Archive | Australia

World property W16Sep15 – Inland rail, Facebook London lease

Australian inland rail delivery plan released
Facebook leases all of new London building

Australian inland rail delivery plan released

One of the last acts of the Abbott government in Australia was to release the delivery plan for an inland rail project connecting Melbourne & Brisbane with a high performance freight line.

Deputy Prime Minister, Minister for Infrastructure Regional Development and National Party leader Warren Truss received the final report of the Inland Rail Implementation Group from chair John Anderson in Canberra on Friday.

The plan outlines an $A10 billion 10-year construction timeframe to complete the 1700km project, including 600km of new track. The Australian Rail Track Corp produced a detailed business case for it.

Mr Truss said freight along the eastern seaboard was expected to treble in the next 15 years: “Inland Rail will complement existing road & rail networks and will dramatically boost productivity. Initially, it will provide for 1800m long trains carrying containers stacked 2 high and, in the longer term, much heavier 3600m long trains.

“The new freight line will reduce transit time between Melbourne & Brisbane by more than 10 hours – reducing the journey to less than a day. It will remove 200,000 trucks, or 5.4 billion net tonne km of freight, from roads each year.

“For the first time, south-east Queensland will connect by rail to Melbourne, Adelaide & Perth, avoiding the need for freight to transit through the congested Sydney network. Inland Rail will reduce the distance between Melbourne & Brisbane by 200km and carve 500km from the Brisbane-Perth trip.”

Mr Truss said the Australian Government had already committed $A300 million to get preconstruction activities underway, including detailed corridor planning, environmental assessments & priority land acquisitions.

Link: Inland Rail report

Facebook leases all of new London building

Great Portland Estates plc has pre-let all the office space in its Rathbone Square development at the east end of Oxford St in London to Facebook UK Ltd.

Facebook has signed an unconditional agreement to lease all 21,118m² of consented office space and will occupy the building on a 15-year term from scheduled completion in February 2017, paying an initial rent of £16.9 million after receiving 30 months rent free from completion of the offices and a capital contribution to fit out the building to a category A condition.

In addition, Facebook has signed a conditional agreement to lease a further 1436m² if Great Portland can convince Westminster City Council to change its use from retail to office.

The One Rathbone Square office building is a 38,897m² mixed-use development. Other components are 142 apartments & 2250m² of retail around a new public garden square.

Great Portland bought the 9300m² site from the Royal Mail Group for £120 million in 2011 and sold 125 of the apartments for an aggregate £207 million, reflecting an average capital value of £1856/ft² ($NZ48,147/m²) and with a price range from £1548-2,624/ft² ($NZ40,160-68,070/m²).

Link: Great Portland Estates

Attribution: Australian Government, Great Portland Estates

Regular leads: Europe Real Estate, Mingtiandi, Planetizen

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Queensland methodically planning infrastructure for growth in its south-eastern corner, and the Auckland picture

One obvious difference between Auckland & Queensland is size. One less obvious difference is the development programme of the state government, just in the south-eastern corner of the state.

One similarity is that both have a desire for economic growth. One distinction is that this desire is being played out in south-eastern Queensland in ways not seen in Auckland – carefully considered and years in the making, the same as here, but now coming to fruition.

An ad this week seeking expressions of interest for an 81ha residential development estate out in the dust – 3km south of the Beaudesert town centre – may indicate what I thought at first: Why would anyone want to live in a suburban-style subdivision, on 480-640m² lots, 70km south-west of Brisbane, 65km west of Surfers Paradise, seemingly in the middle of nowhere?

Yes, Kerry Packer used to keep his polo ponies at Beaudesert, yes it has a very good Japanese-constructed golfcourse (which, for a time, was NZ-owned), but what would you do for a job?

At the foot of the ad was a clue: “Bromelton state development area 7km west of Beaudesert is planned to provide Australia’s largest intermodal logistics hub, providing significant future employment opportunities.”

15,000ha at Bromelton was declared a state development area in 2008, and about 1800ha of that has been earmarked for industry. Queensland’s Department of State Development, Infrastructure & Planning says on its website an important factor in the proposed hub’s location is that it’s on the Sydney-Brisbane rail corridor, giving large-lot industries access to the national standard-gauge rail network.

Among target industries are those that have to be separated from non-industrial uses because of the potential for offsite impacts.

Similar to New Zealand, the overall development scheme has gone through 6 years of planning, culminating in the Scenic Rim Regional Council adoption of the structure plan and state government approval of the scheme in November 2012.

Some development has occurred, including a gelatine factory & a rendering plant.

This month, 2 quite different development proposals advanced at coastal sites, the Toondah Harbour & nearby Weinam Creek on Moreton Bay, where Walker Group was signed up as the state government & Redland City Council’s preferred partner to rejuvenate 2 precincts declared priority development areas.

The city council asked the government to declare the areas as priorities at the start of 2013. Both areas have development schemes in place but detailed design has yet to be undertaken.

A key factor in the Queensland development schemes is that jobs & nearby homes are both part of the equation. In New Zealand, skyrocketing house prices in some areas (notably, central Auckland suburbs) have brought calls for starter home development on the fringes, but these calls haven’t been matched by serious progress toward developing new business in the same areas.

Waitakere in west Auckland has long been a dormitory area, providing few local jobs for residents. The former Rodney District Council began a concerted effort to establish new businesses a few years before it was gathered up in the super-city, and in the first 4 years of the new council covering the whole region there has been less emphasis on those out-of-centre schemes.

That is partly the result of the absurd governance system imposed on the region, under which local boards have to beg the governing body for money – get some, then have it taken away again, as they’ve found this month – and those boards still play only a minor role in local economic development.

In addition, that local economic development is small fry, nothing like the serious ventures Rodney was trying to be the catalyst for establishing.

The special housing areas under the government-council housing accord signed a year ago have some requirement for infrastructure – underground services before development, with less emphasis on nearby jobs & efficient transport.

To achieve best results, the funding structure needs an overhaul, and before that happens it needs to be discussed by the participants, the people of Auckland. Targeted rates for economic development in specific locations have been included in the Auckland Plan as one possibility, a betterment tax lingers as a possibility for development around new public infrastructure such as railway stations, there was a government hint 2 years ago at provision being made for infrastructure funding ahead of demand.

But there has been no discussion with the community, no firm proposals have been put or even suggestions floated, the government hasn’t returned to amplify how it would organise advance infrastructure funding – and how do you set a location-based targeted rate for a railway line?

Link: Queensland Department of State Development, Infrastructure & Planning

Earlier stories:
29 October 2012: Hibiscus & Bays area plan far less useful than it ought to be
5 October 2012: Council battles local angst, unbudgeted big-bill projects and unitary plan blowout

Attribution: Ray White Queensland ad, Queensland Government website.

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Australian commission recommends privatising electricity businesses & ports

This is the first part of a 2-part story on a public infrastructure report by the Australian Productivity Commission. The second part refers to its relevance to Auckland.

The Australian Productivity Commission has recommended that state governments privatise their electricity businesses at all levels, and major ports.

But it added the caveat, that private sector involvement in infrastructure provision &/or financing “delivers efficiency gains only if well designed & well implemented”.

The commission also recommended governments re-examine their land policies because there have been so many deficiencies in opening up land.

Tony Abbott’s new Liberal-National coalition federal government, elected last September, asked the commission in November to undertake a 6-month inquiry into ways to encourage private financing & funding for major infrastructure projects, including issues relating to the high cost & the long lead times associated with these projects.

The commission used 2 research teams — one dealing with funding & financing issues, the other focusing on construction costs – in a broad-ranging investigation into costs, competitiveness & productivity in the provision of nationally significant economic infrastructure.

They looked at barriers to private sector financing, including assessing the role & efficacy of alternative infrastructure funding & financing mechanisms.

Among the recommendations:

2.1, State & territory governments should privatise their government-owned electricity generation, network & retail businesses, and major ports; the commission commented: “Privatisation should be subject to appropriate processes to ensure that the public interest is protected through structural separation, regulation, sale conditions & community service obligations”

9.1, Planning & tendering arrangements can be significantly improved: “Given high & rising land costs in urban areas, Australian governments should ensure that project selection take explicit & detailed account of available alternatives, including the enhanced use of existing infrastructure, pricing solutions & cheaper build options. Australian governments should also consider ways in which land policies can be improved in this area, given the deficiencies in the current planning of land reservation in most jurisdictions in Australia.”

12.1, All governments should invest more time & resources in the initial concept design specifications to help reduce bid costs but, in doing so, provide opportunities in the tender process for tenderers to contest the specifications of the design

12.2, When tendering for major infrastructure work under design & construct arrangements, government clients should consider contributing to the design costs of tenderers on the condition that governments own the design, where a thorough prior assessment has demonstrated that design innovation is both worth seeking and likely to be received

12.3, Government clients should alter the timing of information provision in the tendering process for infrastructure projects so non-design management plans are only required of the preferred tenderer. The obligation to produce documents upon becoming a preferred tenderer should remain a condition of the initial request for tender

12.4, The ‘early contractor involvement model’ should be trialled by government clients to test the costs & benefits of applying past contract performance by tenderers as a means of constructor selection, consistent with the practices of some private-sector clients

12.5, For complex infrastructure projects, government clients should provide concept designs using (BIM) building information modelling to help lower bid costs, and require tender designs to be submitted using BIM to reduce overall costs. To facilitate the consistent use of BIM by public-sector procurers, federal, state & territory governments should:

  • facilitate the development of a common set of standards & protocols in close consultation with industry, including private-sector bodies that undertake similar types of procurement
  • include in their procurement guidelines detailed advice to agencies on the efficient use of BIM

12.6, Within the request for tender, government clients should provide opportunities for tenderers to contest some key standards of the design where they have previously assessed scope exists for innovation to occur

14.2, The Federal Government should request the Productivity Commission to conduct a public inquiry into Australia’s apprenticeship arrangements. The inquiry should include, but not be limited to, an assessment of:

  • the deficiencies of the current system, how these arise and who they affect
  • the role of the current apprenticeship system within the broader set of arrangements for skill formation
  • factors that affect the supply & demand for apprenticeships
  • the structure of awards for apprentices
  • potential reforms to improve the efficiency & effectiveness of Australia’s apprenticeship arrangements.

In its summary of key points, the commission said:

  • There is an urgent need to comprehensively overhaul processes for assessing & developing public infrastructure projects
  • There are numerous examples of poor value for money arising from inadequate project selection, potentially costing Australia billions of dollars
  • Additional spending under the status quo will simply increase the cost to users, taxpayers, the community generally, and lead to more wasteful infrastructure
  • Reliance on the notion of an infrastructure deficit, too, could encourage poor investment choices
  • It is essential to reform governance & institutional arrangements for public infrastructure to promote better decision-making in project selection, funding, financing & the delivery of services from new & existing infrastructure
  • Well designed user charges should be used to the fullest extent that can be economically justified. However, governments will have to continue to fully or partly fund some infrastructure projects and address equity issues
  • Significant institutional & longer-term road pricing arrangements will create more direct links to road users, taking advantage of advances in vehicle technology
  • Private sector involvement in infrastructure provision &/or financing delivers efficiency gains only if well designed & well implemented
  • Private financing is not a ‘magic pudding’ — ultimately users &/or taxpayers must foot the bill
  • Government guarantees & tax concessions are not costless and often involve poorly understood risks
  • Governments will have some capacity to fund more projects than under current fiscal & debt management practices, provided the reform package in this report is implemented to ensure the selection of projects with strong net benefits
  • Data problems limit analysis & benchmarking. A co-ordinated & coherent data collection process will address this and improve future project selection decisions
  • Nevertheless, there is evidence of recent significant increases in the costs of constructing major public infrastructure in Australia. Elevated labour costs due to the mining construction boom has been one factor, but no single input has played a decisive role in cost increases
  • Until recently, labour productivity growth in the construction sector generally has been sluggish. There is no conclusive evidence that Australian levels of productivity in construction are significantly different from other developed countries
  • The industrial relations environment in the construction industry remains problematic, mainly in general rather than civil construction, with the problems much greater for some sites, unions & states. Governments can use their procurement policies to drive reform, and penalties for unlawful conduct should rise
  • Despite significant concentration in the market for large public infrastructure projects, the market appears to be workably competitive today, though a few simple measures would make it more so and would reduce the cost pressures facing procurers
  • There is significant scope to improve public sector procurement practices and lower bid costs for tenderers, with potentially large benefits for project costs & timing.

Privatising “in the public interest”, and bad project selection can cost billions

The commission said it was in the public interest to privatise some more state entities, and it gave examples of the huge costs incurred where project selection had been deficient.

“In recent decades, some public infrastructure businesses have been privatised, with private entities then making decisions about new projects. Whether this leads to more efficient project selection (& other efficiencies) depends on policy & regulatory frameworks. There are examples where privatisation has worked well.

“It is in the public interest to privatise some further public infrastructure businesses, including in the energy & ports sectors, where effective reform models have been in operation in some jurisdictions for many years.

“Privatisation can remove the need for governments to have an ongoing role in selecting projects. Some public infrastructure businesses have been corporatised. This can lead to more efficient project selection, but the incentives for efficiency are not as strong as for private firms. Where user charging is not practical or desirable, privatisation or corporatisation is unlikely to be feasible and there is likely to be a continuing need for government provision…..

“Where project selection is deficient, the consequences can be that the community incurs billions of dollars in unnecessary costs. For example, a recent commission inquiry found evidence of inefficient investment in augmenting water supplies in most of Australia’s largest cities. Not all of the unnecessary costs associated with this were able to be estimated, but those that were amounted to over $A3 billion.”

The commission argued that, although some of the recent investment in desalination plants might have been appropriate in the circumstances to maintain security of supply, there was sufficient evidence available to conclude that many projects could have been deferred for a number of years, been smaller in scale or been replaced with investment in lower-cost sources of water.

“The causes of poor project selection are many & varied. In the case of urban water, unclear roles & responsibilities, policy prohibitions on specific supply options, deficiencies in analysis of options & grants/subsidies provided by governments were involved.

“In the case of electricity networks, a recent commission inquiry found regulated reliability standards were mostly too high, and this required network businesses (whether public or privately owned) to make unwarranted investments that imposed high costs on consumers. Indicative estimates suggested that adopting a different reliability framework for the transmission network could generate large efficiency gains, in the order of $A2.2-3.8 billion over 30 years.”

The commission said case studies in appendix B of its report provided evidence that the selection of transport projects was sometimes deficient due to inadequate planning and inaccurate demand & cost forecasts.

“For example, a cost–benefit analysis conducted for the CLEM7 Tunnel freeway project in Brisbane showed a net present value of $A638 million and a benefit-cost ratio of 1.52. However, this analysis proved to be highly inaccurate, with the actual capital cost being 2.5 times higher and patronage nearly 3 times lower than forecast. More accurate forecasts would have shown the project to comprehensively fail a cost-benefit test.

“The consequences of poor project selection in this case fell mainly on the private consortium that took on patronage risk, rather than on the community in general. However, CLEM7 still represents an inefficient investment that may have been avoided had a more rigorous cost-benefit analysis been conducted & made public.

“Given the recent trend away from assigning patronage risk to the private sector, such failures would be likely to impact more directly on the community in future. High costs can also be imposed on the community through the failure to proceed with worthwhile projects to incrementally upgrade existing infrastructure networks.

“Water security is an example. Over time, the failure to adequately maintain & upgrade infrastructure can lead to crisis situations that can only be resolved through very large (and often disruptive) infrastructure investments.”

The commission said there were also examples where large public infrastructure projects had been approved without any formal analysis of their costs & benefits: “Most notably, the national broadband network, Australia’s largest public infrastructure project, was commenced without a cost-benefit analysis having been done. It also appears that detailed analysis of the project was focused, from a relatively early stage, on how best to implement the Government’s policy objectives, rather than considering the merits of different options.

“Finally, work by the West Australian auditor-general shows there is sometimes a failure to reassess project selection decisions as their scope changes and better information becomes available about their costs.

“He found that actual costs for a sample of 20 major projects in Western Australia (including hospital, school & prison projects) were 114% higher than the original approved budgets. 90% of the variance in project budgets occurred during the evaluation phase of projects, when the project business case was developed and project scope & costs were more accurately defined.

“The auditor-general found there ‘was often a lack of evidence to show that the existing business case remained valid following changes in the project scope’.”

Part 2 of the public infrastructure story: Credibility gap examined in public infrastructure costings

Links: Australian Productivity Commission project, Public infrastructure
Inquiry report
Professor Bent Flyvbjerg, 2009:Survival of the unfittest: Why the worst infrastructure gets built – and what we can do about it

Attribution: Commission report.

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Credibility gap examined in public infrastructure costings

This is the second part of a 2-part story on a public infrastructure report by the Australian Productivity Commission. This part refers to its relevance to Auckland.

The Australian Productivity Commission, in its examination of public infrastructure gone wrong, adopted the findings of Danish economic geographer Bent Flyvbjerg in a 2009 international survey of transport projects to determine the size of the gap, on average, between estimated & actual project costs, and estimated & actual passenger traffic.

For project cost estimates, Professor Flyvbjerg examined 258 projects in 20 nations on 5 continents over 70 years, and found the following (in constant prices):

  • Rail projects – for the 58 case studies examined, on average, the actual cost was 44.7% higher than the estimated cost
  • Bridge & tunnel projects – 33 case studies, 33.8% higher
  • Road projects – 167 case studies, 20.4% higher.

“The data show that 90% of projects experience cost overruns, and that cost overruns in the order of 50% are common. Forecasting errors vary widely across types of projects and significantly differ between sectors. Cost overruns are constant for the 70-year period covered by the study – that is, the accuracy of cost estimates did not improve over time.

“Professor Flyvbjerg also presents evidence of inaccurate forecasts of rail & passenger traffic. Having examined 208 projects in 14 nations on 5 continents over 30 years, he found the following:

  • Rail projects – for the 25 case studies examined, on average, the actual traffic was 51.4% lower than the estimated traffic
  • Road projects – 183 case studies, 9.5% higher.

“The data show that:

  • for rail projects, 90% have overestimated traffic, and 84% overestimate the traffic by more than 20%
  • for road projects, the number of roads with overestimated & underestimated traffic is about the same, but 50% of road forecasts have under- or overestimated passenger traffic by more than 20%
  • Passenger forecasting errors differ substantially between road & rail projects, and inaccuracy in passenger forecasts is constant for the 30-year period covered by the study – that is, the accuracy of passenger forecasts has not improved over time.”

Finally, Professor Flyvbjerg reported data suggesting that cost overruns for information technology projects were, on average, even larger than for transport construction projects. He argued that this result was particularly significant because information & communications technology has become a large & rapidly increasing part of more major infrastructure projects.

The Australian commission didn’t venture into the whys & wherefores of Professor Flyvbjerg’s survey results (at least, in its summary), but the professor did add a couple of points at this stage of his study, one on what to do to make this research more useful: “This does not show the uselessness of cost-benefit analysis as such, needless to say. But if informed decisions are the goal, then conventional ex ante cost-benefit analysis must be supplemented with empirical ex post risk analysis focused on documented uncertainties in the estimates of costs & benefits that enter into cost-benefit analysis. For a given major infrastructure project, this would constitute a kind of empirical due diligence of its cost-benefit analysis, something that is rarely carried out today.”

I had a further question – Why have estimates been so wrong? – to which Professor Flyvbjerg also had an answer in his transport survey: “Given the data presented above, a key recommendation for decision-makers, investors & voters who care about what Williams (1998) calls ‘honest numbers’ is that they should not trust the budgets, patronage forecasts & cost-benefit analyses produced by promoters of major infrastructure projects.

“Independent studies should be carried out and, again, such studies should be strong on empirically based risk assessment. Until now it has been difficult or impossible to carry out such assessments, because empirically grounded & statistically valid figures of risk did not exist. With the study documented above, this has changed and empirical risk assessment & management has begun (Flyvbjerg, 2006). In addition to sound data, institutional checks & balances that would enforce accountability in actors towards risk are also necessary.”

Turning the research to Auckland rail & wider economic benefits

In the studies of Auckland’s proposed city rail link, key differences that arose between Auckland Transport & Ministry of Transport assessments concerned the payback timeframe and the inclusion of wider economic benefits (or how to include those benefits).

I think the wider economic benefits are potentially the most important factor because, without a community growing around each of the new stations, the need for any of the stations is debatable. I’ve argued that provision for intensification around these stations is vital, and the council has to collect a return from intensification.

The Australian Productivity Commission, in its report, preferred “cautious & consistent treatment of ‘wider economic benefits’”: “Infrastructure projects create direct benefits for users of the services provided by public infrastructure. Where cost-benefit analysis of a proposed project is done, such benefits are routinely estimated & included. However, projects can also create wider economic benefits, such as ‘agglomeration spillovers’ (appendix C).

“For example, Lowe (2013) argued that investment in transportation infrastructure, in addition to reducing travel times & stress, had some less obvious benefits (one of which is agglomeration spillovers). Effective transportation networks deepen markets. They bring consumers closer to more businesses, and they bring workers in contact with more opportunities.

“These deeper markets & connections promote competition. They promote greater specialisation by both firms & workers. And they promote innovation & a more dynamic economy.

“Whether or not to include wider economic benefits in cost-benefit analyses and, if so, how to estimate them, is contentious. In principle, genuine wider economic benefits should be taken into account in assessing the merits of projects. The difficulty arises because their estimation is in its infancy. Accordingly, the inclusion of wider economic benefits in cost-benefit analyses has the potential to show one project to be superior to another purely because of differences in the way such benefits are defined & estimated.

“Infrastructure Australia currently accepts studies on the wider economic benefits of projects, but treats them separately to the traditional cost-benefit analysis. It also provides advice on the preparation of such studies. This would appear to allow for an appropriately cautious & consistent treatment of wider economic benefits.

“The key here is full transparency, as the necessity to justify the methodology & assumptions acts as a significant constraint on poor decision-making and arbitrary, poorly constructed analysis to justify a favoured project. There are limited resources for infrastructure procurement (like all procurement), and the opportunity cost of choosing the wrong projects, or having the wrong scale, is significant.”

Part 1 of the public infrastructure story: Australian commission recommends privatising electricity businesses & ports

Links: Australian Productivity Commission project, Public infrastructure
Inquiry report
Professor Bent Flyvbjerg, 2009:Survival of the unfittest: Why the worst infrastructure gets built – and what we can do about it

Attribution: Commission report, Flyvbjerg study.

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Australian productivity commission writes plenty, short on infrastructure funding answers

When a productivity commission refers to climactic factors instead of climatic (high point versus the weather), you never know where its research might be headed.

Federal Treasurer Joe Hockey gave Australia’s Productivity Commission 6 months from last November to present him with a report on infrastructure funding & financing mechanisms. The commission released its draft for public feedback on Thursday, closing Friday 4 April, will hold hearings in April and intends to deliver its final report to the minister in May.

According to the commission’s press release, its report suggests ways to improve infrastructure investment at all levels of government and, as a consequence, attract increased private investment.

On every page I went to in the 2-volume report (more than 600 pages, and I visited a couple of hundred in search of answers to the minister’s request), I found quibbles with definitions & comparisons, plenty of theory about the past but not much to go on for the future. Certainly not climactic, then.

Included in the scope of the inquiry which Mr Hockey put to the commission in November were the rationale, role & objectives of alternative funding & financing mechanisms, including the full range of costs & benefits of different models, the disincentives to private sector investment and broad principles for the use of these funding & financing mechanisms.

I’d thought it might be a valuable resource for New Zealand as well, given that, in Auckland, mayor Len Brown’s opponents have been berating him for not revealing how he’d fund the $1.5 billion-or-so council contribution to the proposed city rail link, and the Government has resolutely said a rapid “No” to any notions of the council raising funds other than from rates or bonds.

The NZ Government, meanwhile, has turned to the sale of mature assets – power companies – to pay for new non-cash-earning infrastructure such as schools & health facilities, regarding that as a best option without putting up any other options for long-term infrastructure funding.

One of the Australian commission’s recommendations supported more closely linking road charges to road use, which would support expansion of the road network, in contrast to the growing clamour in New Zealand to use an increasing proportion of road charges to develop transport alternatives, thus in theory freeing roadspace for those who remain users.

“All governments should take deliberate steps towards implementing institutional reforms in the road sector for cars & other light vehicles that improve project selection processes, facilitate greater adoption of direct user charging mechanisms, and more directly link road charge revenue with future spending on roads,” the commission said.

It looked at user charges, value capture, development contributions & government funding, and acknowledged the inherent conflict between using road user charges to raise money at the same time as using them to manage traffic.

In its section on funding mechanisms, the commission said: “In essence, the funds to pay for public infrastructure ultimately have to come from users & other beneficiaries, or from governments. Direct user charges should be the default option because they can provide an incentive for efficient provision & use of infrastructure. They are already the norm for most types of economic infrastructure, apart from roads & public transport….

“When the benefits from infrastructure accrue to more than users, governments should also consider value-capture initiatives — such as betterment levies & property development — so the wider beneficiaries contribute to funding…. Government funding should generally be sourced from broad-based taxes on income, consumption or land because such taxes have lower efficiency costs.”

The commission said there had been debate about whether Australia had become a high cost/low productivity country for major project construction or that it equalled or bettered comparable countries.

It’s proposed new systems which would systematically improve data collection and provide substantially greater opportunities for benchmarking & cost comparison.

After working through various bits of research that almost invariably didn’t allow useful comparisons to be made, the commission said Australia needed more effective & systematic benchmarking: “The development & use of cost & other benchmarks for infrastructure projects in Australia is disappointingly limited at present, even after a number of previous reports highlighting the issue.

“Existing cost benchmarks tend to be based on relatively small samples of projects, and to be based mainly on projects in single sectors, in particular road & rail construction. This means existing cost benchmarks can only be used as rough approximations by those attempting to gauge the reasonableness of proposed costs within future project proposals.

“While there is some qualitative benchmarking that considers time & quality aspects, this approach is also relatively underdeveloped in Australia, and tends to be undertaken at the smaller end of the construction spectrum.”

You would have to question the performance of a productivity commission that doesn’t try just a little harder to fix some numbers on the shift to offsite fabrication of many components in modern buildings & infrastructure. Sure, the commission was pressed for time, but this next section of the report is staggering for its uncertainty: “Concerns have been expressed regarding the apparent poor productivity performance of the industry, and its perceived lag in performance compared with a number of Australia’s international peers.

“However, productivity, a measure of how well businesses use inputs to generate outputs, can be difficult to measure in service sectors such as construction where the output (that is, the completed infrastructure) can vary in quality over time and frequently lacks a market price.

“Further, assessments of productivity are also complicated by differences in what many conceive of as the construction sector, and how its performance is actually measured. For example, building & infrastructure design activities are captured by the Australian Bureau of Statistics in a different sector, as is the offsite fabrication of many components in modern buildings & infrastructure which would have been previously built on site.”

While the productivity commission established that it couldn’t define what it was trying to measure, it did point to the efforts of the Victorian Government, which is researching the development of a productivity metrics framework to benchmark performance in delivering individual projects.

Presiding commissioner Peter Harris said: “Governments have it in their power to attract higher levels of private infrastructure investment, and to improve their own capacity to fund infrastructure, even in the presence of apparent borrowing constraints. They can do this through the judicious use of pricing mechanisms and by collectively establishing stronger transparent processes for project identification, selection, design & implementation.

“A visible project pipeline should naturally emerge from adoption of these reforms.”

The commission proposes to examine further a number of potential improvements to financing mechanisms, including options proposed to address specific concerns related to the role of superannuation funds in greenfields projects.

The commission cautioned against imagining “magic pudding” solutions would arise from private sector financing, saying taxpayers or users must ultimately pay for infrastructure. Many projects would still need public funding, and quite often this would involve public financing. Nevertheless, the report said that, if executed well and for the right projects, private sector involvement could deliver vital new efficiency gains.

Link: Australian Productivity Commission, public infrastructure draft report

Attribution: Commission report & release.

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Australian business council wants barriers dropped to enhance private infrastructure investment

The Business Council of Australia has told that country’s Productivity Commission its challenge is to create an environment for private investment in infrastructure.

“There is no shortage of private capital,” the council said in a submission to the commission’s review of public infrastructure on 20 December.

“With governments limited in their capacity to pay, policy settings should continue to support the trend towards private investment & ownership in infrastructure and promote user-pays models & capital recycling to fund projects.”

The business council said Australia faced a significant challenge to provide the economic infrastructure in the transport, energy, water & communications sectors needed to keep pace with economic & population growth.

It said the environment for private investment should include designing every public infrastructure project for private investment either upfront or over time, and promoting a shift to a more market-based approach to infrastructure provision.

“As well investing in new infrastructure capacity, we must clear regulatory barriers to the efficient use of our existing infrastructure and get better value for money by reducing costs of constructing & operating public infrastructure.”

In November, under the broad heading Securing investment in Australia’s future, the business council highlighted 2 reports it had produced during the previous 3 months, Managing the economic transition & Project costs, and released a third, Infrastructure funding & financing.

The third report outlined 8 areas for reform of funding & financing to secure future investment in roads, railways, ports, airports, water, communications & energy services, and called for a range of policies to be adopted, including:

  • bringing forward a rolling pipeline of more public infrastructure projects which are attractive for the private sector to invest in
  • for public projects, new funding streams to be tapped by growing the application of user charges and by selling mature public assets and recycling the proceeds
  • governments to work together and with the private sector to design public infrastructure projects with private sector investment in mind, by sharing the risk of regulatory approvals & financial returns
  • continuing the shift from government provision of infrastructure to a market-based approach where infrastructure businesses decide the planning & provision of infrastructure services within supportive policy frameworks.

Links: Submission on infrastructure review
Securing investment in Australia’s future

Attribution: Council release.

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Hawkins consortium wins Victorian prison contract

Published 20 May 2010

A partnership which includes Hawkins Construction Ltd has been named as the preferred consortium to build the $A405 million Ararat Prison expansion in Victoria.

 

The state government appointed the Aegis Correctional Partnership as preferred consortium for the contract to design, build, finance & maintain the 350-bed expansion of the Ararat Prison, 240km north-west of Melbourne, over a 25-year term. Other Aegis partners are Bilfinger Berger Project Investments, Commonwealth Bank of Australia, St Hilliers Contracting and Programmed Facility Management.

 

The prison will be extended to 700 cells. Custodial services will continue to be provided by Corrections Victoria.

 

It’s the first project to be delivered in line with Australia’s new national public-private partnership guidelines.

 

Hawkins chief executive Chris Hunter said yesterday: “This major contract award recognises the skills Hawkins offers in designing & building specialised facilities such as prisons, schools & hospitals. Our strong work to date on prisons means we are ideally placed to carry out this work.

 

“We are also excited to see that the New Zealand Government is pushing ahead with public-private partnerships (PPPs), both through the national infrastructure unit holding discussions with the market and via the recent Government announcement of its intention to procure the new prison at Wiri as a PPP.

 

“Hawkins has been investing time & resource in this area for a number of years. We have done our due diligence on PPPs and are in a good position to add considerable value. We are committed to participating in this developing market, which will generate real opportunity to New Zealand to deliver better public services, but with a long-term focus on value for money.

 

“We have also been proactive in following the Wiri project, which will be New Zealand’s first PPP. We have established a dedicated Wiri PPP team, with experience from various PPP backgrounds, and we have aligned ourselves with a strong consortium to develop winning solutions.”

 

Hawkins is working on Rimutaka Prison and completed work on the 335-inmate Otago Correctional Facility in late 2006.

 

Formal signing of the Ararat contract is expected to take place in the next week, enabling work to start in June. Completion is scheduled for December 2012.

 

Want to comment? Go to the forum.

 

Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.

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Australia’s inefficiencies cut its competitive land supply edge

Published 5 October 2007How on earth can New Zealand possibly compete with its giant neighbour when it seems Australia is on a permanently positive economic journey?

While Aucklanders argue over the release of perhaps 1500ha of land to urban uses over a decade, just one company, Mirvac, said on Tuesday it had bought 565ha in several parcels in Queensland for industrial development, including nearly 200ha for an inland port in from the Gold Coast.

Sydney has been spreading relentlessly westward, with business parks springing up at strategic points, and Melbourne has also been developing huge tracts of business land.

But perhaps all is not quite as well in Australia as it’s seen from this side of the Tasman. The Business Council of Australia identified a set of reform standards in April and, yesterday, it issued Infrastructure: Roadmap for reform, a proposal on how to navigate toward better infrastructure.

In short, the business council thinks Australia is in a mess and heading for greater congestion & inefficiency. Australia has a competitive advantage through its far greater supply of land, but New Zealand also needs Australia to become more efficient – for the sake of New Zealand exports there.

Among the reform map’s points, which Rod Sims of Port Jackson Partners Ltd developed for the council:

Electricity: The essential problems are that we do not have an effective national electricity market, there are many barriers & distorted signals to investment in generation & transmission, and many consumers face poor price signals in relation to their use of electricity.

We cannot claim to have a national market while the electricity market regional boundaries must reflect state boundaries rather than the needs of the market, while transmission investment decisions do not adequately take into account competition benefits and are state-based, and while investment decisions on new generation in both New South Wales & Queensland inevitably focus on state-based rather than marketwide solutions.

In addition, these problems flow on to a lack of sound locational decisions for investment by electricity users & producers generally, and intrastate transmission investment decisionmakers find it difficult to assess the cost of congestion or the cost of redirection of generation to cover persistent transmission problems……

Without solutions, we face the prospect of major under-investment akin to what has recently happened with urban water.

Urban water: Until recently there has been no new significant supply-side investment in 20 years and, furthermore, none was contemplated. This was despite the fact that future water shortages could be predicted even before the worst effects of the drought became clear.

Another longstanding issue has been water pricing. In most centres it has not reflected the cost of the next supply increment, which means poor signals are being sent in relation to water demand & supply. Low prices, a lack of access to facilities, plus a number of regulatory issues all constitute barriers to investment in recycling. In addition, we have different state regulatory approaches to water, rather than a national approach (eg, to water quality, as well as access).

The above problems can, in essence, be attributed to the ownership & industry structure of urban water supply. Since urban water supply is (virtually everywhere) a Government-owned monopoly, there is confusion between the objectives of those in the supply entities and the political agenda of governments. A competitive market & private ownership would have seen much earlier action on the above problems.

Rural water: The key concern has been the over-allocation of both surface & groundwater systems. This reflects past poor water planning, which is made worse by inadequate metering & accounting systems, and which has been reinforced by low rural water prices which have encouraged waste rather than the careful management of a scarce resource. In addition, there has been slow progress on water trading. There remain many barriers to trade in the form of fixed trading limits, exit fees & local catchment structures & rules.

Urban transport: We see high costs imposed on our economy by the congestion on our roads. The real problem, however, is the outlook for future congestion. The most recent report by the Bureau of Transport & Regional Economics on this topic, Estimating urban traffic & congestion cost trends for Australian cities (December 2006), shows that congestion costs (principally longer travel times) are set to double in Australia by 2020. Their predictions are of major concern and can be illustrated as follows:

While average Australian city congestion costs between 1990-2004 grew by 1.7%/year, they’re expected to grow by 2.6%/year between 2004-20. Worse, the costs imposed by congestion at what are now considered ‘peak’ times are expected to become the standard through the working day.

With freight transport, Australia faces longstanding issues. These can be seen in both obvious bottlenecks and in inappropriate policy. The freight bottlenecks are obvious: queues of ships off our coal ports, inadequate general cargo port capacity (eg, container storage at Port Botany) and water depth (eg, at the Port of Melbourne), inadequate roads (eg, the Pacific Highway), under-investment in rail lines, pressures at many of our intermodal (rail/road) hubs and poor access to ports for heavy vehicles.

Communications: The key problem is Australia’s low penetration and speed of broadband. The latest cross-country statistics see Australia with broadband penetration levels below most other developed countries we like to compare ourselves to, and with download speeds well below most other developed countries’.

The roadmap builds on foundation strategies identified in the council’s reform standards in April, including effective national infrastructure markets & national regulation, market-based prices, public investment processes, effective competition, private ownership in contestable segments and regulation that encourages investment.

It highlights a detailed way forward in a range of infrastructure sectors including electricity, urban and rural water, urban transport, national freight and broadband, and identifies a series of key outcomes required to meet our future economic growth.

Business council president Michael Chaney said: “Australia’s economy has expanded beyond the capacity of our current infrastructure. The problems with our infrastructure are well known and include poor governance & planning arrangements & poor policy choices…..

“The council recognises that in an election year the focus on policy can be overtaken by short-term politics, but we need a clear strategic vision if we are to create the conditions to build and pass on our current prosperity to future generations.”

Website: Business Council of Australia

Want to comment? Click on The new BD Central Forum or email [email protected].

Attribution: Business council release, story written by Bob Dey for this website.

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