The Barnett government has added to its ambitious list of major projects but questions remain over how it will fund its promises.
AS Premier Colin Barnett’s second term unfolds over the next four years, his legacy may be determined by one important question: where should the government draw the line when it comes to sharing the spoils of record investment?
The answer to this question is one that will slowly emerge as the state government delivers a suite of landmark capital projects that will both transform the state and, potentially, heap further pressure on an already risky debt situation.
The government’s capital works spend is set to reach a record $7.3 billion for 2012-13. While this is projected to taper off in the coming years, there are a number of major proposals that must still be funded.
Many projects are likely to be delivered in partnership with the private sector. With construction in the resources sector set to peak, contractors are likely to invest heavily in securing government infrastructure tenders.
Mr Barnett’s authority over these plans should not be underestimated. He has flagged his intention to play a direct role in projects across the spectrum of portfolios in his second term.
“I was feeling towards the end (of the last term) that I wanted to get back to directing the policy flow across all portfolios,” he told Business News earlier this month.
The $440 million Elizabeth Quay development, named by the premier last year in honour of the Queen’s diamond jubilee, exemplifies this influence.
Facing criticism from the opposition and Perth lord mayor Lisa Scaffidi over the appropriateness of the name, Mr Barnett defended himself.
Voters wanted to see the government make decisions, not engage in “long debate or public consultation with so-called stakeholders”, he told reporters.
It is a line Mr Barnett has repeated frequently throughout his time in office and one he used to great effect during the election campaign.
While Elizabeth Quay has attracted vocal criticism, it appears people are keen for the government to get on with the job.
Efforts by the Labor opposition to capitalise on concerns over the extra congestion created by the project were unsuccessful, if the state poll was any indicator.
Opposition leader Mark McGowan’s pledge to halt construction on the waterfront failed to gain traction among inner-city constituents, with long-time Labor incumbent John Hyde losing the seat of Perth to the Liberals’ Eleni Evangel.
Ms Evangel, a former City of Perth councillor, said Mr McGowan’s comments were a turning point for inner-city voters, who wanted to see progress after years of planning.
Funding the promises
While the Barnett government’s pro-development agenda has proven to be electorally successful, there is no doubt it has come at a cost.
The state owed $3.6 billion in net debt when the Liberal government came to power in 2008. That figure is projected to rise to more than $18 billion by the end of this financial year and to almost $25 billion by the end of the government’s second term.
The risks of such heavy spending were underscored during the election campaign when ratings agency Moody’s reaffirmed its negative outlook for WA, warning the state could lose its coveted AAA credit rating unless it balanced its books.
Mr Barnett conceded there would be further growth in state debt as the government continued to deliver its major capital projects but said it was “well within control”.
Adding to the uncertainty is the volatility of commodity prices. Treasury’s pre-election financial projections statement emphasised that, as the forward estimates were “highly sensitive” to such volatility, it was vital that spending be held in line with revenue growth.
Treasury’s projections assumed an iron ore price of $US123 per tonne; if that starting point proved to be just $US12 per tonne lower, net debt would increase by a further $1.2 billion.
“To provide an appropriate buffer against significantly increased revenue volatility and to reduce the need for debt increases to fund infrastructure investment, it is essential that larger operating surpluses are budgeted for and delivered in coming years,” under-treasurer Timothy Marney said.
One of the biggest challenges Mr Barnett will face is securing Commonwealth funding for major transport promises.
These include a $2 billion airport rail link, the $1.9 billion MAX light rail plan and a proposed section of the Perth-Darwin highway.
The premier came under pressure late in the campaign when he revealed he planned to seek funding from the federal government for “around half” of the combined $4.8 billion cost of his government’s key transport plans.
Mr Marney warned in treasury’s evaluation of the Liberals Party’s election policy costings that the assumption of Commonwealth funding represented “a substantial risk to the forecasts,” and the response from Canberra has been lukewarm.
Prime Minister Julia Gillard, visiting Perth after the campaign, made it clear Mr Barnett was “not in a position to promise federal funds”.
Federal opposition leader Tony Abbott meanwhile said the Commonwealth should “stick to its knitting” of funding roads, flagging that a Coalition government would not contribute funding towards rail projects.
The Commonwealth has been a big contributor towards road projects over the past four years.
The federal government has committed to delivering two-thirds of the funding of the $1 billion Gateway Roads project through its Regional Infrastructure Fund and Nation Building Program, with the state government accounting for the remainder.
The Gateway WA consortium, consisting of Leighton Contractors, Georgiou, GHD, AECOM and BG&E, was awarded the right to deliver the massive project in partnership with Main Roads WA.
The bulk of the project is expected to be delivered by 2017.
The federal government also stumped up almost $300 million towards upgrades along Great Eastern Highway, completed last month, and a new interchange between Great Eastern Highway and Roe Highway, completed in June last year.
While Mr Barnett says the government will go ahead with its proposed rail projects irrespective of Commonwealth funding, it is unlikely it will meet its proposed 2018 deadline unless it secures federal funds.
Transforming the city
Further ahead, $428 million will be spent on building a new museum at the Perth Cultural Centre.
While the museum is not expected to be delivered until 2020, $71 million has already been allocated in the 2012-13 budget over three years and the government has launched an international recruitment drive for the museum’s project director.
Perth’s long-anticipated football stadium is also a step closer to reality, with an Ertech Keller-led joint venture appointed earlier this month as the government’s preferred contractor for pre-construction site works.
Three consortiums have been shortlisted for the right to design and construct the stadium: the WESTADIUM consortium, led by Brookfield Financial and John Laing; Confidem, led by Capealla Capital; and WestAdium, led by Bouygues and Plenary Group.
Each will have the chance to deliver fully costed proposals in November, with construction expected to begin in late-2014.
Government estimates have put the cost of the new stadium at $1.2 billion, which includes the $298 million cost of developing a transport plan to bring punters to and from the ground.
A key development already in the works is the $610 million City Link project. Partially funded by a $236 million federal government contribution, City Link is on track to be substantially delivered by mid-2014.
A new Fremantle line tunnel is set to open later this year, while work will begin on a new underground bus station at Wellington Street early next year following the completion of a tender process.
These projects, along with Elizabeth Quay and the recently completed $548 million Perth Arena, are set to substantially change the shape of the city.
Hospital projects
The Barnett government has also made significant investments in the health sector, with the Fiona Stanley Hospital and New Children’s Hospital leading the way.
Set to open in April 2014, the $2 billion Fiona Stanley Hospital is the single largest infrastructure project ever undertaken by the state. Built and designed by major contractor Brookfield Multiplex, the hospital will hold 783 beds, including 140 rehabilitation beds.
The $1.2 billion New Children’s Hospital is being built at the Queen Elizabeth II Medical Centre site in Nedlands and will replace the ageing Princess Margaret Hospital in Subiaco. John Holland has been awarded the managing contract to design and build the hospital, which is expected to be delivered in late 2015.
John Holland likewise took the role of lead contractor at the recently completed $170 million Albany Health Campus, consisting of 132 beds.
The $393 million redevelopment of Joondalup Health Campus, jointly funded by the state government and operator Ramsay Health Care, has also been substantially delivered with the recent completion of a separate private hospital and delivery of an additional 170 public beds.
A $360 million public health campus is under construction at Midland, with St John of God Health Care designing and operating the hospital through a public private partnership.
The coming years will also see work completed at the $120 million Busselton Health Campus and the delivery of a new $207 million hospital at Karratha.
