Infrastructure template a good fit

The WA business sector has long called for a state infrastructure strategy; NSW has shown how it can be achieved.

A CRISIS is often a good prompt for new governments to make real progress on lasting reforms.

The O’Farrell government in NSW is a case in point. It inherited a litany of infrastructure problems in Sydney and across the state, and responded by establishing Infrastructure NSW, a body many would like to see here in Western Australia.

Infrastructure NSW has a powerful board, led by former premier and company director Nick Greiner, along with prominent business executives such as David Gonski, Roger Fletcher, Rod Pearse and Max Moore Wilton, and four of the state’s most powerful public servants.

Infrastructure NSW also has its own executive support and a budget that has allowed it to hire expert advisers including Cisco, Deloitte Access Economics, Evans & Peck, and GHD.

This body, acting independently but in concert with government, released its 20-year state infrastructure strategy last week.

Contrary to the fears of some in government, the report did not embarrass or undermine the government in any way.

Rather, it provided a big-picture perspective on the state, its growth outlook and likely infrastructure requirements over the next two decades.

Nor did the report contain a long ‘wish list’ of projects, with no hope of them all being funded or delivered.

It recommended 70 projects and reforms it believes are affordable and deliverable.

The largest of these was the $10 billion ‘WestConnex’ motorway in Sydney’s western suburbs, described as the highest priority project for the next 10 years.

Another ambitious project was an underground bus transit system for central Sydney.

These were the exception, however. For the most part, Infrastructure NSW focused on more intensive use of existing infrastructure, and incremental projects that are able to yield substantial benefits before committing to expensive new projects.

Infrastructure NSW did not try to usurp the role of government in setting final priorities or managing the implementation of new infrastructure.

In particular, it noted that the NSW government would consider the report in conjunction with other strategies prepared by the Department of Planning and Infrastructure and the Transport Department.

“While there are some differences of emphasis, these are relatively few and Infrastructure NSW has noted a high degree of cooperation and common thought on where NSW needs to go,” its report stated.

Private role

The report encouraged private sector financing of some projects, for very carefully argued reasons.

Its rationale started by distinguishing between funding and financing; it noted that the difference is sometimes lost in public commentary.

All new public infrastructure is ultimately funded via taxation or user charges.

Project financing is simply the means used to meet the cash needs of infrastructure construction, and merely changes the timing of funding payments.

The report also noted that private financing does not, on its own, create more infrastructure funding capacity.

It concluded that the principal purpose of private financing is to better manage project risks and thereby deliver better value-for-money outcomes.

In arguing for private financing, through mechanisms such as public private partnerships, the report acknowledged some real issues with this model.

It noted that the last four toll road projects in Australia, in Sydney, Melbourne and Brisbane, had all been financial failures.

It also noted that the private sector faces much higher financing costs than government, and that the differential had widened since the GFC.

Despite this, it argued that PPPs can deliver key advantages, including contracted time and cost outcomes for government, clarity around project definition, payments tied to service delivery, and whole-of-life cost management.

One of the most interesting aspects of the Infrastructure NSW report is its proposal for an initial ‘gate zero’ review process.

All projects worth $100 million or more would be required to pass this initial and independent assessment, based on defined criteria.

Politicians may not appreciate this independent scrutiny, but taxpayers and the community at large would be the beneficiaries.