Royalties program a 'defendable plan'

The $10.6 billion Royalties for Region scheme has come under attack from the ERA, but Paul Rosair says the program is worth more than its cost and expenditure.

The Royalties for Regions program, which was set up to invest 25 per cent of the state’s mining and onshore petroleum royalties into regional infrastructure, projects and services has copped various criticisms over the years, but none as harsh as recently.

Since its inception in 2008, R4R has spent $4.2 billion on more than 3,500 projects across the state and is expected to spend a total of $10.6 billion by 2016-17.

Its varied investments range from small grants to more than $1.7 billion to develop the Pilbara and funding for hospitals, roads, sporting facilities and community support services such as the age pension fuel card.

Recently, the Economic Regulation Authority attacked the R4R program for funding sub-optimal projects that did not achieve value for money.

In its draft micro-economic reform report released this month, the ERA said the scale of the program and the volatility of its revenue base was having a material effect on the government’s budget flexibility, negatively affecting the state’s economic efficiency and productivity.

R4R appropriations have more than doubled from around 3 per cent of general government revenue in 2009-10 to well over 5 per cent in 2013-14.

The ERA recommended R4R be abolished or substantially altered to operate under a funding model determined annually as part of the budget.

Under the proposed model, the ERA recommended it be guided by stronger cost-benefit analysis, which it acknowledged would be difficult given many of its projects received funds under $1 million.

Department of Regional Development director-general Paul Rosair, who has managed R4R since it began, said the program had grown to become well regarded.

“It’s probably the most significant regional development program of its type if not globally, nationally,” Mr Rosair said.

He acknowledged there was pressure on R4R’s funding as it had become a bigger piece of the pie, but said he could not understand why the ERA had singled the program out.

“I am somewhat bewildered as to why some would argue that the Royalties for Regions fund would not have a more deleterious effect on the state’s triple A rating than any other government expenditure program, particularly given it is a revenue and not a debt-driven scheme,” Mr Rosair told Business News.

Mr Rosair said despite earlier controversies surrounding a lack of integration and strategy, considerable work had gone into creating and implementing a state planning and development framework that involved stringent evaluations and cost benefit analyses.

“Over time we’ve developed a framework that is a very strong defendable plan across the state which allows for a number of inputs, local government, regional development commissions, including all the state agencies, the West Australian Planning Commission ... The decision for where funding goes is ultimately through cabinet,” he said.

Mr Rosair said setting up R4R had been an enormous challenge.

“It meant putting governance in place, putting systems in place, developing projects, business cases, identifying projects, working with stakeholders, working with transport, agriculture, education health, across all sectors. It’s been exciting,” he said.

One of R4R’s biggest focuses and challenges has been diversifying the economy in the Pilbara, through which 83 per cent of its funding originates.

Pilbara Development Commission chief executive Ken King said work was been done to introduce other streams of income besides exporting the Pilbara’s vast resources, which helped produce 5.3 per cent of Australia’s total GDP.

A plan is being carried out to grow Karratha and Port Hedland into cities of 50,000 people and Newman to 15,000 people by 2035.

R4R has invested in major infrastructure to make towns more attractive to families and programs to develop tourism, alternative energy, telecommunications and agricultural sectors.

“Building the towns is probably the most fundamental thing we’re doing, but obviously those people also bring with them opportunities and employment and, as you grow, the numbers, the employment opportunities also increase,” Mr King said.

“It doesn’t happen overnight. Overall cost of living is high, there are housing challenges, multiple barriers for entry to small to medium enterprises ... a significant number of Aboriginal people are still disadvantaged.

“We are five years into the 25-year program to transform the Pilbara into a sustainable, well serviced region with access to modern infrastructure.”

Another major challenge for R4R is developing the second stage of the Ord-East Kimberley expansion, with funding of $195 million from the Commonwealth and $322 million from R4R.

The Ord project aims to develop significant agricultural enterprises through increasing the size of the Ord irrigation area to just under 30,000 hectares.

Since announcing stage two of the project, Chinese group Kimberley Agricultural Investment has conditionally agreed to invest up to $700 million to establish a sugar industry in Kununurra.

Mr Rosair said the Ord project was a classic example of how R4R had used its funds to help grow an industry, increase the local workforce, improve socio-economic conditions and attract overseas investment.

Mr Rosair said that while concerns had been raised about the cost-effectiveness of the Ord project from an agricultural perspective, R4R took a more holistic approach.

“We look at it from a holistic regional development outcome. We look at it as leveraging Commonwealth money ... addressing Aboriginal economic disadvantage and securing foreign investors and giving them confidence in regional WA.

Mr Rosair, who plans to leave his post in July this year, said the time was right because he had never been in any one role for more than five years and didn’t think continuing would add any more innovation to R4R.

He will leave several new projects in the pipeline.

One of the most interesting is the PortLink inland freight corridor concept.

Developed in consultation with the national freight strategy, the concept plans to link Kalgoorlie by rail with ports in Esperance, Fremantle, Geraldton, the proposed port in Oakajee, and Port Hedland.

The concept, which is in the feasibility and community consultation stage, aims to take the pressure off Perth as a central distribution point, improve services between mines and the ports, and create better links between rail and road freight.

Mr Rosair said PortLink could also possibly extend to the central desert, which could act as a catalyst to the mines in that region and grow other business activities.

“We are trying to create a portfolio of projects that create interest. Our challenge is to see how we can use the R4R fund to put sufficient investment to create an incentive for private organisation. It’s a flow-on effect.”