, Global Head of Private Capital Markets, Macquarie Capital

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Panel discussion – Respected leaders

Joanne Spillane (JS): To set the scene for the discussion and focus on some of the challenges and opportunities in the sector, I’m going to start with a temperature check. When it comes to the economy, how are things tracking in terms of policy, productivity and performance? What are some of the challenges and trends that you are seeing? Clare, perhaps we could start with you? Clare Savage (CS): It is a particularly challenging time in the energy space – from a price and a supply chain perspective, to thinking about the transition and the move to net zero by 2050, and the significant targets in place by 2030. Right now, we produce about 60 per cent of our energy from coal. We want to produce 82 per cent of our energy from renewables by 2030. To work towards the electrification of industry and manufacturing, we will need to see a doubling in the size of our energy system over that period to 2050. If we want to continue to export energy in the form of other sources of energy, such as hydrogen, and factor out liquefied natural gas and coal exports, we need an energy system that is four times larger than the one we have today. Everyone around the world is trying to do the same thing. Therefore, I think some of the challenges we see in this space are real supply chain pressures; labour force; and engineering, procurement and construction contracting markets – it’s all very tight. Looking at the productivity of our infrastructure, distribution has been growing at about 0.6 per cent, and transmission has been growing about 0.1 per cent, each year on average over the past decade. In the past couple of years, that has started to decline as we’re seeing new capital expenditure required ahead of the demand for those services. From our perspective, we’re conscious that we are a big factor in the cost structures of other industries, but there are things we’re going to need to do differently if we’re going to lift our own productivity and improve price outcomes for Australians. This involves looking at the staging of projects and social licence considerations, and thinking about how we might bulk purchase long-lead-time items. Some of those things that will actually start to help bring down the cost of these projects are going to be really important. JS: Jim, would you like to comment? Jim Miller (JM): It’s a well-enunciated position on the energy side. Infrastructure Victoria has been looking at these long-term trends and how that’s going to impact the world. The big thing that drives a lot of our thinking is long-term demographics. That can be a bit boring, but if you have a look at the Intergenerational Report that came in August, it highlights a fundamental long-term challenge. We’re all sadly getting older, and that’s putting a big cost on the economy. There’s a lot of uncertainty going forward, but that, of all things, is most likely or most certain. We heard the Treasurer say that we have

peaked in terms of infrastructure spending. There will be lots to deliver for the energy transition, but there is a constraint on all government balance sheets at the moment. That’s even before we continue down this increased demographic expenditure path. There are a lot of issues that we’re dealing with, but certainly in terms of government balance sheets and government flexibility, there are real constraints, and they are growing over time. They are not getting smaller, and that challenge about doing more with less – that’s the real challenge, but the opportunity is also real. JS: Michael, could you talk more specifically about the productivity landscape and the fiscal settings in the sector at the moment? The way I see it, we have a huge pipeline and a constrained fiscal position. Demand is continuing to increase with population. Macro energy targets are pressing down upon us and, meanwhile, productivity is flatlining. So, how on Earth do you square that circle? Michael Brennan (MB): It’s hard to square that circle. My glass-half-full comment on the general temperature check would be that when I think about where Australia is positioned, and how we’re performing relative to our peers, it’s good in the scheme of things. You could make a case that three times in the past 15 years, the globe has faced substantial dislocation: the global financial crisis, the COVID-19 pandemic and, arguably, this inflationary episode. I would contend that, in all three cases, Australia is going to handle them better and get through them better than many – that’s the upside. I think what’s changed and what’s challenging is the path of decarbonisation. That is, by far, the big transformation that we have to confront. Decarbonising the economy completely, in net terms, in the space of three decades is a very radical change. It’s going to be very material-intensive and tax our resources, innovation, and enterprise. It’s worth doing, but it’s an important challenge. We are in this new world order with a combination of supply chain concerns, inflationary pressures, and a massive shift in policy orthodoxy across the globe, away from what we’ve traditionally seen as a multilateral free trade order towards much greater protection. This is being led by the United States and is a substantial shift that Australia must navigate. There is a fiscal constraint that’s now coming on, and we’re seeing it at the state and federal level. In many ways, it is just a proxy for a supply side constraint. Increasingly, we must think about the economy in supply side terms – the scarcity of labour, materials and capital is very real. It’s not just about whether governments have the money, but whether the economy has the capacity to deliver all of the things that we’re effectively asking of it. Something’s got to give and, traditionally, productivity growth has been what has allowed us to deliver more for less. That has slowed in recent

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Panel discussion – Respected leaders

years, and we have to find ways to effectively get that to kick back up. JS: Jim, you talk a lot about social licence and the need to take people along with you on that policy journey. Can you reflect on your experience in terms of some of your recommendations on domestic gas and how that could be applicable to some of the other prickly challenges that we face in this area?

from 2024. That’s an important part of the decarbonisation

JM: Social licence has been an infrastructure issue forever, but it’s an even bigger issue now. Based on a couple of things that we’ve certainly seen, I would put it into two buckets: advocacy and community. On the advocacy side, the more people saying the same thing, the better chance you have of getting social licence. A big call-out to Infrastructure Partnerships Australia for being front and centre on a lot of the long-term, hard issues. The good news is that we’re really seeing some movement. The Treasurer called out road user charging, which involves pricing for distance-based charging for electric vehicles. We’ll see how it goes in the High Court, but that’s a very significant step. That was a very hard issue. No-one wanted to touch that, but it’s now on the table. That has the potential to do really important things as it goes through, and it’s through advocacy bodies like Infrastructure Partnerships Australia and other groups like Infrastructure Victoria. They have been valuable in bringing that out.

and said that they agreed with the decision and it was sensible

The other thing I’m calling out is the community. One of the big things we have the opportunity to do is not just to talk to the community, but also ask the community. We can go out and ask open-ended questions, and the gas advice is a great example of this. We provided some gas advice to the Victorian Government as part of the decarbonisation agenda. How do you transition from gas? There are two million households, businesses and industry that have gas connections. How is it going to work? We spoke to 1000 different people in the community, businesses and industry, and said, ‘Tell us what you think. Here are some questions, but we’re really more interested to hear what you think’. And out of that came some interesting insights. One big thing we found was that everyone is focused on getting their carbon emissions down, and that is great. What we found from that research is a tension as people are also focusing, and making decisions, on the dollars and the cost impact to their hip pocket. This is extremely helpful for us when framing things. People are committed to tackling climate change and decarbonisation, but there are many tensions. When push came to shove, the impact on household budgets was a real tension. So, that leads to the question: What do you do with that? From that work, we were able to discuss how to deal with this transition and the fertile ground was: What do you do with new homes?

The Victorian Government took part of our advice and announced that for new homes there will be no gas connections

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story. That’s hard to do. There was obviously a fair bit of commentary on that at the time. But importantly, again, this advocacy points through the work that we had done, and other groups came out, such as the Master Builders associations, for all the reasons that people have communicated. There are some really positive things that we found through that approach. JS: We can’t move on from social licence without Clare talking about the challenges in terms of social licence associated with the rollout of energy infrastructure and, in

Panel discussion – Respected leaders

particular, around transmission grids in regional communities.

Speaking about some of those challenges, it takes about

How are you considering that in terms of the policy settings for

$1000 per household to abolish the gas meter. For two million

the rollout?

households, there’s a $2 billion problem right there. Looking at

CS: Before we move on to electricity, staying on gas, I think the advice that you gave is the start of the story. As an infrastructure regulator and someone whose job it is to regulate gas pipelines, the regulatory framework is designed on growing demand. When you start thinking about banning new connections and reductions in demand through time, we then get left with difficult choices about how to accelerate

some of those challenges, we need to go further in our policy thinking about how we want to transition people away from gas networks. We still hear, through engagement with businesses, that while there is still significant support for decarbonisation, that cost tension will always be there. Social licence for the transition will require some more thinking about how we transition away from some of these assets into the future.

the depreciation of the pipeline network and recover the

On the electricity side, I think the transmission system (and

cost of that asset base over time. That obviously pushes up

distribution to an extent, as well) has been in a different space

prices for customers in the short term, but to delay creates

compared to, for example, a wind farm developer, because

significant risks.

they have compulsory requisition rights. Historically, the way in

The Respected leaders panel featuring Clare Savage, Jim Miller, Michael Brennan and Joanne Spillane (left to right)

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Panel discussion – Respected leaders

which they have approached social licence has been different to the way in which you might’ve seen it in other sectors – and I think that has become a sudden learning for them as a sector. We’re actively looking at this question, as well: How do you define prudency and efficiency in the context of a big project when you might need to consider the needs of not just individual landholders, but the communities that host this infrastructure through the transition, as well? Thinking about what a model of community engagement looks like, how do you recover costs for that? How do we, as a regulator, have a role in ensuring that both consumers get value for money out of those social licence choices and projects are delivered at least cost and, at the same time, ensure that we are not responsible for signing off on netball sponsorships or footy sponsorships? So, we need to keep it at that framework level to ensure there’s consistent decision-making and that we’re delivering projects that deliver real value to communities. JS: Michael, Clare mentioned earlier the topic of cost overruns, but would you say the core issue here is productivity? How do we build more for less? What do you hope the Federal Government’s recently announced competition review will achieve in this vein? MB: Ultimately, it does come down to productivity, either narrowly or broadly conceived. There is productivity within the construction sector. I think you could think about that a little more broadly, not just in terms of the delivery of a construction project with a given amount of labour and capital, but all the other business innovations that might sit around that, in risk allocation, finance, procurement and the efficient delivery of the broad package. From a macro point of view, the construction sector productivity growth has largely flatlined in terms of its measure, and this is a global phenomenon in the past 20 or so years, having grown reasonably well in the postwar period. This is not necessarily the fault of government or the industry. You can’t always control the pace at which new technological innovations come along that are conducive to dramatic cost reductions in a particular industry. All these innovations tend to strike the economy in very partial ways, and different sectors will fare differently. To my earlier point about the supply side constraint, over the course of the 20th century, we saw massive productivity growth in areas like agriculture and manufacturing. These areas were effectively net shedders of labour as a result of the productivity gains, and we were able to produce vastly more agricultural output for a lot less labour. For example, the agricultural workforce went from a quarter of the workforce down to about five per cent. It freed up a lot of labour to pursue other things, including the growth of the services sector. We’re seeing a lot less of that today. Our largest employing sectors, health and education, are not shedding labour. All of

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the productivity gain, or all of the gain from technology and innovation, is going to an improved quality in those services, and not a big real cost reduction. This is creating or contributing to, in a structural sense, the overall scarcity of labour and the capacity of the economy to deliver all the things that we want to have, such as infrastructure development, transport projects, and the energy transition. This also includes other labour-intensive things we want, such as the National Disability Insurance Scheme, aged care, health and education. I think part of it is productivity in the construction sector, but a lot of this is the productivity dividend that you can get out of the rest of the economy. New forms of emerging technology, such as artificial intelligence (AI), raises the question of how we maximise the dividend of these technologies across the economy to free up labour. JS: Electrification of transport is one of the key goals in terms of reaching net zero targets. Jim, can you talk a bit about the scale of what’s involved, particularly around charging infrastructure? JM: It’s a tremendous opportunity. If we move to full zero‑emission vehicles, around 27 million tonnes of carbon would be taken out each year – that’s 25 per cent of emissions. If you were to put a price on carbon at $123 a tonne, that’s around $3.3 billion a year. There are also associated potential health benefits of around $700 million. This delivers around $4 billion a year worth of benefit. Looking at the cost of electric vehicle (EV) charging infrastructure, that’s a couple of billion dollars. Therefore, in a lot of ways, it’s a tremendous opportunity. It is capital intensive. The government, certainly in Victoria, is doing things. It’s a degree of magnitude different to that, but what a wonderful opportunity that we have on a range of levels. CS: Tariff design has got to be a big part of it, right? JM: Yeah, that’s right. CS: If we don’t want to have to build a lot more network, then we need people charging at the right times of day. JM: It shows that the opportunity is huge, but so are the costs. It is very tough to advise the government to spend $2 billion on building EV charging stations everywhere because they don’t have the capacity to do that. The market’s not quite there. There’s a good level of electric vehicles, but it’s growing relatively slowly. That will pick up, hopefully. There are a lot of good things happening in that space, but it’s going to take time because, again, the consumer continues to be very focused on cost. The cost of buying EVs is higher than the cost of traditional vehicles at the moment. There are a lot of things to work through, but it is really a tremendous opportunity. JS: Clare, can we just drill into the role of tariff design in terms of the rollout of infrastructure to support electrification?

Panel discussion – Respected leaders

CS: It is a really critical element of it. If you think about the way in which network builds extended through the period where people were installing air conditioning in homes, having that signal about when you can charge or when it is cheaper to charge is really important. Because if people are willing to charge in the middle of the day when there is a lot of solar, they can almost do it for free. But if they want to charge during the night, it has a very different impact on both grid infrastructure and the generation build-out. Having tariffs that will encourage the right times is critical. Additionally, if people are going to potentially use an EV as a battery and to export to the grid, there should also be some signals around when they most need energy.

In terms of optimising the use of the infrastructure, this is a pretty significant upside for the future.

I think that tariff design element is really critical because customers want simplicity. They don’t like complexity. I think we need to think about the role of retailers and automation in this context, as well as managing risk on behalf of customers, and having devices in place that can respond to price signals without really requiring consumers to put a lot of energy into it – because we know they don’t love it.

There is an opportunity to use technology to engage with the community rather than default to building something. How do we change attitudes and behaviours? That is fertile ground. It’s hard because, again, you need political will, but the community is up for it. We see this all the time. They’ll tell you what the problems are and how existing things can be used better – that’s a real opportunity.

JM: The private sector is responding to this through the smart meters within TeleHub and Vector, and similar groups. There are lots of technology and resources trying to solve these problems, which is great.

CS: Energy efficiency has got to be a much bigger focus for us at an industrial level and at a household level. I think the household is probably the bit I’m most excited about when I think about where there could be real developments and shifts. Consumers have already invested in a lot of energy resources on their roofs, in batteries and in their cars, and this will continue. The value that has for the system is around $6 billion over the next few years.

JS: The last topic of discussion is looking forward and thinking about the opportunities. Let’s set aside reaching net zero by 2030, but consider the challenges into the future. I’m talking about AI, broader tech and the fiscal constraints that are driving discipline in terms of choices that we make. Michael, could you start? MB: As constraints start to bite, it will potentially drive a bit of discipline around project selection. We are seeing the net emphasis of the infrastructure build shifting from transport to energy. I’m broadly optimistic about what that means for the rigour of project selection. In the energy sector, I feel that there’s a stronger tradition of pricing and economic regulation that can drive investment in the right areas as an optimal configuration. There are a lot more political considerations coming into the transport side. Clare noted all the challenges with consumer adoption of new pricing opportunities driven by technology. That’s a huge upside in transport and we’ve only really begun to scratch the surface. The point about starting some distance-based charging with EVs is the beginning. During the 20th century, we had engineering solutions such as the motor car and the freeway. The 21st century version of that is technology-enabled pricing related to public transport and road use. Technology enables that. We were enslaved, if you like, by the paper ticket or the fuel excise. We had to have a very blunt, average cost recovery approach. We’ve now got the capacity to deliver more subtle, targeted options for pricing, which is largely subject to getting consumer acceptance.

JM: What I’m really interested in and excited about is this concept of lots of challenges. You’re trying to solve complex problems that have a lot of independencies. ChatGPT isn’t going to solve it because it is harder than that. We have passed the phase of ‘we will build something’; however, we are now hearing from the politicians that we can’t do that anymore because they have tapped out fiscally. Reflecting on this journey here is interesting. At the last conference in Melbourne five years ago, there was the big hope of the Big Build. That has since happened, and today that has peaked.

Having the technologies to make that simple will be important. Michael’s comments about fiscal discipline and project selection are really pertinent things we shouldn’t lose sight of. In the energy space, we need to keep challenging ourselves about whether we have got the right projects as they grow in cost, and thinking about how we keep a laser-like focus on that cost discipline in a tight market. I think making better use of existing infrastructure and ensuring that we’re building the right projects and not letting assets go to waste will be key to having an electricity grid that can be used today. And I think I’m probably thinking about balance sheets differently. So, in a transport sense, you talk a lot about fiscal or type budgetary environments for governments. Governments haven’t traditionally spent necessarily in the energy space, but they are increasingly underwriting projects. Whether it is concessional finance or looking at the way in which they might de-risk generation projects, the way in which governments – both state and federal – are using their balance sheets to support investment is going to be different. It means we have a different system, but it also means they have a different context for what they can do and how much of it they can do. I think there are opportunities there, but we need a lot of integrated thinking on it.

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T2D Project to drive South Australia to new heights South Australia’s largest-ever infrastructure intitiative will benefit communities and industry, and provide learnings for other major projects.

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The River Torrens to Darlington (T2D) Project will transform traffic in Adelaide, provide a model for other Australian road infrastructure projects, and leave a valuable legacy for South Australian communities and industry. The T2D Project is the final 10.5-kilometre section of Adelaide’s North-South Corridor. The $15.4 billion project will complete 78 kilometres of nonstop motorway between Gawler and Old Noarlunga, allowing motorists to bypass up to 21 sets of traffic lights and save up to 40 minutes of travel time in peak periods. Following a comprehensive review of the project in 2022, the state government unveiled plans with crucial design innovations to improve connectivity and safety, and safeguard the fabric of local communities. South Australian Premier Peter Malinauskas says that the T2D Project is vital to the future of South Australia’s road network. ‘This is the biggest infrastructure initiative in our state’s history, so it was crucial we took a diligent and thorough approach. We are ensuring this project is delivered right – first time, and for the long term.’ South Australia’s Minister for Infrastructure and Transport, the Hon Tom Koutsantonis, describes the T2D Project as a once-in-a-generation development. ‘The government has delivered on its commitment to re-examine this project to ensure it constitutes the best solution for motorists and nearby residents, and that it represents value for money for South Australian taxpayers.’ The T2D Project is among the most ambitious and complex road projects undertaken in Australia. Two sets of twin three-lane tunnels will be built and joined by an open motorway through a highly urbanised corridor in Adelaide’s near-CBD suburbs. In addition to improving connectivity and safety, the new design protects the fabric of the local community by cutting large, elevated structures from the original concept, and improving visual amenity through less intrusive solutions.

Jon Whelan, Chief Executive of the South Australian Department for Infrastructure and Transport, says that the revised T2D Project design has benefited from extensive community engagement. ‘We listened to a wide range of views from the community, industry and other stakeholders, and factored that into project design and implementation.’ Whelan, whose department is responsible for the T2D Project’s delivery, says the plan has achieved almost 70 per cent community acceptance, according to engagement surveys. ‘That’s almost unheard of for an infrastructure project of this magnitude,’ he says. ‘We want to keep increasing the acceptance rate for the T2D Project through ongoing community engagement and communication. When people understand the benefits of the T2D Project, they recognise the value of it for the community.’ The project is off to a strong start. Early work (including service relocations and ground investigations) is well underway, and tenderers have been shortlisted for the head contractor to build and maintain the 10.5-kilometre motorway. The contract is expected to be awarded in the third quarter of 2024.

Innovation in infrastructure

Whelan says that unique features in T2D can provide a model for other major infrastructure projects in South Australia and nationally. The T2D Project is the first tunnel project in Australia to use a full alliancing contracting model – where contractors and the Department for Infrastructure and Transport will form an alliance to align their commercial interests, and work cooperatively to get the best possible project outcomes. ‘T2D will benefit from the use of collaborative contracts,’ says Whelan. ‘The ability of stakeholders to work together on projects in South Australia is a competitive advantage for our state. We are proud that South Australia has a history of low contractual disputes in major projects, and want to build on that strength through full alliancing.’ The T2D Project’s approach to land acquisition and relocation is another feature. The South Australian Government has already announced the relocation of the historical Torrensville Bowling Club and the renowned Warriappendi School for Aboriginal students. ‘We’ve spent a lot of time engaging with stakeholders who are affected by land acquisition,’ says Whelan.

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‘Together, we’re finding ways to relocate assets that are sensitive to cultural and community needs. We want assets relocated through the T2D Project to come back even stronger.’ Sustainability is another feature. Whelan says the project will push the boundaries of sustainability excellence. ‘We’ll be encouraging suppliers to focus on sustainability across the project. From green energy to green steel and other renewable materials, we want the T2D to set new benchmarks in sustainability – and add to South Australia’s position as the national leader in renewable energy.’ The T2D Project’s design also prioritises open green space and community areas. The use of tunnels for about 60 per cent of the alignment reduces impact on trees and vegetation. Trees will be replanted, biodiversity will be improved through new native plantings, and the overall tree canopy accompanying the T2D will increase. Respecting culture and heritage are other T2D priorities. The project will create a strong Kaurna presence along its corridor to educate and inspire

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residents and visitors. The Kaurna people are the Traditional Owners and custodians of the Adelaide Plains. The T2D design also preserves important heritage sites in Adelaide, including the Thebarton Theatre and the Queen of Angels Church.

Lasting legacy

Whelan says the T2D Project will provide short- and long-term benefits for South Australia. An early benefit is jobs. Around 5500 jobs will be supported each year through the T2D’s construction. At least 90 per cent of labour hours will be provided by South Australian workers, and a focus will be on delivering key roles for Aboriginal workers, trainees and apprentices, and long-term unemployed jobseekers. T2D procurement opportunities for Aboriginal-owned businesses in South Australia are also a key goal, says Whelan. ‘A project of this size can create years of work for Indigenous enterprises that can contribute to the success of the T2D.’ In the medium term, the T2D Project will ease potentially catastrophic

congestion across Adelaide by 2031. Infrastructure Australia expects daily car trips across the city to increase by 26 per cent by 2031. If unaddressed, this congestion could cost South Australia’s economy more than $230 million annually in lost productivity. Longer term, the T2D Project will support development of new industries in the state. ‘Our state has ambitious goals in hydrogen, green steel and major water infrastructure projects,’ says Whelan. ‘These and other economic development initiatives in South Australia will benefit from vastly reduced travel times for industry through Adelaide.’ Ultimately, the T2D Project will add to South Australia’s reputation as a great place to live and do business, says Whelan. ‘By working with the community, we can deliver an innovative, sustainable project that will benefit generations of South Australians.’ ♦ To learn more about the T2D Project, visit www.t2d.sa.gov.au.

How can businesses and suppliers get involved? The Industry Capability Network (ICN) is a procurement and supply chain tool used to connect suppliers with project owners. A dedicated River Torrens to Darlington (T2D) Project directory has been established on the ICN to allow potential suppliers to submit information about their products and services. Details of registered suppliers will be provided to the successful tenderer for the major construction package contracts.

The once-in-a-generation T2D Project will stimulate South Australia’s construction industry. A 10.5km section of the North-South Corridor, the T2D Project involves the construction of two separate tunnels that will be connected by an open motorway. The T2D Project’s requirements for the supply of products, materials and specialised services provide unprecedented opportunities to stimulate the South Australian economy. This is an opportunity for industry – both businesses and suppliers at state, national and international levels – to participate in this massive project.

T2D.sa.gov.au

Keynote interview – Dr Alan Finkel AC

Keynote interview Dr Alan Finkel AC Australia’s former Chief Scientist Dr Alan Finkel AC

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Keynote interview – Dr Alan Finkel AC

Key points •

•

Amid a current slowdown of renewable energy being connected to the grid, rapidly advancing battery technology will support Australia to reach its net zero goals. The slow development of the hydrogen industry in Australia has resulted in a movement away from hydrogen as a domestic gas source, in favour of electrification. Nuclear energy can play a key role for Australia’s net zero energy grid; however, social licence and legislative barriers to implementation will impede its use prior to 2040.

Moderator: ►

Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

Adrian Dwyer (AD): One of Australia’s leading scientific, engineering and policy minds, Dr Alan Finkel AC, provided the 2022 Annual Infrastructure Oration entitled ‘A Tale of Two Futures’. Dr Finkel’s timely oration provided a glimpse into two possible scenarios: one where Australia meets the energy transition challenge, and another where it does not. Eighteen months on, we reflect on which of these two scenarios is closest to our current trajectory. Alan, 18 months on from your oration, what’s the state of play? Which path are we closest to? Dr Alan Finkel (AF): I think there is a bit of a dip, but the long-term trend is probably good. We do have the political will and most people thought that as soon as we achieved that, that everything would be easy from then on. But it is much more difficult than just political will. The reality is that, in terms of electrification, which is the area that I’ve been most engaged in, the transition to the national renewable energy target of 82 per cent by 2030 is slowing down. This is a serious concern and must be addressed. When speaking about renewables, we must consider the annual addition of solar and wind. Hydro‑electricity power generation could also be considered; however, that doesn’t change. Australia hasn’t built a hydro‑electric power station for 40 years. The last hydro‑electric power station to be built was in Wivenhoe, Brisbane, and it is unlikely that Australia will build any more. Therefore, all the growth for so-called renewables is coming from solar and wind. Looking at the average growth in solar and wind each year across 2019, 2020 and 2021, it was just under a four per cent increase in generated output. This is not installed capacity or

dollars, but generated output in gigawatt hours per year. This fell to about 3.2 per cent last year. In the first eight months of this year, the increase in annual generated output was only 1.5 per cent. This means that the annual increase we must get for the remaining years between now and 2030 is even more than it would’ve otherwise been. While it isn’t impossible, it’s a bigger challenge than previously considered. The reasons for this are largely social licence and, to some extent, cost and perhaps not being as flexible about seizing some easy opportunities and changing the portfolio from the current road map. In terms of social licence, let me just give an example: to achieve the transition goal in New South Wales, there would be an expectation to have three or four new wind farms committed to, and being built and commissioned every year. However, surprisingly, it has been 28 months since the last wind turbine farm was approved in New South Wales – there’s a clue there. AD: When you think about that generation mix coming in, and maybe the renewables not coming in as quickly as we initially expected, what do you see now as the role for gas in helping that transition? AF: There are two aspects of gas, and one is the use of gas in the reticulated gas network for heating houses and cooking. The Victorian Government has made a very logical decision – I’m not sure what’s happening in other states, but we are the biggest gas user as a city here in Melbourne – to disallow gas on new houses and major renovations. When I led the National Hydrogen Strategy four years ago, we were very open-minded about what might be the energy source to replace methane and the possibility that it might be hydrogen; however, in the four years since then, the rate that the hydrogen industry has developed capacity to do that has been minuscule – that’s probably overstating it. Alternatively, the rate that the electricity sector has been building out capacity has been very rapid. Therefore, we said that the Hydrogen Strategy couldn’t commit to a road map because it had to be adaptive given that hydrogen is such new technology. It is clear that the electricity substitution pathway for the built environment is easily getting ahead of the possibility of the hydrogen substitution pathway. Some people talk about biomethane, which is a very simple alternative where the same gas is put into the pipelines, but it comes from biomass. The challenge around this is that with the competition for biomass from trucking, maritime and aviation industries, as well as the reticulated gas system, there’s just no way that there can be enough biomass. So, I think the Victorian Government is going in the right direction. There is still the difficulty of existing houses, which means that, over the next few years, a lot of attention must be put into the technology revolution that will make it possible to adapt existing built environment requirements.

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Keynote interview – Dr Alan Finkel AC

AD: I want to dive down on the hydrogen piece because a significant portion of your oration covered the opportunity for hydrogen, but it sounds like you’re perhaps a little more pessimistic on that now? AF: I’ve certainly evolved my thinking around hydrogen. I think the opportunities for hydrogen use for Australia’s economy, particularly our export economy, are huge, but I don’t see as much opportunity to take advantage of green hydrogen in the domestic economy. And again, going to an ‘n equals one’ anecdote, do many of the people in this audience drive hydrogen-powered cars, do you think? AD: I think you’re the only person. AF: I have a hydrogen-powered car, and sadly it’s sitting in the garage now because the logistics are terrible. Four years since the Hydrogen Strategy was finished, one refuelling station has been built on the Toyota factory site in Altona, Melbourne. There’s also one in Sydney, Canberra, Perth and Brisbane in four years – and it’s just untenable. The refuelling Infrastructure Partnerships Australia Chief Executive Officer Adrian Dwyer interviews Australia’s former Chief Scientist, Dr Alan Finkel AC

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is three minutes; however, it is a 63-minute experience for me – 30 minutes to drive to Altona, three minutes to refill, and 30 minutes to come back. Alternatively, charging my battery-electric car may take eight hours, but it’s a 10-second investment of my time to plug it in. The infrastructure is also there. Electric car motorists pay a very small amount for a three-phase charger or a faster one. You don’t have to have a high-speed charger, but just something a little bit better than 10 amps is a very cheap investment. As we decarbonise iron ore and nitrogenous fertilisers, hydrogen is going to be critically important to our future export industries, as well as our contribution to maritime and aviation fuel. All of those require enormous quantities of hydrogen as a chemical feedstock. AD: One of the other things that has been in the Zeitgeist recently on the generation mix is nuclear, and we’ve spoken about it a few times. Maybe you could share your views on nuclear?

Keynote interview – Dr Alan Finkel AC

AF: Nuclear is complicated. From an engineering point of view, I cannot think of anything better than nuclear if your goal is to have a zero-emissions generator. It ticks all the boxes, especially in comparison to solar and wind, which are, without a doubt from an engineering point of view, the worst-behaved zero-emissions electricity generators you can imagine. Nuclear is dispatchable, which means you get the electricity when you need it. It’s a synchronous generator that understands and works with the heartbeat of the AC electricity system. It has inertia, built-in strength, and fast frequency control contributions, making it a fabulous contributor to our existing AC electricity system. Nuclear doesn’t need much in the way of mining resources. It has a trivially small mining resource footprint because it’s dispatchable and doesn’t require batteries, as well as lithium, manganese, nickel, cobalt, graphite, and all those things. In comparison to wind turbine generators, nuclear doesn’t need rare earth elements or much copper, steel, or concrete. In terms of land footprint, wind turbine generators require hundreds of square kilometres per one or two gigawatts; however, a nuclear facility requires less than a square kilometre. Additionally, nuclear doesn’t need much uranium. One kilogram of uranium will provide as much energy as 10 million kilograms of coal; however, what is needed is regulation, social acceptance, and waste management. The challenge for nuclear in Australia is that out of the G20 countries, we are the only country where there is a legislated federal ban on nuclear power. We have nuclear isotopes for medicine, but not nuclear power. We can’t even start to consider this until there’s a change and then it would take many, many years. I hear from a lot of people that Australia can move to nuclear power in five years because they’re building small modular reactors in Europe and America; however, it’s not true. They’re not building small modular reactors in America or Europe – they want to, but it takes time. Everything in the nuclear industry is slow, and Australia is not going from being the world’s laggard on nuclear power use to suddenly being a leader. The first small modular reactor in America has not started construction and is not slated to generate electrons until 2030. We have a good nuclear regulator for the medical isotopes, but not for the power industry. If Australia was to go down that route, we’d have to watch it for a couple of years, and then go through site selection, finding the contractors and building up the capacity of an appropriate regulator, developing a waste management system and fighting protestors all the way through to the High Court. I can’t see nuclear being a contributor until 2040, and am not a supporter of those who say, ‘Let’s go from coal to nuclear.’ We have 20 years ahead of us, so we must reduce our emissions, and the only way to do that is with solar and wind.

As a long-term contributor, nuclear could be valuable as it has all those advantages I mentioned. Solar and wind will always need to be replaced on a 20- or 25-year cycle, and batteries, too – maybe on a 10- or 15-year cycle. It’s nice to say we can recycle, but recycling is very difficult and another whole topic. Therefore, the long-term commitment to mining will continue. If nuclear isn’t adopted, we’re going to forever have a constant mining expansion resource requirement. Getting a bit of balance in future would be good, but it’s not an option for the next 15 to 20 years. AD: Considering your earlier point that the generated output from solar and wind is on a downward curve, what action, in your opinion, is most important to unlocking the energy transition? AF: If I could only do one thing, and I don’t know how to do it, it would be to gain the social licence. We cannot have the transition if we can’t build the wind farms and new transmission – and that’s incredibly challenging. You can’t get social licence by just talking to people and educating them on the benefits. The people who are out there are not silly and have done their own research on the web, and come to different conclusions for different reasons. It’s not simple. It might be that governments have to be stronger willed. I get a sense that when there are concerns expressed against visual amenity of wind turbines or the impact on biodiversity, the thresholds to which a wind farm is being held are much higher than the thresholds to which highways have been held, and bridges and skyscrapers – and I don’t understand that. Some academics call this the ‘greens dilemma’, where more than 50 years of robust environmental and biodiversity regulations have been built up and used quite successfully, and now these same regulations are the biggest impediment to powering the transition. If we don’t eliminate emissions, then the biodiversity loss globally will be much greater than the impacts on small numbers of animals in a local area. We might need to see governments exercise a little bit more determination to do whatever is necessary, but something has to change on the social licence side. AD: Particularly on the social licence around transmission infrastructure, one of the opportunities is to think creatively about actually needing less of the transmission infrastructure than is currently planned. I know you’ve spoken in the past about greater utilisation of existing transmission. Maybe you could just trace that out? AF: We live in a world of rampant technological change, which makes it very difficult to plan specifically what we want for transmission lines 10 years out – but we tend to do that. We have got these big plans and as we try to achieve them, we’re not necessarily leaving ourselves room to do small changes immediately. There are existing transmission lines that could be enhanced, and low-voltage transmission lines

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Keynote interview – Dr Alan Finkel AC

that could probably be built with fewer arguments. One of the technological changes that has impressed me as being the most significant in this decade is batteries. It could be argued that in the 2000s, the rate of price reduction and availability of solar panels was the most significant rampant technological change. This overlapped with the development of wind turbines, which became taller and bigger wind turbines onshore, and then offshore wind turbines defined the 2010s. In this decade, it is batteries, and the rate of increase in worldwide battery manufacturing capacity is staggering. In 2022, worldwide factory manufacturing capacity for batteries went up by 72 per cent. There only needs to be 15 per cent per year to get a fourfold increase in a decade. It went up to 72 per cent in one year and it’s still growing. We saw prices coming down at modest volumes in the 2010s, and then a blip in prices due to supply chain issues emerging from the COVID pandemic and war in Ukraine. However, battery prices have peaked and are starting to come down again, with pundits predicting that battery prices for battery energy storage systems will halve by 2030. This enables completely different thinking about how we use transmission lines. For example, if you put in a solar farm in Victoria, you would be lucky to achieve 20 per cent utilisation of the connection to the grid, and then, of course, the grid itself is not being well utilised. If you install batteries on that same solar farm, you may be able to double or triple the solar panels that you put in, and store the excess during the afternoon to achieve 60 or 70 per cent utilisation of those transmission lines. Even if it’s expensive to do it, if it means you can proceed, then it’s worth looking at and the cost of doing it is diminishing with time. I’m not suggesting that there should be a regulation that says every new solar farm has to have 60 per cent capacity utilisation of the connection. But it wouldn’t hurt to have a rule for the next two years that says that every new solar farm has to have at least an additional 10 per cent off its base 20 per cent utilisation by putting in 50 per cent more solar panels and a gigawatt hour or two of batteries. The batteries are the technology for this decade that will enable us to significantly utilise existing and small or incremental enhancements to the transmission line system. AD: Pumped hydro versus batteries: How do you see that play out? AF: The balance has changed. When I was leading the Low Emissions Technology Roadmap two years ago, we received advice that out to about eight hours, batteries were not cost competitive with pumped hydro. In today’s prices, batteries would be competitive out to about 16 hours. By the end of the decade, the cost of batteries will decrease, while the cost of civil engineering projects will increase – that’s just

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the way that it happens. I think it’s important to make some benchmark comparisons between the cost of doing things here and in other countries. I looked up what the cost of doing new pumped hydro is in the United States today, and couldn’t get the answer because they have not commissioned a large-scale pumped hydro system in the United States since 2012. Somehow, they saw the writing on the wall. I think all storage investment needs to be on batteries because, compared to pumped hydro, no transmission lines are needed. Batteries can be put where needed either, as I was saying a moment ago, at the generation end or at transmission line junctions, and at the demand end. Additionally, unlike pumped hydro, batteries can ramp up in milliseconds and contribute to Frequency Control Ancillary Services, inertia and system integrity protection. There’s just a lot of advantages today of batteries over pumped hydro.

Keynote interview – Dr Alan Finkel AC

This is a big change in my thinking. As an engineer 10 years ago, I thought pumped hydro was the ant’s pants because it has a 50- or 100-year life. The one area where batteries come up short is in lifetime. The reality is, we don’t know what the lifetime is because batteries are getting better all the time. Eventually, the battery cells will have to be changed either 10, 15 or 20 years from now; however, the DC integration electronics and the AC integration system will not need to be changed, so only about a third of the cost stack will need to be changed 10 or 15 years from now. With that said, the batteries now will be changed with batteries in the future that will be much cheaper. While lifetime is a disadvantage, I don’t see it as a big disadvantage. AD: You started off with the view that we are tracking towards the less attractive path of the two you laid out in your 2022 oration. What’s your level of optimism for that longer-term objective of net zero by 2050?

AF: I think that we’ll come out of a hump because the governments at the state level and the federal level recognise that the social licence and costs must be tackled. How they’ll do it, I don’t know, but the political will is there, and they can’t just allow things to continue as they are because we need to get there. As soon as they can solve that, the financial investments and engineering know-how will line up. We have to do more for less. When I do benchmarks on the cost of a transmission line here compared to in the United States, it’s significantly higher here. There are reasons why it’s more expensive here, but, nevertheless, it’s more expensive here. We need to do the nickel and dime work to reduce the costs out of those transmission lines. We have the engineering know-how and the finance, but the one thing we don’t have yet is the social licence.

Infrastructure Partnerships Australia Chief Executive Offi cer Adrian Dwyer interviews Australia’s former Chief Scientist, Dr Alan Finkel AC

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Minister’s address – The Hon. Jacinta Allan MP

Minister’s address The Hon. Jacinta Allan MP, Premier (then Deputy Premier, Minister for Transport and Infrastructure, and the Suburban Rail Loop), Victoria

Premier of Victoria the Hon. Jacinta Allan MP

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Minister’s address – The Hon. Jacinta Allan MP

Key points: •

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Increasing the supply and variety of housing in established suburbs with connections to services and transport will be a key focus of the Victorian Government. Melbourne has an opportunity to learn from other global cities in addressing housing needs, including investing in transport infrastructure that creates multiple employment and economic districts. Current policy settings may need to be adjusted to avoid an unaffordable and unsustainable cycle of investment catch-up in Victoria’s urban fringe areas.

It’s always terrific to be part of an action-packed Infrastructure Partnerships Australia agenda to discuss some of the challenges and opportunities that we are working on – whether it’s here in Victoria, around the country or, indeed, around the globe on delivering infrastructure in the right place, at the right time, for a growing city and state. We proudly describe Victoria as the construction capital of Australia. The latest CommSec State of the States report has Victoria leading all other states in construction work. This isn’t telling us something that we didn’t already know. Over the past eight years, we’ve invested in the most ambitious infrastructure delivery program in our state’s history. Looking at the program, the numbers are staggering – over $100 billion invested in 165 projects, supporting 50,000 direct jobs and so many more across various supply chains throughout our community. We are now 8.5 years into this program, and those projects that many people said wouldn’t happen – such as the Metro Tunnel and the West Gate Tunnel – are well and truly on that home stretch to completion. I have met workers on construction sites who have moved between our major projects as their careers have progressed. These people, who may have gotten their start on the Metro Tunnel or on one of our level crossing removals, have now moved on not just to the next project, but to a more senior position on other projects like the North East Link or the Suburban Rail Loop. That’s as a consequence of doing something together that we’ve worked really hard on, and of having a strong and steady pipeline of major infrastructure projects across road and rail – which are the areas I’m responsible for – as well as across government, schools, hospitals, social housing, and social infrastructure. That’s because we heard and clearly understood how important that pipeline is in providing certainty for industry to invest, to support jobs and to support their workforces, and

how important it is for so many families around the state to have that certainty of a career. We also know that there is so much more that we need to do to maintain that wonderful livability we have here – whether it’s in Melbourne or across regional Victoria – and to support growth and continue that investment in better transport connections. Part of how we are thinking about this and developing the next iteration of projects and policy settings is reshaping the conversation about how our city and state grows, and, importantly, where that growth is occurring. That is also part of the focus of our investment going forward – how we can leverage off the investment in transport infrastructure and our Big Build program to address the twin challenge of population growth and the key issue that is the topic of conversation right around the country: housing supply and affordability. This is something that’s very real and material to us here in Melbourne and Victoria, because depending on how you slice and dice the data and the statistics, Melbourne has already overtaken Sydney as Australia’s largest city. It is illustrative of just how much Melbourne has grown, particularly in recent years. By the 2050s, Melbourne will be home to about nine million people – that is roughly the size of London today. That is why our government has been keenly focused on not just starting the conversation across the whole community, but also on progressing the policy work that sits underneath how we manage the growth and what will happen if we don’t address these emerging challenges that come with the opportunities from population growth. A population of nine million people means that our transport network will need to support an additional 11 million trips every single day by the 2050s. It also would mean an 80 per cent increase in private vehicle trips – that is around an extra 19 million trips on our road network every single day. Despite the big investment across road and rail, public transport in the future won’t be a live option for many unless we do more in this space. We also know that doing nothing means that half of all Melburnians will be living further away in outer suburbs over the next 30 years, while the majority of jobs stay centred in the inner and middle ring of Melbourne. For people who live in those outer areas, this means they’ll be living further away from the job they want, from the services they need, from hospitals, from TAFE and universities, and the only option to get there is to jump in the car and spend more time behind the wheel. We know in an economic sense, and also in a very personal sense, what wasted time stuck in congestion can have on productivity. This also goes to thinking about how we continue to support a fair and equitable society around access to jobs and services. We know that housing affordability and availability is a hot topic at the moment – as it needs to be – because we are in the midst of an unprecedented housing crisis. There are simply

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Minister’s address – The Hon. Jacinta Allan MP

not enough affordable housing options for all stages of life close to where people need them. We’re also seeing globally that we are not alone in having to address this issue as a nation. Great cities around the world are facing similar pressures. New York, London, Singapore and Sydney, here in Australia, are all looking at how we tackle this ongoing issue of growth and how we support the movement of people. What these cities have in common is that they have all invested in transport infrastructure that encourages multiple employment and economic districts, as well as more homes closer to services. They’ve become a city of centres. So, how do we, in Melbourne, support that thriving city of centres? In part, we’ve started that journey with the work we’re doing on the Suburban Rail Loop. The Suburban Rail Loop will deliver efficient and accessible public transport that levels the playing field. This is a project that won’t only revolutionise our public transport system – and it will certainly do that by connecting our rail network here in Melbourne – but will also support and influence how and where our city grows in the decades ahead. Evidence tells us repeatedly the globe over that people want to live close to good transport connections, and close to jobs and services – train stations can be a catalyst for those investments. We have been progressing the work on the Suburban Rail Loop at the same time as the delivery of the rail infrastructure. We have also been working hard within local communities, talking to councils and stakeholders for their input for several years now about how we support housing, jobs and services development around the new rail stations that will be created with the Suburban Rail Loop. We firmly believe that people who live in these communities will be best placed to contribute to the shared vision for neighbourhoods. This will feed into the broader formal planning processes that will be undertaken by the Suburban Rail Loop Authority. While it is important to get the views of current residents who live in these areas, we know that we need to hear more clearly and directly from people who are most affected by this housing crisis – that’s our young people, who are already experiencing real challenges in finding a home to buy or rent. As part of the delivery of the Suburban Rail Loop, and for the first time on one of our Big Build projects, we will be providing a specific platform for young people to have their say and input directly into the development of the project. A youth panel is being created, and we are recruiting an 18- to 25-year-old group to be involved in this process. The group will work alongside the community panels to advise us, and will work with our own local communities on future work in these areas to ensure that Melbourne remains the vibrant, livable, and productive city that we know and love today. It will continue to open up accessible opportunities for all Victorians.

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The Suburban Rail Loop is an important part of our overall response to this challenge that we face in boosting housing supply, but it’s also one part of a much larger picture. For many people, an affordable, safe, suitable home to rent or buy is out of reach. We’ve seen this very keenly, particularly in the past year or so, with how the housing market has been hit with significant supply challenges. We’ve also seen the impact of a rapid increase in interest rates in a generation that created this environment of uncertainty. We are grappling with the issue not just of where people will live now, but also where children will live in the future and how we support elderly relatives to downsize. We know we need to have better options, and for essential workers, nurses, teachers, tradies, TAFE students, and people in small businesses to be able to have a home closer to where they work. We need housing options at every stage of life, and across every family budget; and as part of this, we need to think about how the current settings need to be adjusted here in Victoria. Until now, the urban fringe has been expanding to satisfy the real estate needs of a steadily increasing population. We certainly know, too, that a big housing block in the outer suburbs will always have appeal, and they are absolutely part of the future options in housing supply; however, it can’t remain the focus of our city’s growth. Unless we do more, we will be stuck in an unaffordable and unsustainable cycle of catch-up in these areas as we try to build the infrastructure and services that we need to keep pace with that growth. We also know that infrastructure investment in these areas is four times higher than what is required to support growth in suburban areas, where there is already good access to services, transport and recreation. We need to work hard to broaden the choice of houses and increase housing supply in established suburbs, particularly those with good connections to services and transport. We will have more to say in response to how we deal with planning and issues in the near future. It will also be informed by the work that is going on right now as part of updating Plan Melbourne, which is the planning blueprint that shapes and guides some of this. We need to go further in addressing the issues of where people live and how they move around our city and state. We need to think about the policy setting that currently exists that directs 70 per cent of Melbourne’s housing growth to established areas, and how we are already not meeting that target. And we need to think about the settings that we need to change to provide more homes and choices across the suburbs and in regional Victoria. We know that shifting that dial won’t be easy, but I think we’ve demonstrated over recent years that we’ve never been a government that’s been the type to kick a challenge down the road. We have to tackle this issue, and we know

Minister’s address – The Hon. Jacinta Allan MP

that we can do it because we’ve seen in Melbourne how the city has done it before, and how the power of city-shaping infrastructure can make a transformative difference. An example of this is Melbourne City Loop. This was a concept that came about in the 1920s. The Great Depression came along, as did World War II, and it took more than 50 years to materialise and become the important part of our rail network that it is today. When it was finally built, it was the biggest infrastructure investment of its era. However, it wasn’t just about that new underground city rail loop and the stations that transformed the rail network. What was equally important was what happened above ground and ran in parallel with the delivery of the infrastructure. This was driven by targeted land use policies during the 1980s, like Postcode 3000, which was an incentivisation regime for people to come and live in the CBD, and played a critical role in transforming the city. If you wander around the city today, Melbourne Central, St Kilda Road and Southbank precincts

have all been developed off the back of those land use policy settings and catalytic transport infrastructure, and that impact has carried on long beyond the City Loop’s construction. It has also helped to make Melbourne the vibrant cultural and economic powerhouse it is today, all through that bold thinking in investment and land use settings around it. That’s part of the work that we want to continue through the Suburban Rail Loop and the housing package, which is soon to be released. We want to continue to work in partnership with industry, the private sector and the community to bring the best ideas forward. From the consultation that I referenced around the Suburban Rail Loop, to the new areas around Arden Station (where there’s great potential around the land supported there), East Werribee and the outer suburbs, as well as in regional Victoria, we want to make sure that we are continuing to have the policy settings right about how we continue to support that growth across our wonderful city and state.

Premier of Victoria the Hon. Jacinta Allan MP provides an update on the state’s infrastructure program

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Aesthetic, sustainable and recycled tools for a quieter railway It must also be bolted to its own foundations, such as mini piles or ground screws into concrete foundations. Mini sound walls have a very low visual impact, which can be further enhanced by attaching screen-printed local scenes on the obverse side. Further, these walls don’t need planning approval to be installed, which can be another major cost and delay challenge with large concrete panel walls.

It is now recognised that permanent exposure to noise and vibration management can be harmful. The most effective way of decreasing rail noise and vibration emissions is using high-absorbing mini sound walls, while optimising the extent of recycled materials, currently 70 per cent. The community expects good, innovative design in and around new and existing railways, with significant reduction in noise. These products should be easily capable of retrofitting into the existing railway. In a dense urban environment, managing the noise and vibration from railways above and below the ground is, in particular, becoming an increasing issue on major rail corridors in Australia. But the community doesn’t really want to have very large, unsightly concrete with high embedded energy to manage noise. With clever innovation, using environmentally effective recycled products erected close to the noise source can reduce noise by up to 11 decibels, while providing passengers and the community with an unobstructed view.

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Railway vehicles generate rolling noises, airborne flange noises and vibrations during operation. This is due to the roughness and imbalances of the wheels and corrugations on the rail’s running surfaces. Surface defects, such as head checks, corrugations and slip waves on the rails, are known to be among the most common sources of vibration interference, and will combine with high airborne noise generated by the wheel/rail interface.

The noise toolbox

STRAILastic’s ‘noise attenuation toolbox’ for dealing with sound and vibration for railways provides costeffective and proven recycled options for acoustic engineers and asset managers various combinations to choose from, in new and existing transport systems. It requires minimal planning approvals, has high-impact resistance, and is ultraviolet, graffiti- and fire-resistant, with minimal material fatigue caused by vibrations, pressure, or suction forces from trains. It must achieve good design to blend into the surroundings with no acoustic bridges, allow simple type approvals and are easy to install.

Recycled acoustic panels for tunnels and walls

Airborne rail noise can travel into the passenger train compartment inside the rolling stock, where strict limits are imposed on manufacturers to manage this noise. STRAILastic offers its TP acoustic panel, moulded to the curve of the tunnel and combined with an in-track absorption panel, which can withstand the extreme push-and-pull forces generated by pressure, and the suction forces that can be created by trains travelling very close to the panels through tunnels. As always, STRAILastic offers each individual project the flexibility to design its own acoustic panels precisely for the project. We can close our eyes, but not our ears.

Purasys

The Purasys vibration system complements the acoustic treatments, and economically isolates and manages vibration impact by a combination of sub-ballast mats and special elastic support, as well as bearings for mass-spring systems in the railway superstructure. ♦

The

NEXT GENERATION of sound protection! The new 2.0 surface From now on all of the STRAILastic sound protection systems are equipped with the new generation highly absorbent acoustic surface. Constructed from several layers and materials, it combines all the advantages of individual materials.

The basic material remains a durable and stable rubber compound. The insulating effect of the elements and properties of rubber are now complemented by an absorbent surface.

Sound reduction value

DLR = 41 dB

EN 1793-2

Sound absorption value

DLα = 10 dB

EN 1793-1

Absorption group:

Benefits at a glance

¬ No foundation required for installation ¬ easy and quick installation ¬ Short delivery times > noise hot spots can be supplied with products quickly ¬ Closer to the noise source than any other sound protection ¬ Break-proof due to fibre-reinforced rubber compound with a cover layer of virgin rubber > UV and ozone resistant

¬ No material fatigue caused by vibrations or pressure and suction forces ¬ No problems with oversized loads

STRAILastic Australia Pty Ltd // STRAILastic track damping systems 350 Botany Road | Beaconsfield NSW 2015 Sydney | www.strailastic.com.au

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Full steam ahead for Melbourne to Parkes by 2027 By Melvyn Maylin, Director Program Delivery, Inland Rail Inland Rail is a once-in-a-lifetime project. It is Australia’s largest freight rail infrastructure project since the completion of the Alice Springs to Darwin line back in 2003, with a route as long as New Zealand from top to bottom. The sheer size of the Inland Rail project has brought complexities to its delivery, but after five years of construction there have been many valuable lessons learnt that we can now put to good use. Following an independent review by Dr Kerry Schott AO earlier this year on behalf of the Australian Government, Inland Rail is focused on completing the section between Beveridge in Victoria and Parkes in New South Wales by 2027. We will continue our work on securing planning approvals and land acquisition between Narromine, New South Wales, and Kagaru, Queensland, on the northern part of the project.

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This staged approach will also help us as the rail and broader construction industry faces the combined challenges of a skills gap and changing workforce needs. By staging the project, we are now better placed to work with local communities, and develop a sustainable skills pipeline that meets Inland Rail’s current and future requirements. We are making strong progress on delivering the Beveridge to Parkes section by 2027. Major construction works began in Glenrowan earlier this year, and we are now well underway on other parts of our Victorian alignment. Meanwhile, major construction works began on the Stockinbingal to Parkes section in southern New South Wales in September, and we are hoping, once environmental approvals have been achieved, to start work on the Albury to Illabo section in the first half of 2024. We know that when Inland Rail construction comes to town, it brings

real benefits to rural and regional communities. Our work in Moree, in north-western New South Wales, has brought huge economic benefits, with more than $100 million injected into the local economy. The benefits were even larger in the wider region covered by the Narrabri to North Star area, with nearly $240 million spent with local businesses and close to 700 locals in work during Stage 1 of construction. In these sections, the project has been an outstanding success and has left behind a sense of pride among community members for their role in this nation-building project. This is what drives us to overcome the complexities and challenges of delivering a mega project like Inland Rail. We know this is more than just a freight rail line – it is a way of creating new opportunities for communities in rural and regional Australia. ♦

Connecting Melbourne to Parkes by 2027. Delivery of Inland Rail is underway. The Parkes to Narromine section is up and running and the route between Beveridge and Parkes will be finished by 2027. Inland Rail is a once-in-a-lifetime project that will support our growing population and keep up with Australia’s increasing freight demands. It will move more goods faster, more efficiently, improve safety on our roads and reduce carbon emissions.

To find out more, visit inlandrail.com.au

In conversation with Mark Collette

In conversation with Mark Collette, Managing Director, EnergyAustralia Key points: •

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The energy transition presents emerging challenges and opportunities to engage private capital compared to other established asset types. To meet demand, particularly during winter periods, coal and gas generation will be required to continue to operate until renewables provide sufficient electricity to the National Electricity Market. Consumer electricity costs are expected to significantly increase as a result of the capital requirements of delivering the transition, and actions must be taken to ensure a ‘just’ energy transition.

Moderator: ►

Neena Aynsley, Partner, Herbert Smith Freehills

Neena Aynsley (NA): Mark, I’m so pleased to have the opportunity to be in conversation with you. I see you studied aerospace engineering at university and then had a brief stint as a youth ambassador to Mongolia. You’re clearly very passionate about the energy sector, given your 20-something years with EnergyAustralia and your role as the Chair and Director of the Australian Energy Council. I’d love to hear a little bit about your story and what has driven you to spend 20 years focused on the sector. Mark Collette (MC): I love energy and that’s why I do it. People have a calling; that was mine. I like big systems that do useful things. Energy powers the economy. Energy is going through a massive transformation, and we’ve got an opportunity

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to do something that really matters for Australia. That’s what keeps me interested every day. It’s never dull in this industry. NA: In August, the Australian Energy Market Operator (AEMO) released its 2023 Electricity Statement of Opportunities that forecast reliability gaps as early as this summer for Victoria, next summer for South Australia, and 2025 for New South Wales, noting that the position in New South Wales might change if there’s a deal done around Eraring. But AEMO went on to say, ‘Imminent and urgent investment is needed or the reliability of the National Electricity Market (national grid) will be at risk.’ Why do you think that the investment signals aren’t coming through strongly enough and, as a company with a pipeline of projects under development and as one of the big three retailers, how are you viewing the challenges and opportunities ahead? MC: Broadly, Australia has got political consensus that transition to net zero is underway; however, it’s not the only thing that’s required. In order to deliver reliability, which is what the Electricity Statement of Opportunities measures, we need to build the new net zero system – wind, solar batteries, all of the other pieces – before the older one shuts down or retires. What the Electricity Statement of Opportunities currently shows is that that new build is not happening as fast as the retirements are coming. Then there are other considerations, like the extreme weather. It has been quite hot this year, particularly in the Northern Hemisphere. AEMO have looked at the summer and said, ‘Summer looks quite hot and there are more risks in the system than have been for some time.’ But it really boils down to not enough coming in to replace what is going out. What are the drivers of that? Social licence is certainly a big factor for many projects. Equally, there are a lot of smaller, household projects that are getting on with adding to the system. I think we’ve had record installation rates of batteries, and homes and businesses installing solar and batteries, and things of that nature. From an EnergyAustralia perspective, our focus is on doing the things that are capable of being done now, as quickly as

In conversation with Mark Collette EnergyAustralia Managing Director Mark Collette joins Hebert Smith Freehills Partner Neena Aynsley for the first ‘In conversation’ session

possible – investing in homes and businesses, and investing with people who actually want the equipment in their homes. Social licence on the bigger projects is harder to achieve – people think about what they don’t want a lot more. In homes and businesses, the customer actually wants the equipment. They want the solar, they want the battery, they want the electric vehicle, and there’s a certain amount of ‘go with the grain’ as the way to address the industry challenges. NA: You’re seeing it as not so much a problem about a lack of investment signals; it’s a problem around gaining social licence for things like permitting and approvals for developing the bigger projects. MC: In the near term, there’s certainly more issues around permitting and social licence, and things of that nature. Having said that, efficiency is really important. When Australia quantifies how much the energy transition could cost, CSIRO and others put out some pretty big numbers: 300, 400, 500 billion. Investing that money well and investing it cheaply means lower bills and better outcomes for all Australians, but what does that mean in terms of the energy sector? Well, it does mean that, wherever possible, we should use market signals that help ensure that efficiency is a focus on delivery, and that we do as few big bespoke projects as possible. The reason is that big bespoke projects tend to be more costly.

If you think about the energy transition as filling up a swimming pool with water, the big projects are like holding a fire hose that swirls around and you’re trying to keep it going into the pool. The little projects are like lots of little water pistols that you’re filling up. While they’re all individually small, they add up collectively to some very big outcomes. An example is solar photovoltaic (PV) on people’s roofs; at the moment, solar PV adds up to around 3000 megawatts a year, which is two big coal-fired power stations. NA: Touching on that build cost of the energy transition in June, you referred to that $400 billion figure, and you commented that the figure could rise higher if governments didn’t find a way to ensure transmission infrastructure was built as cheaply and as efficiently as possible. I’m keen to understand what your particular concerns are around the current approach of governments to transmission. MC: As an example, Project EnergyConnect, when originally conceived, was about $1.5 billion. When approved, it turned out to be $2.3 billion. Project EnergyConnect was done on the basis that the broad benefits were that there would be less gas generation required in South Australia, because Project EnergyConnect would increase the supply of coal capacity from New South Wales. Dialling forward in time, coal is retiring in New South Wales so fast that we can’t really achieve the benefits.

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In conversation with Mark Collette

The world changes and that then makes you think, ‘Well, was this the best answer?’ If part of the core problem to be solved with transmission is around more capacity being provided to a region – in the case of Project EnergyConnect, part of the benefit was more capacity in South Australia – then at the moment, with the way the world is changing, the way the transmission evaluation is done seems to be based on hypothetical benefits. What if there was a step in the transmission approval process that could satisfy this problem? For example, intra‑state generation might be an option for South Australia that would then take away the vagaries of the benefits changing over time. If it proved to be cheaper, why not have some generation or transmission competition injected throughout the process? We do know that competition gets better outcomes, and the private sector loves to compete. The private sector loves to deliver things on time and to budget, and make a return through the approach. Rather than just say, ‘Hey, we’re going to build this thing, whatever it is,’ having competition may well deliver better outcomes. NA: Speaking of the private sector and competition, do you think that there’s enough capital available to fund the pipeline of projects required? Experienced energy leader and Managing Director at EnergyAustralia Mark Collette outlines a way forward for the future of energy supply

MC: It’s one of those points that you ask people and you get a different answer. Super funds in Australia will say, ‘We’ve got all this money. We’d love to invest. All we really want is a risk-adjusted return.’ Generally, their investment mandates usually seem to be about stable returns; however, the energy sector, particularly around generation, doesn’t have that profile. Battery developers, generally, what they do to get their business case up is to say, ‘This is how much the battery will cost. Every year, I will roll the dice and see what happens. In order to get the business case across the line, I’m going to assume that some time within the first few years, there’s a terrible outcome in energy, and prices spike and things go really badly, and that’s how I recover the cost of the investment.’ Looking at that, it appears that energy investment is just some form of energy gambling. For those sorts of investments, yes, but I’d argue that at the moment, there is an investment pool available, but the investment required is bigger. Even bigger still are the investments available from people who want low fixed returns. To me that begs the question: How do we access more of the lower-cost, lower-risk funding through to the energy transition? One way is just working with customers. This may require some rule changes. For example, customers can only sign up with EnergyAustralia for a one-year energy contract. They can’t sign up to a five-year contract the way they would be able to sign up to a five-year fixed-rate mortgage. Why can’t they do that? Would they want the option? Lots of customers, we think, would actually prefer a five‑year fixed contract and certainty. Sometimes they might win, and sometimes they might lose from that, but they’ll be able to budget for it and fit it into their lifestyle without the energy gambling I mentioned earlier. That is one way the rules could change to allow customers to enter into a fixed commitment for a period. The advantage of that, going back to the capital point, is that it much better suits the capital allocation from the lower-risk, longer-tenure places. That’s one example on the customer side. Equally, things like a capacity market on the big investment side of things that the government has worked through have much more of a project-by-project evaluation and criteria. I’d certainly like to see that evolve into some sort of more market‑based structure with more stability over time to underpin a bigger proportion of funding coming into the sector. NA: The first option that you’re talking about with customers and locking in long-term contracts is not unfamiliar. People have mortgages all the time that they fix. You’ve got customer credit, but I guess you take a view that there’s such a large volume of them. Is that for a delivery of a different type of project compared to the second option you’re talking about, for which you would need a longer tenure of commitment?

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In conversation with Mark Collette

MC: Possibly. If you take the example of capacity, what problem is that solving? That’s solving having capacity available when you need it for very high periods of demand, or to cover intermittency and loss of supply. It really doesn’t matter if it’s big or small. You can have 100 small batteries; it’s the same as one big battery. In terms of accessing finance and capital, sure, if you’ve got a 30-year contract, we can probably get cheaper finance than a five-year contract. But if you have a portfolio of customers who all sign up to a five-year commitment, it will start to look like a mortgage book over time – every year, there are more customers who do a five-year contract. If you think about electrification, well, maybe they’d like electric heating? In the aggregate, longer‑term commitments, as a portfolio, can support access to a lot of that lower-risk funding into the industry.

figure, ‘Okay, I take out 90-something per cent of the emissions, and I’ve got a bridge until that new technology.’ This problem is a real one to be solved. Whether it’s coal or gas, we’re very keen to have the market structures evolve in such a way that services are there for customers during the time that they’re really going to want power, which is when it’s cold and wet and dreary. NA: The last question or topic I’d like to ask you about is something you’ve been quite vocal on – a just transition. Federal Treasury forecasted electricity prices to almost double in the next couple of years, and longer-term ongoing significant increases in costs needing to be passed through to customers seems inevitable given the huge amount of capital involved in the energy transition. Currently, the Federal Government

NA: I’d now like to pivot to the role of gas as part of the energy transition, and potentially the delivery of a fleet of gas peaker plants in the next 15 to 20 years to replace coal as it phases out, and also to act in reserve.

works with states to subsidise electricity to a certain extent, and

MC: I think the opposition to coal and gas comes from the emissions. If you take out the emissions then, hopefully, you can move forward with the net zero transition. So, why do we still need coal and gas? Well, even if you end up in that state of 82 per cent wind and solar by 2030, with lots of batteries, the issue from the electricity sector is that there are times of the year when that’s not enough. In particular, there are times in winter when there is very low wind production for a week or two. There is almost no solar production because it’s cloudy, and there is high demand because it’s cold. During those periods, even if you fill up your batteries, they last two, four, eight hours, and they run out of puff. At that point, you need something else. The ‘something else’ today that solves that problem is coal and gas.

MC: It is a sobering outlook when you imagine the big

Are there technologies that might come to replace that deep storage or very long storage? There’s lots of ideas out there, but there’s not a lot of commercial projects yet. The way I think about coal and gas is that they’re bridging until there are those technologies out there. What are the bridge options? One option is to retire coal and put more gas in place to cover these time periods. That brings its own challenges, because you’re talking about building a lot of infrastructure and you use very little, which is a difficult proposition to finance without capacity markets and other things. Another option, and one that we’ve explored, is to take the more flexible coal plants and, instead of just closing them, move them to a reserve role. We imagine that for our Mount Piper Power Station in New South Wales, we could move that to only run a very small percentage of the year. Our parent company in Hong Kong has a coal plant that only runs three per cent of the year. With the newer coal plants, that is certainly possible. You

retailers like yourself have hardship programs in place. But how do you see it playing out, or ideally playing out, in the longer term in the context of these increasing costs? numbers, the 300, 400, 500 billion numbers for the energy transition. For the electricity sector, it’s front-loaded. If we’re moving from about 30 per cent renewables today to 82 per cent by 2030, which is the target, that’s front-loaded. It means a lot of capital expenditure in the next few years, which puts pressure on bills. What’s the secret sauce to deal with that? Well, I think, first, giving customers the opportunity to make commitments, and particularly multi-year commitments, so they know how they’re going to be protected through that period, is quite important. It’s also important to give very careful consideration to tariff design. Just as a further example of that, we currently see a lot of interest in our EnergyAssist program, which supports people experiencing financial hardship. There’s rapid growth in that sector at the moment. At the moment, the energy price that all of those customers pay is uniform during the day, and it’s about the same as the best deal that anyone else could get. That’s the way the market works. Alternatively, the network tariffs and the way that tariffs work could change so that there is a period in the middle of the day – the solar period – when prices are lower. It could be for everyone, but the main beneficiaries of that would be people experiencing financial hardship who often have more ability to use energy in the middle of the day and take advantage of that. That becomes a win for everyone. As for thinking through how to do the transition well and bring everyone along, things like that that actually create opportunities for people to use energy in a way that works with the system and works with their pocketbook are really important.

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companyfocus

Infrastructure crucial to zero-emissions heavy-vehicle transition

By David Hourigan, Chief Safety and Productivity Officer, National Heavy Vehicle Regulator Infrastructure will be key to driving the uptake of zero-emissions battery, electric, and hydrogen fuel cell high-productivity vehicles (HPVs) to meet Australia’s sustainable freight capacity challenge by 2050. Australia has the largest and heaviest freight vehicle fleet in the world, and our road freight task is set to grow by almost 40 per cent by 2050.1 Industry uptake of zero-emissions HPVs is also growing, with survey results indicating respondents’ intention to operate at least one zero-emissions vehicle of the following types within the next year2: ► rigid trucks: 10 per cent of respondents ► semi-trailers: five per cent of respondents ► B-doubles: two per cent of respondents ► buses: six per cent of respondents. But the industry needs payload parity with internal combustion engine (ICE) HPVs. Zero-emissions HPVs weigh between one and five tonnes more than their ICE counterparts, which presents challenges to some existing infrastructure. The key concern for road managers is pavement and structures impact – in particular, reduced asset life, and replacement and rehabilitation costs. But this needs to be balanced with the environmental and safety improvements of the new vehicle technology. The National Heavy Vehicle Regulator (NHVR) is partnering with original equipment manufacturers Volvo and Janus; transport agencies in

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Queensland, New South Wales, Victoria and South Australia; and Austroads to progress trials for zero-emissions HPVs at atypically high-mass limits, to research the effect of increased axle masses on infrastructure. The research also provides industry an opportunity to test battery performance, given Australia’s environmental conditions compared to Europe. Currently, access to roads above regulation limits is under permit arrangement – trials will provide the data to inform longer-term regulation and policy change to facilitate adoption. The NHVR, along with governments and industry, also needs to look at whether heavier zero-emissions HPVs can traverse structures safely. This will require effort to assess different models’ impact to the bridge stock in a timely manner. The NHVR also maintains a Future Heavy Vehicle Roadmap, which provides a blueprint of how industry and regulators can plan for the introduction of new technologies. The road map captures key developments at their highest level and the identified

regulatory barriers, and describes the approach for reform. Victoria has taken a proactive initiative to be prepared for the shift towards sustainable vehicles. It will be the first jurisdiction to undertake a comprehensive network assessment to obtain a deep understanding of its bridges, and develop bespoke access maps for zero-emissions vehicles, starting with Volvo’s FM and FH prime movers. Collaboration and a national approach are vital to reducing barriers to transitioning to zero-emissions HPVs. The findings will enable government and industry to co-design policies, regulations, infrastructure, technology and incentives to accelerate sustainable mobility and meet our climate targets. ♦ 1

www.bitre.gov.au/sites/default/files/documents/ bitre_rr154.pdf

Unpublished survey results from ongoing Austroads project NEF6392, ‘Future freight vehicles and buses: Implications for road managers’, (scheduled for completion November 2024).

The NHVR is improving how you access bridges and roads The Strategic Local Government Asset Assessment Project is assisting road managers to better understand their assets, through engineering assessments and supported decision-making for heavy vehicle access. Better decisions Safer roads Enhanced productivity For more info, visit nhvr.engagementhub.com.au

n h v r. g o v. a u

In conversation with Scott Charlton

In conversation with Scott Charlton, Outgoing CEO, Transurban

Infrastructure Partnerships Australia Chief Executive Offi cer Adrian Dwyer and outgoing Transurban Chief Executive Offi cer Scott Charlton

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In conversation with Scott Charlton

Key points •

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Governments have a clear role in resolving social licence issues related to the energy transition. More work is needed to improve workplace culture across the infrastructure sector in traditionally male-dominated areas like construction. Road user charging policy reform can be used as a tool to make more efficient funding allocations for amenities, as opposed to electorally driven decisions.

Moderator: ►

Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

Adrian Dwyer (AD): Our next ‘In conversation’ session features one of the country’s most respected CEOs, Scott Charlton. Scott has been CEO of Transurban for a decade, transforming the business to what we know it to be today. Of course, that’s only been Scott’s part-time job. His more substantive role has been Deputy Chair of Infrastructure Partnerships Australia for more than eight years. Scott, you’ve spent a decade at the helm of Transurban and have also played a role in the broader industry. Maybe you could take us through your broad observations of what’s changed over that decade, where we’ve come from, and where we are now? Scott Charlton (SC): I’ve been in the infrastructure market in Australia now for almost 30 years, but I’ll focus on the past 10 or so. One of the reasons I joined Transurban 11 years ago was because of what I thought was likely about to happen in the infrastructure industry – and obviously, Transurban was a great company to begin with. But I think the last 12 to 13 years has been the golden era of transport. We’ve talked a lot about transport today. If you look at the size and the scale of the projects that the industry has been able to deliver, it’s just phenomenal. We have completely changed the cities on the east coast of Australia, and I think it’s something that the industry has done an amazing job on. I know the contractors have suffered along the way in certain instances, but we’ve all gotten through it and are on the other side, and are really proud of what we’ve done. I had a conversation recently with someone who may not be such a huge fan of private infrastructure. They said to me, ‘But, Scott, you’ve spent all these billions of dollars and congestion is only one per cent better in Sydney than it was a decade ago.’

So, I use my favourite Australian Competition and Consumer Commission phrase: ‘The counterfactual – if we hadn’t have built it, it would’ve been 30 per cent worse.’ So, I’m just really proud of what we’ve done. One of the things that does concern me as we move to the energy transition is that it does come off – and we see all the forecast coming off – transport, but if you look at the population growth, it’s still going to need that continued investment. I think Treasurer Tim Pallas talked about still investing in transport in Victoria, which is great, but we still see that the population growth is going to put massive pressure on all the infrastructure, and not just the energy transition. AD: On the subject of the energy transition, reflecting on the conversation that Mark Collette and Neena Aynsley had in their session, presumably, there’s some learnings from what we’ve done in transport with the big civils rollout. What do you think are the learnings that can be applied to the energy transition projects that are coming? What are some of the pitfalls that need to be avoided? SC: Yes, it is a tough process and I feel for everyone in the transition. We know how difficult it can be dealing with state and federal governments. You have to deal with government intervention, and you have to deal with all kinds of confusing price signals. When you look at major projects from a transport perspective – rail and road and everything else – we had major projects legislation that helped us quite a bit. We don’t see that in the United States and some of the other places where we do business, and it takes much longer, and it can be much harder. So, how do we get governments to step in and take the power? Unfortunately, it’s not very palatable sometimes. The other thing that we had in the transport perspective is that while it was incredibly disruptive to go through someone’s neighbourhood with tunnels or whatever we were doing, people could see the project coming to life. For instance, people could see the new line or road near their neighbourhood and intuitively work out that this was going to allow them to get to work quicker or take traffic off their local streets. The issue with the whole energy transition is that there are so many confusing signals because everyone’s being told renewable energy is cheaper, but their power bill keeps going up. At the same time, others may say, ‘I want to use renewable energy, but I don’t want to harm the environment in any way in transmission or wind farms.’ So, there are all these conflicting and confusing signals, and I think the government is really going to have to just step in and enforce on some of these issues’, in a similar way to when we had the major projects legislation that’s allowed all these things to get done. AD: Do you think there are any learnings from the social licence piece, such as the more practical things that you and your team, and the broader sector, have been able to

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In conversation with Scott Charlton

Infrastructure Partnerships Australia Chief Executive Offi cer Adrian Dwyer hosts outgoing Transurban Chief Executive Offi cer Scott Charlton for the second ‘In conversation’ session

do to get some of these projects delivered with a degree of community acceptance? SC: We’ve learnt a lot. Our partners are in the room, on the contracting side and the government side, as well. So, there’s a lot more interaction, and it’s not the interaction through the newspaper or Facebook. It’s the interaction just door knocking. Everyone asked, ‘What’s your concern on this street? What’s your concern on that street, and how do we address that?’ I guess, again, the issue with the energy transition is it’s just so broad in the scale, and the people being impacted in one area are the people who are going to benefit in another area. We’ve always found it’s the micro community engagement that actually makes it different. That’s very important, but it is much, much harder and, again, I feel for the energy transition going forward. AD: Gender diversity is an important conversation, I think, for men to be involved in as well, so I wanted to ask

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you about it. I think it is worth reflecting on your 11 years at Transurban and on some of the changes that have been made around gender diversity. From an Infrastructure Partnerships Australia perspective, I look back and there were more ‘Davids’ than women on the Infrastructure Partnerships Australia Board when you joined it. That has thankfully, through a lot of work from my predecessors, changed. But I think it’s worth you reflecting on that journey around gender diversity and some of the real, practical things that have been done to help solve that problem. Notwithstanding that it’s two men having that conversation, I want to be conscious about that, as well. SC: I think all the foundations are there and, over the past decade, we’ve done all those things. With Transurban, when I got there, we first started talking about pay equity, and they said, ‘Oh, we’ve got a five-year journey to get to pay equity.’ I said, ‘Well, why don’t we just do it this year?’

In conversation with Scott Charlton

‘Well, we can’t do that; we have to have a journey.’ I was like, ‘Well, let’s just do it this year.’ So, we just did it. I think the industry has gotten there with the foundations around flexible work practices, and I know we’ve all dealt with COVID, but most of the industry had those flexible work practices before COVID, plus parental leave and pay equity, and diversity in the interview and hiring process. I think all the bases are there, and we are really proud. For instance, with WestConnex, we had 26 per cent female engineers in key operational roles, not just in more traditional roles. Zoe Taylor, who runs our West Gate Tunnel Project, which is one of the biggest projects in Australia, is our project manager and we’re very proud of what Zoe has done. She has done a great job. So, with all the capabilities there, unfortunately, as we know, we’ve started from a low base from the education world of engineers, and in construction and a few of the things that we do, but that’s not an excuse. So, we continue, I think, all of us, to promote STEM, which is very important. But I think still the elephant in the room, and we do still see it in some of our more traditional areas, is the cultural piece. It just has to be called out very quickly, and dealt with very swiftly. Again, you’ve got to have a minimum amount of gender diversity or women in a particular function to be able to make sure that that culture is affected. So, you can’t put one or two women in an area and say, ‘Okay, now we’re gender diverse.’ It has to be enough where there’s enough to change the culture. I think there’s still work for us to do. It’s not the benefits. It’s not the programs. It’s not the ability to promote. There’s still, in some of the base functions, a cultural issue that we still unfortunately are dealing with, but we’ve come a long way. My executive team is fifty-fifty men and women. Again, that doesn’t come because we’re trying to hit a stat; that comes from diversity being the biggest teller of performance and, hopefully, that’s shown in Transurban. AD: If you cast forward 10 years from a sector perspective, do you think that have we hit a ceiling on that, or do you see continued progress? SC: I think we still see continued progress. It’s still a struggle because the education system is not producing as many engineers. It’s still not seen as attractive as some other areas or functions, but I think it will continue to improve. If you look at two of the [Partnerships] sponsors in one month, they’ll be led by women, and that’s a big part of the infrastructure industry. So, I think it is something to be very proud of, but there’s still a lot more work to do. AD: I want to move to policy. One of our favourite shared topics is road user charging. It has been mentioned a few times today. Noting the developments that have happened around advocacy for legislation for road user charging on electric vehicles (EVs), how do you see that reform impacting the road

landscape, assuming that the High Court decision finds it to be valid? How do you see that landscape planning for how we develop and plan for roads? SC: I should say that just for those people who are becoming CEOs or a new CEO, my first mistake was one month into my job, somebody talked to me in the media. They asked about what I saw for the future, and I started talking about road user charges. It became a fairly high-profile article in the Sydney Morning Herald back when you weren’t allowed to talk about tolls. I had a call from my Chair who said, ‘Oh, Scott, that was a really good article.’ I said, ‘Oh, thanks, Lindsay.’ Then he goes, ‘Look, when you’re going to change the policy of the company you should probably call the Chair before you do that.’ So, just a hint, before you change any policy, you may want to call the Chair. We’ve been advocating for a long time, because we know the latest numbers for fuel excise revenue is about 4.8 cents per kilometre, whereas back in the ’90s, it was at over eight cents. Again, the fuel efficiency of cars is going to create a massive pressure. We at Transurban believe [road user charges] will be a positive to the number of kilometres driven and result in a more efficient allocation of funding based on where the funds are needed – rather than political considerations. In contrast to a big pool of funding, road user charging allows you to see where the funds need to be spent and where people are prepared to pay for that amenity. AD: If you cast your mind forward over the next decade, what do you think are the big things that will happen around reform and technology in the roads and broader infrastructure space? SC: Again, if you go back to electrification, EVs were 3.8 per cent of the vehicles delivered last year, and they’re 8.4 per cent this year, so electrification is going to come. It’s always the peak hype. We heard about electrification six or seven years ago with cars, and then everyone said it wouldn’t happen because you can’t electrify a ute. Well, I was just in the United States last week and they have electric models of those giant Ram Trucks and Ford Rangers. I think in a decade, 50 per cent of the vehicles are going to be electric on the road, which creates its own opportunities and challenges. I think we had peak hype around autonomous vehicles. We ran a trial in Melbourne last year using a connected autonomous truck on CityLink for freight. We had done a lot with the cars, and cars will eventually come, but what we’re seeing is freight is going to make a move and, obviously, it’s much more valuable to freight. So, we’ve entered into a joint venture with Plus out of Silicon Valley, and we’re going to start running a trial. While it’s a trial, it’s actually more a business case between the port here in Melbourne and some of the distribution centres. So, I think freight will change quite a bit. AD: Just to unpack that a little – they’re platooned, autonomous trucks?

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In conversation with Scott Charlton

SC: Well, for the first deployment commercially, it’ll just be an autonomous truck, not platooned, so without needing a driver for the majority of the journey. Because of the technology on CityLink, we can shut the road around it, and keep it separated from any traffic to try and use that capacity at night. So, I do

SC: Well, the irony of the story is that was one of my first big jobs I ever worked on, and I lost it to Tony Shepherd and Macquarie on the other side. So, it took me a while to

think freight will change quite a bit. Then, of course, artificial

come around and get control of it. The way CityLink reshaped

intelligence (AI), but AI for us is more in maintenance and

Melbourne – it was the first ever free-flow toll. At the time,

operations. We can make things much more efficient. We can

it was an amazing technology and an amazing build, and it

make things safer and then, eventually, mobility as a service.

actually is the base that has allowed Transurban to create the

So, all those things for us mean a lot more kilometres being driven, hopefully a lot more efficiently, but it’s going to have to be priced, as well. AD: I’m loath to ask this final question, but I want you to choose your favourite child for me. Which is your favorite toll road asset? SC: Yeah, okay. CityLink. Outgoing Chief Executive Officer Scott Charlton reflects on more than a decade at the head of Transurban

AD: Why?

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platform that we have, so it’s an amazing asset. The amount of time and safety, and the amount of amenity it provides to Melbourne, is hard to beat. AD: Well, that’s the scoop for the day! Scott’s favourite road: CityLink. My favourite toll road is the next one.

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2023

Macquarie Capital economic update

Macquarie Capital economic update Key points •

•

The outlook for the global economy is optimistic and markets have already started looking beyond a recession that has been long forecast. The energy transition offers a significant investment opportunity as 2022 marked the first year in which investment in renewable energy matched investment in traditional energy generation globally. Economic conditions among different regions are variable, with continuing high inflation in Europe and dampening growth in China, while the United States and Australia are relatively well positioned.

Presented by: ►

Tim Joyce, Head of Macquarie Capital, Asia-Pacific

I want to give you a general impression of what we are seeing in our Macquarie research team globally in terms of what’s going on in the market. The starting point here is that the world has actually recovered very well from COVID. We had a big dip in gross domestic product (GDP) globally, but a strong recovery. Of course, what that’s meant is that we’re now dealing with the aftermath of that recovery in terms of inflation and rising rates. And we’re all very much aware that we’re dealing with a very different environment from an interest rate perspective. That’s a global phenomenon – it’s not just something that’s happened here. Our observation is that rates are likely to stay higher for longer. Many would say they’re really just back to more normal levels, but given the elevated position of inflation in key economies around the world, our expectation is that rates will be at these levels for some time. But the good news is that we are seeing a stabilisation and a reduction in the rate of growth in inflation – and therefore, we’re also expecting to see a stabilisation in interest rates. From our perspective, where we are focused on investment flows in a range of different ways in

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a range of different markets, that’s a really encouraging thing and, already, we’re seeing that flow through to activity levels in terms of appetite for investment. That stabilisation in rates is really the key ingredient to a better backdrop for investment. What do we expect is going to happen from here? I think the signals are very mixed. The key message we receive from our economic strategists is that there are mixed signals depending on which aspect of financial markets you look at as to ‘where to from here’. There are certainly reasons to be cautious, but there is also some cause for optimism. What we think we’re going to see, though, is a continued contraction in global GDP, but some optimism now – and this is coming through in markets, as well – that there’ll be more of a softer landing than perhaps was anticipated earlier this year. In terms of market signals as to where we are going from here: a big drop-off after the spike in recovery post COVID, and a big drop-off in commodity prices and a drop-off of the growth in industrial production are obviously adverse signals in terms of what’s happening in markets today. Similarly, bond markets are very cautious. About 17 months ago, the yield curve in the United States inverted, and it has been the indicator in the past 45 years that there will be a recession in the US economy, and likely in the global economy. The question is, how long will that take to come through? You’ve probably heard the expression ‘long and variable lags’. Broadly, as rates rise, there is an economic consequence to that, of course, but the time frame over when that impact happens can be somewhat unpredictable. We think that bond markets are assuming we will have a recession in the next six to 12 months. This has been the longest forecast recession in US history, and we continue to believe it will happen, but I think markets are starting to look beyond that. On the more positive side, equity markets have started to look beyond those short-term headwinds. That’s particularly been the case in the tech sector, driven by artificial intelligence (AI) and the impact that it’s having on the valuation of the ‘fabulous five’, or the big US tech stocks – the likes of Alphabet and Amazon. Similarly, and this is somewhat counterintuitive given what’s been happening to rates, we’re seeing pretty much a universal move in relevant economies in housing prices and property prices more generally. There is quite a strong recovery in property prices. These are the more positive signals for the medium-term outlook for the global economy.

Macquarie Capital economic update

Head of Macquarie Capital Asia Pacific Tim Joyce delivers an economic update on the global economy and infrastructure markets

In terms of what’s going on in different regions, the overarching message is that we’re more concerned about Europe and China, and less concerned about the United States and Australia. First, just in terms of the European economy, and I think we’ve seen this particularly in the United Kingdom, inflation continues to be a challenge. We’ve got ongoing monetary tightening and weak demand, and we expect that that will continue through to 2024. I think China is perhaps the most interesting aspect of the regional view of economic conditions from our perspective. It’s clearly quite challenged. This is particularly the case in the real estate sector, and this

is an area of the global economy that has concerned investors for a long time. We’ve been through a period of structural demand growth from China and it’s been very relevant, of course, to Australia in terms of commodity price growth. We feel that this longer-term trend is towards its end, and we are now more concerned about the outlook for the Chinese economy as a consequence – and it’s not just about excess supply in housing, but it’s also about the financial wellbeing of the developers in China. There is a lot of stimulus going into the Chinese economy. We expected that would mean that we’ll start to see a recovery, but we think

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Macquarie Capital economic update

that that recovery will be more moderate than we’ve perhaps seen in previous cycles, and that it will take some time to flow through into 2024.

employment perspective, and the consequences that that might have on the economic outlook, particularly over the next 12 to 18 months, and with rates at this elevated level.

Where we are more optimistic is around the United States. The United States has again proven to be a very resilient economy, and while there have been headwinds in terms of rising rates and other challenges, overall employment has been very resilient, and the consumer has been very resilient. The prospect of a soft landing in the United States has increased quite a lot over the course of this year.

Where are we seeing opportunity in the Australian economy? One of the most obvious areas is in responding to the housing crisis. Clearly, the Federal Government, working with state governments, has already taken a number of significant steps to try to address this issue. The recovery in house prices is somewhat counterintuitive, as I said before, given what’s happening to rates. So, this is predominantly, in our view, a supply side issue, and a very significant challenge for the community and government. But it is also a significant opportunity and one that we’re quite focused on in terms of improving both the time and the volume of housing that comes into the market here.

The focus for now, I think, is unemployment. The stabilisation of unemployment rates down at current levels is probably starting to turn. This is really the key risk from an economic perspective. If unemployment rates start to increase, obviously that will have flow-on consequences in the US economy – but I think it’s a similar picture in Australia. The unemployment rate is just starting to pick up, and that’s the key watch, I think, for economists globally. Changing tack now to think more about what’s going on in terms of the areas of opportunity for investment, particularly from an infrastructure perspective. Many, if not all, of you are very familiar with the CHIPS and Science Act 2022 and the Inflation Reduction Act 2022; together, those two US fiscal initiatives constitute almost US$700 billion of stimulus in semiconductor manufacturing capacity in terms of the CHIPS Act, and about US$400 billion of investment and incentives in clean energy in the Inflation Reduction Act. These are huge changes in terms of what it means for the global flow of capital in these areas, particularly in clean energy. In our business, we’ve seen that a greater focus on opportunities for clean energy, investment and development has moved from Australia to the United States. I think Australia can also be a beneficiary of this as it plays through, but it’s having a big impact. You can see how much China has impacted US real manufacturing output in the past 20 years. That is starting to shift now as a consequence of these fiscal initiatives. In the United States, there is the big pop in semiconductor manufacturing and other tech investment, as a consequence of the CHIPS Act, and that’s having an impact on GDP. So, a lot is happening in that space, which I think will mean that the United States will become a real hub for infrastructure investment in those areas. Turning now to the Australian economy in a little bit more detail. You can see again a story of impressive resilience from the Australian economy. Notwithstanding lots of concern over the past few years about what might be the consequences of COVID and now rising rates, the Australian consumer and Australian employment have extremely resilient. But on the other hand, there are some concerns, because consumer sentiment is at very low levels and, as I touched on earlier, there’s now a genuine concern about what happens from an

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In terms of how these initiatives are funded in Australia, we were fortunate last year to have a $20 billion surplus as a consequence of the strength of employment and the strength of commodity prices, and the consequent inflows to Federal Government proceeds. There are headwinds, I think, in that regard, coming because of the likelihood that both of those benefits start to unwind. And so, we do think, and this is consistent with Federal Government forecasts, that the Government’s fiscal position will be under more pressure in the next few years. Of course, that clearly creates an opportunity for more partnerships, we believe, in terms of infrastructure development between state and federal governments and the private sector. I’ll touch more upon that shortly. The overarching message that we always like when we talk about where we are at with markets is just to step back and remember the bigger picture here. And that is that the world does move in cycles, but there are always recoveries that follow these more challenging economic periods. If you take a very long-term view, the world does grow and that means there are opportunities for investors to participate in that growth, especially if they step back and think about the longer-term opportunities rather than the short-term headwinds. In terms of what’s happening in capital markets, broadly from our perspective, we’ve seen a recovery in equity valuations, particularly in the United States. That’s been almost entirely driven by the recovery in tech stocks, as I touched on earlier, particularly the largest seven tech stocks in the US economy. The mega tech stocks have contributed a growth of 49 per cent this year in the United States, whereas the rest of the S&P 500 is only up four per cent. And it’s a similar dynamic in Australia, where you can see that tech stocks are up 29 per cent, but the ASX 200 is only up four per cent for the year. Perhaps more interestingly, in the detail is just how much demand and investment has been flowing into credit. We’re certainly seeing that in a range of different ways. What’s

Macquarie Capital economic update

noteworthy is that you can get better returns on debt than you can do on equity at the moment. Now, that’s very unusual, and that’s being driven by the very significant increase in rates that we’ve observed over the past few years. That’s just a massive shift in the returns or the yields on debt compared to equity. It’s clearly not a sustainable position. It’s not the case in Australia, but it is the case in the United States at the moment. So, that’s noteworthy in terms of what’s happening in markets from an equities and debt capital markets perspective. In terms of private capital, there’s quite a lot that’s interesting that’s happening in terms of the world of private capital investors, particularly infrastructure investors. The first

point is that there continues to be an enormous amount of dry powder being held by those investors, but they are dealing with quite a different and changing environment for a few reasons. One is that the opportunities for new capital raisings have diminished significantly. We saw a very good environment for capital raisings for private capital in the past few years. That’s really dropped away this year. That’s the first observation. The second is that we’ve had this notion of the denominator effect – which, broadly, is that for institutional investors, what they’ve seen and experienced is that their investments in public markets have fallen materially relative to their private investments. That’s meant that there’s been more pressure on

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Macquarie Capital economic update

the allocations towards private investments, and particularly in real assets. And so, what we’ve seen is that there’s been a drying up of new allocations by funds to real assets, and that’s leading to more selective decision-making by investors in terms of infrastructure opportunities. It’s also leading to a churn in the ownership of those assets. I think there’s a few other reasons for that, including rebalancing of portfolios as investors look forward to the world we are in today and where we’re going, particularly having regard to the consequences of COVID, the very significant reinforcement of the value of digital infrastructure and renewable energy assets as a consequence of that, and the risks that are embedded in more carbon‑intensive and traditional core infrastructure assets. So, we are seeing a shift that’s occurring in the private investment space as a consequence of all of those factors. And then, finally, debt markets have been extremely resilient, particularly for investment-grade credit. So, that’s noteworthy in terms of the funding of projects. So, what does all of this mean from our perspective in terms of areas of opportunity and where we are focused in terms of investment activity, particularly through the infrastructure lens? There are three or four areas that I wanted to highlight. Obviously, the biggest opportunity of all, and this won’t be news to anyone, is what’s going on in terms of the energy transition. Estimates from the Australian Energy Market Operator say that $320 billion needs to be invested in Australia’s energy system to respond to the energy transition. And for the first time last year, an equal amount of money globally is being invested in renewable energies versus traditional energy sources. Of course, that trend will well and truly continue into the future. For our part, we’re actively involved in a range of different ways in this energy transition opportunity in terms of the development of renewable energy assets and the networks around those, as well as supporting clients as they make their investments in those areas. This is by far the biggest opportunity set from an investment banking perspective at the moment, and I think it’s also true that it’s the biggest opportunity for infrastructure investors. A knock-on consequence of the electrification thematic is what’s happening in critical minerals. Australia is exceptionally well-placed in this regard, particularly in consideration of the security of supply and geopolitical issues regarding China and the United States, and where these assets are held. This is one way in which we, as an economy, can be a beneficiary of the Inflation Reduction Act and the amount of capital that is going into clean energy in the United States. What’s interesting to note from our perspective is that Australia has actually become not just a hub from the point of view of these minerals – that’s mostly a Western Australian story – but we’ve actually, as a listed market on the ASX, also become a very important source of capital for the development of these projects. I think actually what we expect to see is that infrastructure investors will

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also participate in the development in these areas, and we’re starting to see some of that emerge. We think there’ll be more of that to come. You can see here that just in terms of equity investment going into the mining sector, Australia bats massively above its weight by comparison to the Tokyo Stock Exchange, the New York Stock Exchange and a number of other exchanges. So, I think that’s a really exciting opportunity for us as an Australian economy looking forward. Of course, we’re all aware that population growth is back in Australia and that’s likely to continue. In our view, that’s a very good thing, but it does put pressure on social infrastructure and housing stock, as we talked about. So, I think these are other areas where there’ll be very much a focus. It will help to underpin GDP growth in Australia, but it will also require very significant investment by both the public and private sectors. From a government perspective, in our view, there’s more capacity in government than perhaps is broadly appreciated to help support these initiatives, especially when you look at the position of the Federal Government’s debt-to-GDP ratio by comparison to other economies. But we do think that the role of the private sector will become increasingly important in terms of providing partnership capital to government to pursue these objectives. And then a final piece for me, and the fourth area of opportunity for infrastructure development, is in data centres and the digital economy more generally. This is really twofold. Obviously, the rise of the cloud as a source of data storage has meant that data centres have become increasingly important, and there are some very significant businesses in Australia that have benefited from the demand for data centres and the growth of those in the region. But what’s interesting is not just that we are going to need more data because of the digitisation of all of our activities, but also because AI is going to require a lot more data centre capacity. That’s also going to mean that there’s a lot more energy required to drive those data centres. Given the crossovers between what’s happening in the energy transition and digitisation, this is another area where we expect to see a sevenfold increase over the next few years in the demand for energy associated with data centres. So, that’s a huge area requiring very significant capital investment, and one that we’re quite focused on. To conclude, from our perspective, the economic signals are mixed, but if we think through the longer-term structural opportunities, particularly through an Australian lens, there are many in energy transition, critical minerals, housing and social infrastructure, and digital infrastructure. We are very excited by the opportunity to partner with many of you to address those various community needs for the Australian economy. This information was presented on 15 September 2023.

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enterprise value of infrastructure and energy projects globally2

1. By deal value and/or deal count in each calendar year, based on Inspiratia, IJGlobal or Inframation league table rankings. 2. As of 31 March 2023, where Macquarie has currently invested capital or has an ongoing management relationship. Represents 100% project basis, regardless of Macquarie’s ownership percentage, and includes development, construction, and operating stage assets. The EV of development assets can materially change over time due to their inherent risks. For example, it is possible that financial close may not be reached on one or more of these development assets. | None of the Macquarie Capital entities are authorised deposit-taking institutions 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 Limited ABN 46 008 583 542 (MBL). Any investments are subject to investment risk including possible delays in repayment and loss of income and principal invested. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.

companyfocus

How the energy transition could drive a more collaborative approach to infrastructure procurement The infrastructure required to facilitate the energy transition is presenting Australia’s governments with the opportunity to rethink the typical infrastructure procurement models, according to Macquarie Capital Associate Director William MacDonald. ‘Australia has a mature and developed public-private partnership (PPP) market, which has stood the test of time, and has delivered some great infrastructure projects,’ MacDonald says.

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‘But the nature of transmission projects required to transition the Australian electricity grid, which often offer a different risk profile to traditional assets, gives governments a chance to rethink the way they procure projects and allocate risk – one that could have repercussions for all major projects.’

Australia’s growing infrastructure gap

Australia is in the midst of an infrastructure boom. Infrastructure Australia observes that there are

currently 5500 traditional infrastructure construction projects live across the country, with a combined value of $647 billion.1 There is also a five-year pipeline of further traditional infrastructure projects valued at $237 billion. Despite this, the size of investment needed to transition Australia to renewable energy is likely to send the infrastructure market into overdrive. ‘By 2050, we’re likely to need nine times as much renewables generation and 10,000 new kilometres of transmission lines,’ MacDonald notes. ‘The scale and pace of infrastructure development will be unprecedented.’ In fact, BloombergNEF estimates that Australia’s transition to net zero requires US$1.9 trillion in investment by 2050. This includes an annual investment in the grid of US$11 billion, as well as US$391 billion in low-carbon generation sources.2 But while such significant renewables infrastructure will bring opportunities, it will also bring risks when it comes to price certainty due to well-publicised COVID-related supply chain issues and labour shortages. ‘Given our geographical position, building renewable infrastructure in Australia often costs more,’ says MacDonald. ‘There is also a lack of onshore manufacturing capacity, meaning we must compete with other markets for critical long-lead-time equipment. ‘This presents a real challenge given that – despite its ambitions – Australia’s renewables infrastructure is still minor compared with North American and European markets, meaning economies of scale are more difficult to come by.’

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Changing the risk profile in network infrastructure projects

Matthew Eddie, Associate in Macquarie Capital’s Infrastructure and Energy Group, notes that building the infrastructure required for Australia’s energy transition will need to overcome significant challenges to make developing large-scale network projects an attractive opportunity for investors. Under the traditional PPP model, risk is contracted to either party up-front, with private enterprise accepting it in return for the reward of ongoing income. ‘Governments tend to like the fixedprice procurement model because it helps with budgeting, and tends to push much of the risk for the project onto the private sector,’ he explains. ‘That’s fine where scope, costs and revenue can be forecast with some degree of accuracy – but that’s not how network infrastructure assets typically work.’ Eddie says the dynamic nature of transmission networks means that the scope of a project is often not apparent until delivery is underway. This can pose unacceptable levels of risk to a contractor who has been asked to quote a fixed price up-front. ‘Network infrastructure like renewable energy zones are dynamic and often have very different attributes to traditional static infrastructure. This needs to be taken into account during the procurement process. ‘We are already seeing large contractors opting not to bid for Australian network infrastructure projects because too much risk falls to them,’ he explains. ‘Unless this is addressed, both contractors and investors would expect high returns if they choose to participate at all, which will cause inefficient outcomes for consumers.’

A more collaborative approach

Given the significant number of unknowns, Tom Butcher, Head of Infrastructure and Energy – Australia and New Zealand at Macquarie Capital, believes that the best way to mitigate

risk and encourage participation is to take a more collaborative approach – one that involves the private sector earlier in the process. ‘The task in energy transition, but also infrastructure that supports our population growth, is immense, and without evolving our approach in a collaborative manner across private and public sectors, we risk delay and an even higher cost delivery. There is an obligation on all of us involved to lean in and solve problems, and not just for one part of the ecosystem.’ As an example, the Macquarie Capital team points to the recent Sydney Metro West Partnership, where the NSW Government has approached the market with a different procurement framework from the usual.3 Although the Sydney Metro West project involves more conventional infrastructure, the government is looking to adopt a contracting approach based on industry feedback and lessons learnt from past projects. In line with the NSW Government’s 10-point commitment, throughout the pre-procurement phase, it sought extensive feedback from the marketplace, which it then incorporated into the broader procurement strategy. ‘In the traditional model, where risk is allocated up-front, both parties look for win/lose outcomes,’ MacDonald says. ‘This often leads to litigation because it’s in both the contractor’s and government’s financial interests to apportion blame to the other side, rather than looking for ways to work together to reach an optimum outcome. ‘By forming a development partnership early on, and then taking joint responsibility to deliver a project, governments and developers can use more collaborative contracting techniques with contractors to potentially avoid situations where a project gets derailed, costs blow out, and all parties end up staunchly defending their position.’ MacDonald says that instead of looking for ways to maximise profit on an up-front price, a collaborative approach can offer incentives based on ‘best for project’ outcomes. These can

be refined as the project progresses – as they will be in the case for recent projects that have been procured on a collaborative basis, including North East Link Primary Package and Warringah Freeway Upgrade – to make sure the project stays on track. ‘All infrastructure projects carry some degree of uncertainty. The more we can approach these risks collaboratively and incentivise “best practice”, the more likely we are to deliver the best results for everyone,’ he says. ♦ 1

Infrastructure Australia, ‘Infrastructure Market Capacity 2022 Report’, April 2023.

BloombergNEF, ‘New Energy Outlook: Australia’, May 2023. https://about.bnef.com/ blog/report-shows-pathway-and-cost-foraustralia-to-meet-climate-goals-and-becomemajor-hydrogen-exporter/

Sydney Metro – Western Sydney Airport, ‘Stations, Systems, Trains, Operations and Maintenance PPP, NSW Government’, April 2023. https://www.treasury.nsw.gov.au/sites/ default/files/2023-05/20230523-projectsummary-stations-systems-trains-operationsand-maintenance.pdf

Additional sources: PWC, ‘Delivering Successful Energy Projects in the Renewable Revolution’. https://www.pwc.com. au/integrated-infrastructure-building-australia/ delivering-successful-energy-projects-renewablerevolution.html PWC, ‘Signals are Green for New Investment in Australia’s Transition to Renewables and Storage’. https://www.pwc.com.au/energy-transition/ investment-in-australias-transition-to-renewablesand-storage.html Minter Ellison, ‘A Chance to Rethink, Infrastructure Projects’ Contracting Relationships’. https://www. minterellison.com/articles/a-chance-to-rethinkinfrastructure-projects-contracting-relationships Infrastructure Australia, ‘A National Study of Infrastructure Risk’, October 2021. https://www. infrastructureaustralia.gov.au/sites/default/ files/2021-10/A%20National%20Study%20of%20 Infrastructure%20Risk.pdf

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Panel discussion – Victorian major projects

A panel discussion on Victoria’s major infrastructure projects featuring Joe Barr, Cressida Wall, Kevin Devlin and Adrian Dwyer (left to right)

Panel discussion Victorian major projects Key points: • •

Managing the rollout of the pipeline will be of key importance in ensuring its deliverability and in maximising productivity. There are still challenges to contend with in the construction sector, including industrial relations, labour requirements and culture.

Panellists: ► ► ►

Joe Barr, Chief Executive Officer, John Holland Kevin Devlin, Director-General, Major Transport Infrastructure Authority Cressida Wall, Chief Executive Officer, Office of Projects Victoria

Moderator: ►

Adrian Dwyer, Chief Executive Officer, Infrastructure Partnerships Australia

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Panel discussion – Victorian major projects

Looking forward into the pipeline, it’s about certainty in terms of where we are. We’ve all talked about the state and federal budgets that are in place, and there’s a degree of uncertainty and, I guess, nervousness about what’s coming down the pipeline. We just need to have that visibility. AD: So, just looking at some of those challenges further, you’ve got the industrial relations piece, the supply chain and uncertainty in the pipeline. But having this conversation four or five years ago, the conversation was about how the construction sector was not making money, despite there being a booming pipeline of projects. Do you think that has corrected a bit now? Is it a healthier sector than it was? JB: I think there’s been a lot of great work in moving and getting more mature about how we deliver particularly large‑scale mega projects. So, we’ve learnt a lot there. The form of contracting has also shifted a lot. And, notably, there are more contracts that enable us to have a better industry, to have a more diverse industry and to have a more productive industry. So, there have been big shifts. To me, it’s about making sure that we are capitalising on what we’ve learnt, and that we don’t regress back further when we look at the pipeline moving forward. As the Treasurer said this morning, there’s still a lot to build in transport and other infrastructure, including for new energy infrastructure. We need to make sure that we don’t regress into the same environment that we had before this pipeline came in. Adrian Dwyer (AD): There is some uncertainty in Victoria’s major projects pipeline in the shadow of a Federal Review. Perhaps it is the case that now the cloth is no longer big enough to make the suit we want to tailor. Meanwhile, Melbourne and Victoria continue to grow and there will continue to be unmet demand for infrastructure services. To help square that circle, Joe, I’m going to come to you first. As you look back over the past year or so, could you take us through how you see the challenges that have come and gone in that past 12 months, and maybe a comment on the health of the construction industry as it stands today? Joe Barr (JB): I think if we look back at that time frame, it’s tremendously exciting that in the next 12 to 18 months, we’ve got a number of these mega projects that are coming to life. People in our cities will be experiencing the benefit of that, both in Melbourne and Sydney, with the metro and all the freeways that are going to make our cities easy to get around. If I turn to then looking at where we are now and the challenges of the industry, it’s a very tough time for the industry. In the infrastructure and building market, there is considerable financial strain, particularly on subcontractors, and industry needs to support those subcontractors in completing the work that’s ahead of us.

AD: Kevin, from the point of view of a procurer, are you seeing a healthier industry now to deliver some of your projects? Kevin Devlin (KD): It depends on how you define ‘healthier’. I think, as Joe has indicated, there have been some great gains, but I still see lots of stress on construction sites. I see high suicide rates among the workforce and still an increasingly more adversarial industrial environment on sites. We’re seeing companies still declining in numbers and going into liquidation. So, there are pressures still out there. We’ve certainly made inroads in some of our diversity targets and also in skills. There are more people involved in the industry, but those skills have been spread very thin and we’re getting highly variable outcomes across projects, which is contributing to, I think, some of the frustrations about a boom. And then why aren’t we moving the dial more through this boom? AD: Cressida, you get the opportunity to look at this perhaps at a higher level, and you get to see data across the whole program. Are you seeing any of this emerge in the data at a macro level for projects? Cressida Wall (CW): I think it’s still an incredibly difficult environment. We forecast an approximate 10,000 full-time employee shortfall in the next year and ongoing, and we’re still seeing record rates of insolvencies across the construction sector. Some of that’s a lag from COVID, and some of it is not.

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Panel discussion – Victorian major projects

And I think that, as Kevin pointed out, culturally, construction

KD: Absolutely, and some will have heard me speak before

still has a little way to go. There are lots of companies doing lots

about my desire to move more to the time-bound contracting

of incredibly great things, but in an industry where there’s twice

and programs of work. I have heard people say, ‘I hate the

the normal rate of suicide and estimates suggest that about

word “project”, because it destroys value. It drives the eternal

$6 billion is lost in cultural problems in terms of productivity –

beginner syndrome and stop-start, and it destroys the efficiency

that’s sobering, but it also represents opportunities.

for teams.’ This can also be the case when teams don’t have

AD: Kevin, I might just come back to you to broaden the

that pipeline of works and a program over time, and if they’re

question around this whole suite of challenges, including

not thinking long-term about the cultural, safety, efficiency and

industrial relations, supply chains, the availability of people and

productivity improvements in what we build. It is important to

the cultural challenges. Is that changing the way you think about

create that platform for teams to have continuity and take the

planning the pipeline for infrastructure? And not just planning it,

lessons learnt from the project, rather than disbanding at the

but the models you use and the delivery approaches, as well?

end of a job and waiting for the next project. I’m intending to

Major Transport Infrastructure Authority Director General Kevin Devlin digs into the challenges and opportunities facing the industry

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Panel discussion – Victorian major projects

double down on that more programmatic approach: smaller packages of work, time-bound contracting, continuity where teams can learn and improve over time and get better, and also can think long-term and about a lot more standardisation in what we build, while not reinventing the wheel each time. So, more of that manufacturing mindset overlaying construction – that’s certainly the focus that we’ll have. It might be a smaller pipeline, but what we’re focusing on doing is trying to prevent those peaks and troughs, and taper it off a little bit, because it was probably at an unsustainably high level. But we want to keep that smooth so that those manageable packages of work are there for industry, and the teams and people that we need to deliver on it. AD: Cressida, can I bring you in on that again? You see it across the whole portfolio, not just the transport piece. How do you see the role of agencies in being able to manage that pipeline more effectively? CW: I think there are lots of opportunities for the government as a whole to get more information out into the market so that the market can adjust. I think the Victorian Government has done that. We’ve got a published pipeline. We can put more information online, particularly about supply chain issues, and I think that helps the market to adjust and actually find good opportunities. I also think that government has a role to play in a concept that I’m going to very clunkily call ‘scope specificity optimisation’. So, I think the government sometimes makes scope way too complicated and sometimes doesn’t give enough direction. Getting that right is something that I know Kevin’s focused a lot on, but it’s something that there’s an opportunity across government to do. And we know that early engagement with contractors is useful, but we also know that too much early engagement with too many contractors is expensive for everybody and not helpful in a pipeline where people don’t have time to tarry with someone’s scope that they’re not going to win. So, I think that there are lots of things that the government can do, and continues to try to do, about getting the right information out to let the market adjust, and then getting the right information out to let good decisions be made on projects. AD: I’ll come to each of you on this question, but a lot of the discussion today has been about the big challenge of the forward pipeline in energy. I’m interested in your level of concern that that begins to overwhelm the availability of skills, resources, and balance sheets in the delivery of a continuing and still substantial transport program. I’ll come to you on that first, Joe. JB: Well, like many companies, we’ve done a forward look at the next five years and have a view, given the information we are working with, that there’ll be a large volume of work in transport, rail and energy. I think part of the challenge for the

industry, and our clients and government, is to make sure that we are clear about that pipeline so we can plan. The point was raised about early involvement; I think one of the things that we’ve learnt in delivering complicated, large projects is that we need to improve our productivity, and we can improve our productivity by having contracts that enable us to behave and talk in a way that is collaborative, that we can innovate in – and with – and that allows collaboration on the project. When we look at the major infrastructure projects that go well, these are the ones where everybody is understanding they’ve got a role to play. I think one of the lessons that we’ve learnt is that we’ve got to have expertise on industry’s side, but government’s role in terms of clarifying scope – being clear on scope, not changing that scope and having the expertise on government side – will enable that level of certainty. AD: Cressida, what are your thoughts on how overwhelmed the transport pipeline and the social pipeline might be? CW: If we call the Victorian pipeline at the moment about $200 billion, transport represents about 50 per cent of that pipeline and water is probably 20 per cent – that is a lot. There are certainly opportunities there, I think. When Joe talks about productivity, many companies are doing many things to try to tackle that issue, and there are some extraordinary successes happening. I think that it’s difficult to design a better fire hydrant when you’re drinking from it and that’s a challenge for industry. So, what’s government’s role there? Well, I think we need to work with people. And as the Treasurer says, all contracts can be collaborative. We talk about culture in construction and sometimes it gets talked about as a sort of diversity issue or a fluffy hugs issue, and it’s actually a commercial issue. Upskilling managers and leaders to have more non-binary thinking about black-and-white outcomes and actually getting good results is a cultural thing that government needs to be a part of, and that industry is obviously a part of and continues to be a part of. AD: So, Kevin, you’re at the coalface on this. Are you seeing the diversion away from interest in your forward program? KD: We are, and we’ve been taking measures to consolidate and drive more efficiency in how we approach things. Certainly, from Victoria at this point, and the maturity that we’ve had given the last eight years of work, I think the opportunity is now to optimise some of the structures, arrangements and resource profiles that we have. So, we’re doing that internally on the client side. In my view, the resources will be there to deliver all; whether it’s housing, health, energy or transport, it’ll be the variability of the skills within those resources that will be the big challenge. This is something that we’re talking about on the government side, with closer interaction with our other delivery agencies across government, and better coordination and transitioning knowledge and resources, rather than everyone competing. It is also collaborating at that delivery agency level,

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Panel discussion – Victorian major projects

as well, to help manage that so that we don’t have pockets of excellence and then poor cousins that are struggling in other areas. So, that’ll be the opportunity, and similarly in the workforce, as well.

plan and manage your resources. Part of the challenge that

AD: Joe, do you see it as a challenge for productivity if you’ve got patchy skill levels?

industry, or they might move states. Queensland is getting very

JB: Absolutely. I think the one thing that will enable that productivity is to have that clarity of the pipeline, so you can

are communicating with the industry and giving them a level of

we have right now is that we’ve got these massive projects coming to completion. There are new ones starting, but without that level of certainty, individuals will make choices to leave the busy, for example. So, I think it’s essential to make sure that we certainty so they can plan their lives. Office of Projects Victoria Chief Executive Officer Cressida Wall reflects on the role of government in delivering the infrastructure pipeline

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Panel discussion – Victorian major projects

AD: You mentioned people moving; one of the striking things about the transport and civils rollout versus the energy‑dominated rollout for the next 15 years is that the first part of that was largely in urban areas, and the energy part is largely in regional areas. What’s your sense of being able to get people to go to regional areas to deliver the infrastructure? JB: Well, it’s going to be challenging unless we get the settings right. If you look at most businesses – our peer competitors – I would say 80 per cent of our workload is in around a 15-kilometre radius of Melbourne and Sydney, and probably Brisbane. If you look in five years’ time, that’s going to be reversed. But it’s not just going to be regional; it’s going to be regional around, not towns, but rural communities. If we look at some of the lessons we’ve already learnt about making sure there’s certainty, people need to be moving to areas where they can have families, they can be educated, they have good interaction with local communities, and those local communities are supportive. So, I think we need to lay the groundwork for that. And a lot has been said about social licence today, as well. We’ve learnt so much about communicating with communities in order to be successful at delivering work. We need to take that same approach to rural communities. So, it is a big challenge and individuals will need to be encouraged to move to those rural areas. AD: So, let’s maybe drill down on that a bit, Cressida. Not just social licence, but also the broader learnings from what has been done over the past decade or two in the urban areas of renewal, and how they can be taken forward to the next 15 years of the pipeline as well. CW: Well, I think generally the lessons that the government needs to learn is to listen to the private sector about the things that they’re good at, and to lead and give proper direction in the things that we’re good at. I think that in terms of regional activities, it is just really difficult from a skills point of view. And I come back to this sort of cultural issue being a commercial issue. Unlocking the attractiveness of the construction industry in a whole range of different ways does unlock a whole other workforce that doesn’t want to go, and doesn’t want to be a part of it. In the past couple of years, we’ve seen the rate of women’s participation increase from about 12 per cent to 14 per cent, depending on how you measure it. If we changed that rate tomorrow, we wouldn’t have a skills gap. So, that’s why I always say these issues are commercial issues. They’re not really about just social justice or anything like that; it’s about the actual culture that we have. But getting back to what we learn as a government, I think it’s about realistic expectations, as well. We’ve learnt a lot about the way we announce projects, and that the sort of pressure that we put on the construction industry creates perverse incentives, and I don’t think that’s helpful. So, that’s a sort of

universal truth about government that we keep having to face. And I know Kevin’s done a lot of work there. Particularly, when you look at things from a programmatic point of view, you can get more rationality to the behaviour on both sides. Finally, I think the other learning that we have is that there are just so many standards and some of them conflict. Some of them are impossible to meet both at the same time. When we look at what we’ve done in the cities and what we are going to do in the regions or in transport and in new industries, it’s all the same issue. There’s just so much red tape. It’s incredibly difficult. So, we are doing a range of things to try to identify and eliminate those inconsistencies. AD: Kevin, you’re responsible for some of the red tape. I’ll give you a right of reply there. KD: We talk a lot with Paul Younis, the Secretary of the Department of Transport and Planning, and as we have heard earlier from the Deputy Premier, there is a significant push for planning reform and how that supports not only the other sectors like housing, but also certainly with what we’ve been doing, as well, and streamlining that. I think Paul Younis has been doing a lot of work on that planning reform. Now within the one department, I think the opportunity is there to really push ahead. Even just understanding when we specify something or set a requirement through, such as an environmental approval, what that translates to in cost is not understood at all when everyone is doing their things in isolation. So, how can we understand the cost benefit and trade-off equation far more globally? Those are some of the opportunities that we’ve got. With North East Link, I look at some of the environmental approvals and I still think it’s driven unnecessary cost for infinitesimally small benefit and we’ve got to attack that red tape, you might call it, in a far more detailed way. But, as Cressida said, it’s very difficult, because everyone’s got their patch of responsibility, so it’s hard to find the people who can take the global perspective. AD: Joe, I’ll give you the opportunity to reply on that because you also have that in a national context with all the jurisdictions. JB: I think we were talking the other day about safety, at a safety meeting we had. Every time you have an incident that is concerning, such as a near miss, the temptation is to add more to a procedure and to make that watertight because you had that incident, because you’ve learnt a lesson. What’s not easy to do is to stand back and ask, ‘how can we make it simpler for people, and allow them to tell us how they can do their work safely because they want to?’ I think the same applies to specifications. We specify things because they need to have a durability, a life and a certain loading applied to them. But sometimes, I think it’s best to leave the market to determine how we approach the actual usage of the job, what’s required and what the outcome is, and allow the market to innovate

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Panel discussion – Victorian major projects

rather than have something applied to it that may produce perverse outcomes. AD: So, just on an area of innovation: a lot of the discussion today has been around decarbonising the electricity system. As we progressively do that, what will quickly emerge is that our largest areas of emissions are going to be agriculture and embodied carbon in construction. I’ll come to you first on this, Kevin. What are the things you think we need to tackle to start to reduce the embodied carbon? Currently, about 18 per cent of our carbon inventory is in concrete and steel.

KD: Yes, our focus has been on concrete and steel, and for me, it has been about challenging the teams to find the replacement products and new materials, and to challenge our operators, standard setters, and chief engineers about changing standards to allow new products and materials. It’s a constant battle to make the changes to allow that innovation, but that’s where it is for me – new materials. We are going to be doing electrification and steel gantries, and huge work into the future. The Swiss have a high-strength plastic overhead structural system that is lightweight and safer to install, yet John Holland Chief Executive Officer Joe Barr says productivity improvements on infrastructure projects can be achieved through collaboration

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Panel discussion – Victorian major projects

we go and fabricate thousands of steel gantries. So, it’s those opportunities, I think, that are genuine, but the opportunities need to be hunted down and the blockers challenged, and the logic applied. In other areas, for instance, concrete, we are looking at high‑strength concretes. A Super T beam weighs twice as much in Australia as it does in France, yet it’s taking the same vehicle loading. And so, it’s just about using less of that concrete, as well, and it’s understanding why theirs is, in essence, a smaller structural section. These are the detailed things that need to be challenged. I think Australia has just become too risk averse, with too much conservatism built into what we do. AD: Cressida, is there a role for you at the centre of government to be accelerating the rollout of some of the good pilot things that are happening in Kevin’s world, and in other places around government, trying to take those learnings and spreading them out? CW: Yes, there is. So, a lot of the great stuff that Kevin does doesn’t actually work in every context, and some of it does. And government isn’t very good at sharing that knowledge across the whole portfolio. That’s one of the reasons why the Office of Projects (OPV) was established, and it’s now being consolidated into Treasury to try to create more of that synergy in all of the advice to centralise that sharing. A lot has been done, but absolutely more can be done. I think that every time we hit on a good thing, we need to share it. OPV has done a little bit of that in relation to artificial intelligence (AI), for example, where we know that it can be applied very successfully across our projects. We’re hoping to incorporate that into more projects because we can guarantee that machines can actually see some of the problems that we can’t. It’s not very expensive technology, and it’s a real opportunity. It’s just one of the many areas, but even simple things like templates for how you manage a utilities’ relocation, and complicated contractual negotiation, should be shared, and it is. AD: Joe, on decarbonisation and embodied carbon, do you get enough freedom from the procurers to be able to innovate on this stuff? JB: No, I think that’s one area that’s really got to change. If you look at our employee base, a lot of people that come and work for us want to make a difference in the energy space. They’re really excited about the pipeline of projects in energy and we just need to give them the space to innovate because they’ll come up with a solution. So, I think from a government role, again, it’d be better to have outcomes-based specifications and allow the industry to innovate. AD: For our final question, we turn back to some of the discussion earlier on from the Treasurer and the [then] Deputy Premier around continuing to meet growth. How do we avoid

the situation where government fiscal constraints start to put downward pressure on what you are able to plan and deliver, and then, in another 10 or 15 years’ time, we end up trying to catch up with growth again? KD: When a fiscally constrained environment hits, I think it’s about how governments re-engage a lot more with private sector investment to look at the funding of some of those future projects. A lot of the investment in Victoria has been dominated by taxpayer funding. Maybe changing the equation there, for me personally, is an opportunity. So, I think there is going to be that need, but I think, as the [then] Deputy Premier outlined, rather than letting the outer suburbs continue to just rollout as a carpet, focusing on that inner ring and density is the opportunity. We’ve built 40 new train stations in Melbourne, and had lots of opportunities to have residential and integrated developments as part of those. You’re still facing local councils that are still wanting levels of car parking in it. And you say, ‘It’s right on a train station; it doesn’t need car parking.’ No-one wants height, and there’s a break-even point. So, the opportunities are there with what we’re doing to invest and to drive housing outcomes. But it is the regulation and the levels of red tape, as you say, that is still significant, and I look forward to seeing what the government is going to be releasing, because hopefully that will release some opportunities for us in the transport space. AD: Cressida, how do we avoid the trough? CW: Well, I think like any great art, constraints create creativity and enhance that creativity. I’ve been involved in government infrastructure on and off for about 25 years, and I think that we see these cycles and then we see innovation. I think we will see from the infrastructure partnership sector some new ideas. I think there will be things we haven’t necessarily thought of. So, I’m not that fearful of a massive lag. I also think we’ll see infrastructure being used in ways that we didn’t imagine and getting more out of the existing assets in a way that’s interesting commercially, as well as practically. So, I remain optimistic. AD: Joe, it’s a productivity question, is it? JB: Yeah, I think it goes to productivity, but I think there are some really easy things to achieve in that productivity. It was great that the Treasurer talked in his speech about standardising procurement models, because the industry wastes a whole lot of resources and time in trying to understand the complexities of contracts. If they were more standardised, we’d be much more efficient at delivering that. I think it’s an enormous productivity gain right there. And the second one is on collaboration. The Level Crossing Removal Project is a great example of industry and government collaborating, and enabling that innovation – and enabling skills to grow and careers to grow while building out that program of works.

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Panel discussion – Chief technology officers

Panel discussion Chief technology officers: the real AI conversation Key points: • • •

Generative artificial intelligence (AI) models, such as Chat GPT, can assist organisations in harnessing their data more efficiently so that staff can more readily access this information. Other AI applications include using the technology on construction sites to identify hazards and monitoring heavy assets to proactively predict maintenance and useful life. There are natural limitations of AI technologies like Chat GPT, with an onus on the human user to critically analyse the accuracy of any data put forward by such technologies.

Panellists: ► ► ►

Bastian Uber, Chief Digital & Information Officer, John Holland Tim Hogarth, Chief Technology Officer, ANZ Salim Naim, AI Director, Microsoft

Moderator: ►

Georgia Ellen, Head of Commercial and Industry Engagement, Infrastructure Partnerships Australia

Georgia Ellen (GE): As we have actually started implementing artificial intelligence (AI) into our business processes, we are realising some of its potential, as well as some of its current limitations. That’s why we wanted to have a discussion with some of the people spearheading the adoption of AI within their own organisations, or across a range of organisations. In preparing for today’s discussion, I asked ChatGPT what I should be discussing with you all today, so in the interest of transparency, AI did help come up with these questions. To kick things off, I think it would be useful if we could run through some of the specific examples of how you are currently using AI in your business. Bastian, we might start with you. Bastian Uber (BU): When I talk about technology in the context of John Holland, it’s always about augmentation with our greatest asset, which is our people, to make them more efficient, more informed through data, and safer. That really sets the scene for me every time I talk about technology, and AI certainly achieves all three of those. For us, and our journey, we have looked at machine learning (ML) – optical character recognition – for some time regarding invoice processing and removing some of the more mundane

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manual processes. This year, we have leaned heavily into AI, specifically ChatGPT. We created a private instance of that technology within John Holland to make it safe and secure to use our data through it. We ran a pilot group with about 150 people across the organisation to contribute to that, and really start to surface where they saw the value of adopting this technology. Overwhelmingly, there was value, and everyone said this should be made accessible to the whole of John Holland. We did roll it out recently to everyone in John Holland. This was rolled out in parallel with our AI standards and policy, which talks through how to use the technology. We also blocked the public instance of ChatGPT, which re-diverts back to our private instance. Again, that’s all about protecting John Holland’s data. In parallel, we created an AI hub so people could come and learn with a whole bunch of webinars. We’re also rolling out Microsoft’s Copilot, as part of the early adopters program, and I think part of that strategy for us is equipping people across the organisation with these tools for them to surface where there is value to go after. Certainly, I don’t have all the answers, and my team doesn’t have all the answers, but part of our strategy

Panel discussion – Chief technology officers

Technology experts Salim Naim, Bastian Uber and Tim Hogarth (left to right) delve into the world of artificial intelligence with Infrastructure Partnerships Australia Head of Commercial and Industry Engagement Georgia Ellen

is to create a safe environment for these tools to be trialled and surface the value.

because of its ability to help us with transforming things with text.

Lastly, we’re using AI out on project sites around safety, looking at hazard identification or when humans come into exclusion zones, and being able to send warning notifications, so it is being adopted quite broadly.

We have 55,000-odd people, including all of our partners, and a ton of them are just translating from one document to the other, or one format to the other. So, we started wondering what we were going to do with this kind of capability. We thought about it as augmentation, automation or orchestration.

GE: Tim, you have quite an operationally different business, but are any of these examples similar? Tim Hogarth (TH): It’s almost identical in so many ways. In terms of where we’ve used AI historically and what’s different this year, we have used AI inside of our business, or ML techniques, for well over a decade. The basis of how one makes credit decisions in the statistical models has many of the same elements that you’d use in AI. We use it in the ANZ app called ANZ Plus for identification purposes. That’s using some of this AI to do that kind of mapping. We have used it in analysing market signals to understand what people are saying in Board reports. That’s probably the pre‑2022 AI story. Then we all woke up to ChatGPT. We suddenly realised that this is going to fundamentally transform our business

The whole idea of augmentation is to have someone sitting on your shoulder being the smartest machine ever to give you advice. We did the same thing that Bastian was talking about around actually building our own private version of this, so that people could start to use this to understand ANZ data. Some of the use cases we did was just trying to find the answers to questions in this sea of documents that we have internally. This is particularly good at understanding that. These are the kinds of scenarios we’re exploring. We’re still just kicking the tyres, though. This thing does hallucinate, and there are a few different variations. Hallucination just means that it gives a plausible answer, but when you dig it a little deeper, it’s not actually that reliable.

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Panel discussion – Chief technology officers

We’re also looking at our engineering teams. We have

don’t see this emerging standard of AI incorporated into our

some 4000 people who write software for the customers of

operational processes yet, but I don’t think it’s going to be

the bank, and those people have benefited from these tools that Microsoft makes, such as Copilot, and that’s a technology that basically makes the engineers 20 to 30 per cent faster

GE: Salim, you work assisting a lot of organisations with their

and more reliable when they are writing code. We’re still

AI adoption. Where do you see them making the most ground, or

just experimenting, we haven’t changed our business. We

where has the implementation been the most effective?

Chief Technology Officer Tim Hogarth (centre) discusses the existing and potential future uses of artificial intelligence at ANZ

long at all.

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Panel discussion – Chief technology officers

Salim Naim (SN): I definitely see two things emerging in pre-ChatGPT predictive AI, where you had advanced analysis methods and machine learning techniques. For a period of time, those operated really well on things like monitoring heavy assets and trying to predict potential remaining useful life, so that you can move away from conditional maintenance to more predictive maintenance, and there are benefits with that. In

other industries, you had recommendation engines and things like that. I guess what has changed in the emergence of generative AI is that, first, we realised that we can build algorithms that can understand language very well. They are able to respond back and, more importantly, interpret, comprehend, and reason over content, and that has opened up a whole new spectrum of use cases. Over the last eight months, I would say that, with the majority of customers that we work with, customer service tends to be a low-hanging opportunity. There are a lot of call centres that have transcriptions that have never been analysed, and the root cause of why customers called, and the nature of their issue, was never really stored. Even though they tell you, ‘This call is being recorded for quality and assurance’, no-one ever goes back to it. It’s just for disputes, right? Being able to analyse those and get a good signal out of that may lead to quicker resolution times. Our customers have looked at ChatGPT and asked themselves, ‘What if I could run that within our own four walls?’ What we find is that about 90 per cent of the digital data across different organisations tends to be unstructured. What that means is for certain assets – whether it’s a PDF document, email, image or video recording – having something that can interpret, reason over it and provide you with the answer has so many benefits for different employees across your value chain. Of course, the online retailers and the BTC-type scenarios are using the technology in a completely different way, and they tend to be just pushing the boundaries around personalisation, which I’m happy to expand on if people are interested in those types of use case scenarios. For the most part, I would say it’s around customer service at the moment. It’s about supporting and getting answers out of unstructured data that you have within your organisation, but you haven’t been able to quickly sift through and get a response. No doubt, that will evolve, as well, to being much richer use cases as everyone gets more familiar with generative AI, managing the risks associated with it, or just building the muscle to use the technology. GE: In developing those muscles, surely there’s going to be some growing pains. Tim, I’d be curious to start with you on some of the biggest challenges that you’ve had so far in adopting AI technology. TH: This is probably the most exciting technology we’ve seen hit our industry since the advent of the internet, and so there is a massive leap. This is not just like getting a mobile phone, which changed banking a little bit, or social media, which didn’t really change it much at all. This innovation is fundamentally going to change everything, and we have a lot of things we’ve got to do to elevate our executive team’s understanding of this.

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Panel discussion – Chief technology officers

Chief Digital and Information Officer Bastian Uber is excited by how artificial intelligence will augment and enhance the work of people at John Holland

We’d made the deliberate choice not to block ChatGPT when it came in, not because we thought people were going to get a lot of value out of it, or we thought it would create a huge risk – there’s a bit of risk. What we really wanted was people to understand this. Legendarily, apparently ANZ banned LinkedIn when it first came out, just in case our staff discovered that they could apply for another job. So, we didn’t want to do that, and we wanted to make sure our executives understood this. Our biggest challenge is getting people to understand this. People start to think, ‘It doesn’t know all the right answers.’ Of course it doesn’t know the answers. It’s just a word generator that’s basically informed by the human corpus of knowledge. It

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can do these things, but don’t trust it because it’s not actually a fact machine – it’s a word machine. And helping our executives understand is the first one. The second one that’s particularly challenging is getting people to accept that we’re going to do this a little bit imperfectly this year, because we don’t know what the answer is. In April, we decided we would have to build our own. In May, we gained access to Microsoft’s copy of the ChatGPT engine and thought maybe that’ll be the thing we use exclusively. Then in July, one of your competitors helped and gave us another one that was a bit different, which we tuned two weeks later, and another new use case came after that.

Panel discussion – Chief technology officers

So, this has moved so quickly. We must have an appetite to experiment intelligently and carefully before we make the big bets. Getting a bank like ANZ where we try to only do things properly or not at all, this in-between is just a bit of an unfamiliar muscle. So, these are probably the two main challenges. GE: Bastian, do these resonate with you? BU: Absolutely. It’s like we’ve compared notes, but we haven’t. If I reflect on the journey, there were 100 million users within two months of ChatGPT being launched. That’s phenomenal. So, we knew as an organisation that people would be using this technology whether we wanted them to or not. Therefore, the strategy was to lean into this, create a safe environment and protect John Holland data, and client data, and funnel them down this path. I think the first challenge was how we protect our data and create that environment. Similar to what Tim was saying, the second challenge was around fear of the unknown with a lot of the executive team about the risks and benefits of this technology. Additionally, the fear of this replacing staff was felt more broadly across the organisation. We have spent a lot of time bringing in industry experts from partners like Microsoft to spend time with our executive team and host presentations at various forums. In a couple of months’ time, we have our strategy cohort going into Microsoft’s technology centre to spend a lot of time understanding this technology. At the same time, we’re embracing it. We’ve pushed it out for our teams to explore in surface use cases, and I’m very bullish on this technology. I think it is a bit of a game changer, and we need to really drive the value out of it. The genie is out of the bottle, and we’re not putting it back in, right? GE: On the topic of your workforce, are you looking for people with different skills, or have you noticed a change in the type of people that you need? BU: It’s quite diverse. I would say initially that regarding skills, when rolling out any new technology, you must make sure people understand it and know how to use it. That’s really the first point. I’ve spent a bit of time with our Chief People Officer on our 2024 strategy around the digital skills uplift across the whole of the organisation – not just in the corporate offices, but also out at project sites, as well – considering what that looks like and how we leverage our partners to help with that. I would say that in terms of skills, there won’t be a huge amount of change, but there are two areas that really come to mind. The first is what we call ‘prompt engineering’. So, how do we really train our staff to get the most out of this technology, specifically ChatGPT, through prompting? And your results can vary depending on the language you use and the words you use, and how you style your question. We will be spending a bit of time educating in that regard.

The second, I think, will be around educating staff to not just take the answer as the given verbatim response, and the need for fact-checking. There’s still that augmentation with the human to say, ‘Does this make sense? Is this the right outcome or output?’ That’s really important, too, because as Tim said, that hallucination effect is there. GE: Salim, does that reflect the advice that you’re giving to the organisations as they adopt these technologies? SN: Picking up on prompt engineering; that has probably been the one thing that has emerged, right? In our field, for a long time, you had what we call ‘feature engineering’. A lot of the statistical methods try to look at the data, and at certain characteristics of the data. Then use that to model the underlying kind of function of what it represents, and use that in a predictive way. Now we’re moving into this prompting method, and we’re at the start of that, I think. I can foresee that most organisations will start building this muscle around prompt engineering. For most people today that have used ChatGPT, it’s like an input/output prompt. For example, if you request help with formulating some questions for a panel, it comes back. Over the past eight months, that has moved from generating something to what we call ‘self consistency’. This refers to generating the possible plausible answers in response to a problem and determining a tree of thought to help get the best outcome. Now, these prompting methods are becoming a lot more advanced to help solve different problem spaces, so building that muscle is important. Back to some of the previous questions: since 2017, we continue to survey customers around what’s required to adopt a technology. This is because 27 per cent of AI experimentation transitions into operationalising, and it does go back to that clarity of what business outcomes it drives. Is that known within the organisation? Does that have the right level of sponsorship? When they introduce technology, most organisations would think of it as the guaranteed deliverable returns. This idea that you are going to experiment, and you don’t know what the returns are is foreign. Investing in building a muscle around prompt engineering is going to be this capability that will serve you from this point on. GE: Tim, picking up on that point of AI playing this supporting role, how are you thinking about any potential blurring of the lines between it being a decision support tool and a decision-making tool? TH: Our current position is that we’ll keep the human in the loop, and this isn’t because I’m worried about the robots taking over. This is about us making a silly mistake and trusting something that is, by definition, probabilistic, not deterministic.

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Panel discussion – Chief technology officers

I will use an example of an engineer writing code. We have this tool called Copilot – Salim may not like me describing it as such – but it’s just autocorrect on steroids. It helps the engineer type faster, better, quicker and much more reliably. We could actually write a tool to write code for a business specification, and not check in with the engineers, but we wouldn’t do that. The second one is that we have this idea that you could use it with staff members to ask a question around documents and help answer a customer’s question. We’re not actually ready to do that for customer-facing questions in case of situations where staff members don’t question the information, but it is moving quickly. No-one has really solved this problem, but how do you remain sceptical? It’s a bit like in a self-driving car, how do you remain attentive? We don’t know what the right answer is. I’d love to see research on how you maintain that attention. At the moment, we are only going to use edge cases or limited cases, and we’re going to require the person to take 100 per cent accountability for the inputs that they receive. That was a few weeks ago, but things might change before Christmas. GE: Bastian, that decision-making tool obviously has profound effects when you’re dealing with things like safety. I’d be interested to hear, from your perspective, how AI is assisting in those safety decisions and where that decision‑making point lies. BU: I think there’s still a long way to go in regards to safety. Talking about some of the use cases today, AI is being used on site to identify potential hazards and send a warning to a site supervisor, with a photo of that potential hazard, for investigation. Additionally, if people move into exclusion zones, AI can send warnings to plant operators or, again, site supervisors. Some of the other technology I like is the computer vision to identify if you have people going into train tunnels or on train bridges ahead of trains coming along the tracks, and sending the warning signals. For me, that is pretty fantastic technology, but I think it has a long way to go. Safety is not just about human safety or physical safety, it’s also that cyber lens, as well. So, I’m really fascinated to see where Copilot for security goes and how we’re using the AI to tighten up on cybersecurity. GE: Salim, does that story on safety reflect what you’ve seen? SN: Computer vision techniques reached human parity in 2015. So, the idea of having a low-cost camera to monitor an event that likely a human could see and say, ‘that’s safe’ or ‘that’s not safe’ (or whatever the anomalous behaviour is) is a sweet spot. One would argue that it’s better than human parity, because compared to more than 10 CCTV feeds, a human expert’s attention span drops considerably.

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We see AI tutor, with certain steps and procedures. You are able to say, ‘Walk me through step by step what I need to do to carry out that particular procedure’ – and you’re just able to do it. So, that’s something that’s more recent. I believe that Downer representatives are in the room. Downer was a launch partner in January for our Azure OpenAI, and that was one of the use cases my team worked with Downer on. So, there is the computer vision aspect, but there’s also the stuff that’s hidden in manuals. People just want a step-by-step instruction guide, and you could just do that on your mobile phone, or anything like that. GE: Sticking with you, Salim, Bastian has mentioned that John Holland is operating within this sort of walled garden. I’d be curious to understand, from your perspective, if you were an organisation, how would you go about protecting your data and potentially your customers’ data, as well? SN: Data protection is something that is a constant in technology. We were having similar debates when cloud computing emerged. So, when a lot of your IT infrastructure started to move from your own data centres to someone else’s data centre, there were questions around its safety. Are you gaining access to my data? Can I trust the service provider? Most people who use video conferencing would be using a video conferencing platform offered by someone else that they’re not hosting. During these videos calls, sensitive meetings are held and decisions get made, and there’s a certain amount of trust in the data protection provisions, data security and privacy policies that those service providers offer. I would say AI is no different. When it comes to leveraging AI in a corporate enterprise-type setting, John Holland has opted for an enterprise version of that capability that it is comfortable with – in terms of use, the data protection provisions, the contractual obligations that are bound to that service and how to use it. I think we’ve been through this journey with cloud computing and we’ve been through this journey with productivity tooling, and it’s just getting familiar with the next set of technology. This is not about advocating for Microsoft, which is a service provider that offers that capability and has the adequate data protections behind it. One of the things that we say is: ‘your data is your data’. This means we do not use that data to retrain the model, or market or upsell to you. That’s your information, and that’s the model. That’s why we have gone one step further with our terms of use around copyright protection. This means that what you generate through our Copilot is something that you can feel will not violate any copyright. It will not infringe any copyright. The main reason why we’re confident that you can do that is that it is based on your data. It’s not generating anything from the models’ pre-training, which is what it learnt over the internet

Panel discussion – Chief technology officers

corpus, but really applying the underlying characteristics of the language that it has learnt to your data, rather than use that body of knowledge to generate the response. GE: Tim, I might go to you first; I’m keen to understand how you strike a balance between being safe with your data and having appropriate regulation, while also fostering innovation? TH: One of the things I think is really interesting is that a lot of people think about AI as a dangerous weapon. What it is going to be used for is more important than the actual weapon itself. AI is not intrinsically good or bad. It is like every single technology; no matter which problem you see out there, where there’s a problem, it’s because of the way it’s being used.

So, start with what you are trying to solve and why. Just because the technology allows you to solve a problem in a novel way, it does not automatically make it a good idea. So, you start with considering whether it is a good idea and then you work out if you can actually make it work. I think that will go a long way to getting people comfortable, and I think if people, and our customers, are worried about what people might do with AI, you start with making sure it’s anchored to the purpose of your company and why you’re actually trying to achieve this. People who’ve got clear, crisp, articulate visions as to why they’re doing it will be both good at talking about this publicly

Microsoft AI Director Salim Naim shares his experiences on where the implementation of artificial intelligence has been most effective

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Panel discussion – Chief technology officers

and keeping people comfortable, but also directing their teams on why we’re doing this. It’s not a mechanism to hoover up jobs, and it’s not a mechanism to try to undermine existing trust structures. I think that will go a long way. It doesn’t quite answer your question, but I think it’s an important observation. If you’re going to do this, work out which problem you’re going to solve. It should also dispel the concerns of naysayers that it might be used for evil if you explain the intent and purpose behind what you’re trying to achieve. GE: Bastian, does that resonate with you? BU: It definitely does. Without going into the technical detail, if I look at the way that we’ve architected our instance of ChatGPT, it is sort of a replica of what’s out there in public, so we can access that content. Plugged into that, but protected from that, is where John Holland’s data goes, and so everyone can access that. We are also able to create little sort of modular, off-to-the-side pieces. A good example of that is our Pre‑contracts Team Lead is very interested in ingesting all our historical tender information so that when we’re tendering for new jobs, we can access that historical data and maybe even produce quite hefty chunks of the tender submission through the technology. That’s a use case, but we need to do that in a way where not everyone in John Holland can see the content that’s ingested. So, we’re still thinking about how we secure it even within our secure instance, if that makes sense. I think the other component of that is we’re not doing this as an isolated strategy. We have a digital transformation strategy. So, we’re refreshing our enterprise systems. We are deploying new data environments, data lakes and data lakehouses. We’re driving emerging technology more broadly – whether it’s digital twins, or Internet of Things, or AI. A big part of that vision for me is to be able to get our data AI-ready so that when we plug in Copilot, which is AIembedded into Microsoft’s OfficeSuite, our whole organisation (with the right permissions) can access data sources that we have confidence in and can draw insights from very, very quickly. And that is going to be so powerful for us. GE: Salim, on that point, how would you advise organisations to prepare for the next wave of AI technologies? SN: In a corporate setting, AI is always going to be as good as the data that you ground it on, and that’s establishing a data foundation to take advantage of the advancements of the models and the algorithms that will continue to push the boundary there. We have worked with insurance companies, analysing product disclosure statement documents, and providing

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responses back to the agents, but the documents were seven years old. I think having that data foundation and going back to the basics – for instance, knowing what is sensitive data and what is not sensitive data, and ensuring the data is current and not stale – is probably the one thing that you could do to prepare. GE: Tim, does that reflect what you’re doing? TH: I think that is absolutely spot on. You’re not going to be able to do anything unless you’ve got good data. We have a product where people can write any content they want, and it’s just a wasteland of misinformation because it’s lots of little teams that have got stuff. It’s called Confluence, and it’s easy for little teams, but we’ve realised that to try and train it over there, it has no structure or rigour. That’s okay because it’s useful as it is, but we’re not going to point an AI at that. I think, though, there is one other lesson, which is that we need to get a deeper understanding of what this technology can do, as leaders, across everyone, so we can understand where the value is. It’s complicated, but it’s not completely inaccessible. Knowing what you could use this for is probably the biggest thing that organisations need to recognise. So, if you’ve got a large data set, any kid that’s just straight out of university will be able to use one of these technologies to find patterns that none of your people have previously been able to find. While the hygiene of data is important, the ideas about what you could use this for are also quite remarkable, and that’s the exciting part for me. GE: And I’d be interested to understand how you see the roles of various players, such as leaders, government, industry and industry bodies, in the future adoption of AI. TH: One thing I’m passionate about is that I think it’s quite important that we, as an industry, recognise that this is an arms race of a technology innovation, and we need to make sure that we try to invest our people and our leadership in these conversations because there’s a lot of reticence, and a lot of risk language and concerns. What if this is bad? What if it’s used badly? When the internet first came out, most of the conversations, as I recall them (and maybe I was a young, naive kid back then) were just about the opportunity. If we take a very reticent view, and we put constraints on ourselves, as I think you said before, Bastian, the genie is out of the bottle. There’s no putting this back. The criminals are already using this against us. Other nations are putting billions of dollars of investment into this capability. So, to my mind, it’s critical that the industry actually recognises this. We need to work out if we’re going to be defensive on this and maybe become an AI backwater, or whether we’re actually going to be using this in every facet of our industry to continue to become one of the more technically

Panel discussion – Chief technology officers

advanced nations in the world. So, that is the mission out here; embrace this because it’s not going away. There’s nowhere it’s going – it’s here. You can’t put the genie back in the bottle. GE: Anything to add, Bastian? BU: Very similar, obviously – you can’t put it back, so do embrace it. I think to learn and leverage partners is important for the journey. I think there are roles to play from different stakeholders. If I could be a little bit controversial and say that when social media was launched, there was a specific intent or use case, which in theory was for the good, in connecting friends and family that are dispersed across the world and being able to share with each other. For me, personally, social media creates more harmful outcomes than positive outcomes. Had we thought more about the technology early on, we might have been able to contain and shape it a little bit, and I think we’ve got the opportunity with AI to do that. I think there will be different bodies that need to play a role in that, particularly in the protection of data. I’ll use an extreme example of the military’s use of autonomous drones; there is still a human that decides to deploy Hellfire missiles. As I spoke about before, it’s that augmentation of technology with humans, so let’s make sure the human has a role for most things that we’re doing with this technology. GE: Salim, what are you looking for from industry as a provider or from government? SN: I agree. I think we missed the opportunity to regulate the internet – and one would argue that you might not even be able to regulate it – and it gave rise to the dark web and a whole bunch of things that we regret. Similarly with social media. So, I do agree that what’s on the frontier needs to be scrutinised and regulated by government – and we have an opportunity to do that. As a business leader, I think that’s on the Government. On the research side, I do like the way that everything with OpenAI has been released. Technology like ChatGPT could have been kept for another two or three years and then released, but it’s better that it was released, and we then get to use it, critique it and influence the research. There will now be better alignment and guardrails within the model itself, and it’s not just left up to someone else to do that.

need within your organisation to get the most value out of the technology while it gets scrutinised and all the regulation that we need. GE: I thought we’d end on a positive, future-focused note. What do you think is the coolest thing AI will be able to do for the infrastructure sector, or more broadly, in the future? BU: I think a couple of things. One is, and we touched on this, when we have data-ready environments for AI to start to interrogate, who knows what patterns and what insight that’s going to draw out for our industry. That, for me, is really fascinating. I think AI also has a role to play with regard to design. GE: Salim? SN: Well, I have two young kids and the coolest example in my household is playing around with bedtime stories generated from GPT-4 or GPT-4-x, where the kids feature as part of that story. The coolest example that I’ve seen in the past eight months, and that’s the one from all the use cases across Asia that our team has supported, is probably from an online retailer in India. I really like how they probe Google trends three times a day and use generative AI to generate a theme out of keywords. This is then run against their large catalogue of online products to identify which align with that theme, and campaign artwork is generated. This means that three times a day, they can have offers on demand aligning with what’s trending in the country and I think that’s pretty neat. That’s the coolest example that I’ve seen, or at least with my definition of cool. GE: Tim? TH: I have two. One thing I think that’s going to be cool and exciting, is getting rid of any meetings where you must review a document. We’re going to be doing the world a good. I suspect that, in the infrastructure industry, there’s a little bit of paperwork, and I think AI will eliminate a lot of that and make people more powerful. There’s one other thing that’s really cool for me as a software guy. Sometimes you inherit a piece of software that’s a big furball – it’s just a mess and a grind to try to understand how it works. We can now much more readily reverse engineer

That’s probably the role of researchers and tech companies working with government regulators. But for a business leader, the technology will not go away. You have a position. You could say, ‘I’ll wait until it’s regulated, and then I’ll take my stance on what I use the technology for.’ There will be missed opportunities in the meantime.

software by presenting AI with the software, and asking it to

However, you don’t have to go for the highest-risk use cases. You could start with something that gives you value, and adopt it, and establish the disciplines and capabilities that you

help us learn how complex problems work, and that’s just going

break it down into pieces and explain it back. I suspect that in infrastructure, there may well be some of this complexity, too. We’ve never been able to use language to solve those problems. We’ve only been able to use eyeballs to just grind through it. So, I think they’re the kinds of things that’ll to have an amazing multiplier effect, because we’ll be able to do even more.

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companyfocus

Sharing knowledge towards infrastructure safety improvement The environments in and around essential infrastructure often involve interaction between large civil structures and operating systems, the transportation of commodities and manufactured goods, and a range of people – workers, customers, suppliers, tenants, visitors and community members. Providing a safe environment is a primary focus for IFM and the companies in our Infrastructure portfolio. We know that the safe operation of infrastructure and creating safe workplaces require a continuous and vigilant focus. Our Infrastructure team works with portfolio companies to support and continuously improve safety performance. One of the safety-focused programs the Infrastructure team has implemented across the portfolio is safety round tables. Launched in 2019, we host the round tables in conjunction with global safety consultants. The round tables aim to share and leverage knowledge across our portfolio about best practice safety management, and solutions to mitigate occupational health and safety hazards. Late last year, we hosted a round table on the topic of contractor and subcontractor safety and risk management. The focus of this session was establishing the responsibilities and interventions of different stakeholder groups across the contractor/subcontractor engagement life cycle, and how to maintain effective collaboration and oversight across parties. This session was a continuation of IFM’s focus on contractor and subcontractor safety management, building on three previous round tables.

Infrastructure safety benchmarking

We continue to undertake our annual safety risk management performance

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benchmarking study. The study, which commenced in FY2019/20 and was developed in partnership with global safety consultants, measures our combined Australian Infrastructure and Global Infrastructure portfolios against a composite benchmark on overall employee and contractor safety performance. The most recent analysis of FY2020/21 data continued to demonstrate that the safety performance of these IFM infrastructure portfolios is significantly better than representative benchmarks.1 The lost time injury frequency rate for employees and direct contractors, a key indicator used in the study, was 60 per cent better than a comparable representative industry benchmark for FY2020/21.2

An enterprise approach to best practice safety management

Our Asset Management Specialist team takes a portfolio-wide approach to best practice safety management, which governs how we identify potential risks and mitigation measures, seek to manage risks through our asset management framework, and assess safety culture and maturity of portfolio companies. The safety and wellbeing of the people who work at, use or live near

the infrastructure that our portfolio companies operate is one of our most important obligations as an asset manager. The safety of these people underpins long-term potential value of our investments and is critical to the smooth running and sustainability of the asset. We are committed to the safety of these people as we pursue our purpose, which is to invest, protect and grow the retirement savings of working people around the world. ♦ This is an edited version of: ‘Sharing knowledge towards infrastructure safety improvement’, published on 29 April 2023. Read the original article at www.ifminvestors. com/news-and-insights/thought-leadership/ sharing-knowledge-towards-infrastructuresafety-improvement/. 1

Primary benchmarks used are OSHA (Occupational Safety and Health Administration), EUROSTAT (European Commissions Safety Database) and Safe Work Australia.

Includes annual data from 27 assets across IFM’s Infrastructure portfolios, averaged over five years (or since acquisition) and compared with appropriate benchmark averages. Frequency rate is normalized as the number of lost time injuries occurring per 100 full time workers/200,0000 hours worked.

Invested in our shared future.

We’re invested. At IFM Investors, we aim to make positive investment decisions today to impact the shared future we’ll have tomorrow. We’re committed to building a just, inclusive and sustainable future for our investors, beneficiaries, workers and the local communities where we own and help to actively manage assets. Invest in what matters. IFMinvestors.com

This advertisement is provided to you on the basis that you warrant that you are a “wholesale client” or a “sophisticated investor” or a “professional investor” (each as defined in the Corporations Act 2001 (Cth)) to whom a product disclosure statement is not required to be given under Chapter 6D or Part 7.9 of the Corporations Act 2001 (Cth). IFM Investors Pty Ltd, ABN 67 107 247 727, AFSL 284404 - IFM Investors (Nominees) Limited, ABN 56 003 969 891, AFSL 239169 - IFM Investors (US) Advisor, LLC IFM Investors (US), LLC - IFM Investors (UK) Limited - IFM Investors (Netherlands) B.V., KvK 74153021, AIFM license no.15004030. IFM-3138030 – 29SEP2023 ART_IFM604

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