National Infrastructure Investment Report

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

National Infrastructure Investment Update

2016 1

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Engineers Australia Infrastructure Investment Update 2016 Author: Andre Kaspura Š Institution of Engineers Australia 2016 All rights reserved. Other than brief extracts, no part of this publication may be reproduced in any form without the written consent of the publisher.

The report can be downloaded at www.engineersaustralia.org.au Engineers Australia 11 National Circuit, Barton ACT 2600 (02) 6270 6555 publicaffairs@engineersaustralia.org.au engineersaustralia.org.au

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

NATIONAL

Infrastructure Investment Update 2016

Engineers Australia is the trusted voice of the engineering profession.

We are the global home for engineering professionals renowned as leaders in shaping a sustainable world.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Key Points NATIONAL PERSPECTIVE

In 2005, Engineers Australia assessed national infrastructure as slightly better than adequate, requiring major changes to be fit for purpose.

This report examines the changes in national infrastructure since the 2010 Engineers Australia Infrastructure Report Card (IRC). It is one of a series of nine reports, the other eight covering corresponding changes in the states and territories.

The public sector responded by completing infrastructure construction with the cumulative value of $121.2 billion in real terms between 2005 and 2010. The private sector’s response is more difficult to evaluate because a large proportion of its infrastructure builds support for specific resources projects which only offer limited access to business and the general public.

The analysis is based on engineering construction statistics from the Australian Bureau of Statistics (ABS) as they are reliable indicators of infrastructure development and construction completed on other engineering assets. Although these statistics are not ideal for a comprehensive analysis, they are the best available. Responsibility for improved infrastructure information and statistics lies with government infrastructure agencies at all levels. For almost a decade, Engineers Australia has argued for better and more comprehensive infrastructure information as an integral part of greater transparency and community engagement so that existing infrastructure is better used and to inform more coherent decisions for new infrastructure projects.

By 2010, there were some differences in particular asset classes’ ratings, however overall Engineers Australia saw no change in the status of Australia’s infrastructure and reaffirmed the 2005 assessment.

STANDARDS OF LIVING Engineers Australia supports infrastructure development because it is a crucial enabler for productivity growth and economic expansion.

We know that most historical improvements in Australia’s living standards are the result of productivity growth, and the Australian Treasury and other reputable authorities expect this will continue to be the case in future.

PUBLIC AND PRIVATE The report looks critically at changes in the components of infrastructure and differentiates between construction by the public and private sectors.

Virtually all public sector engineering construction is infrastructure while the private sector is divided between non-infrastructure and infrastructure components. The resources boom has been the main driver of trends in non-infrastructure construction and this has also had a major influence on private sector infrastructure construction.

INFRASTRUCTURE POLICIES Unless Australia becomes more productive, living standards will stagnate or, more likely, fall as our population ages. Engineers Australia believes that all states and territories must actively initiate policies in this area. Unlike other consumer and business products, just-in-time logistics does not work for infrastructure; it instead turns it into a barrier to productivity growth instead of an enabler.

Infrastructure provision has been reactionary too often.

Infrastructure that services specific resources projects brings important benefits to the Australian economy but because this infrastructure is geographically located near the resources project it serves, multiplier effects are lower than similar infrastructure located in larger population centres.

Some private sector infrastructure construction is not linked to resources development and judgments relating to this are facilitated by the asset-based analysis employed.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

THE INFRASTRUCTURE PIPELINE

The report distinguishes between engineering construction on infrastructure and on noninfrastructure elements. Over 90 per cent of the latter has been engineering construction on the development of mines, gas and oil wells. At its peak, annual private engineering construction on these facilities was $64.1 billion in real terms, which is over twice the total of public sector engineering construction. At its 2012-13 peak uncompleted private sector construction on non-infrastructure components was an extraordinary $435.7 billion in real terms. This is why construction in this area has remained high but projects are rapidly coming to an end and this figure has almost halved over the past two years.

The main body of the report relies on statistics relating to infrastructure construction completed, however it is important to also examine other elements of the infrastructure pipeline.

Infrastructure by its nature takes several years to build – while parts of it may be completed, there may be substantial unfinished work in the construction system. Examining trends relating to unfinished work gives us important insights into future changes in infrastructure completed. Similarly, it is important to consider trends in infrastructure projects just beginning but not sufficiently advanced to record completed work.

In the five years from 2009-10 to 201415, cumulative public sector infrastructure construction was $140.9 billion in real terms, 16.2 per cent higher than in the five years leading up to the 2010 Infrastructure Report Card (IRC).

A substantial private sector contribution must be added, but here the caveat mentioned above has been more important since 2010. The total amount of infrastructure completed during the five years is important, but so is the direction of contemporary trends.

Continuation of this trend represents a huge reduction in macroeconomic demand. This must be addressed by the national government to maintain economic growth. Engineers Australia believes that part of the solution should be substantial investment in infrastructure embodying modern technologies, particularly ICT. The scale of this investment must take into account that construction over the past decade amounts to marking time with no change in Engineers Australia’s assessments since 2001.

In particular, the scale of political infrastructure commitments in the future should be measured and evaluated this way.

In the public sector, annual infrastructure completions peaked in 2011-12 and have fallen in each of the last three years. Uncompleted work in the construction system peaked a year earlier, in 2010-11, and has fallen in each of the past four years. Finally, commencements of new infrastructure peaked in 2010-11 and have fallen for the past four years. Although only part of private sector infrastructure can be seen as infrastructure generally accessible by businesses and the community at large, the same pattern of trends predominates.

The balance of these considerations suggests that overall the status of Australia’s infrastructure remains unchanged; the status of infrastructure is adequate, but major changes are required for infrastructure to be fit for purpose.

New infrastructure construction was needed to address the deficiencies identified in the 2010 assessment, and to service an Australian population that has grown by 6.6 per cent and an economy that is 11.6 per cent larger.

NO CHANGE…YET The balance of these considerations suggest that overall the status of Australia’s infrastructure remains unchanged; the status of infrastructure is adequate, but major changes are required for infrastructure to be fit for purpose.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Our objective This report provides an overview of infrastructure trends at the national level. It is part of a set of nine reports and the other eight examine infrastructure trends in each of the states and territories.

Our statistics show that practically all public sector engineering construction is indeed infrastructure construction, with the possible exception of recreational facilities. However, there are sound reasons to also include this in a definition of infrastructure as this report explains.

Infrastructure is rarely out of the news.

Announcements of new projects, complaints about delays to projects underway, good news stories about progress on others and stories about infrastructure deficiencies and new requirements abound. Some stories include a few statistics to illuminate one point of view or another; accounts that set the project in question into a broader context are rare.

The situation regarding private sector engineering construction is quite different.

Over the past decade private sector engineering construction has been dominated by construction of mines and oil and gas facilities. The scale of this construction has been extraordinary, dwarfing public sector construction. Most of it is not included in Infrastructure Australia’s definition of infrastructure.

A perennial problem is objective information about infrastructure: its current status, how well it is delivering services and whether or not the flow of services is keeping up with population growth and economic development. Governments in Australia have relied on qualitative assessments of infrastructure and rigorous quantitative assessments of new project proposals are still the exception rather than the norm. Even organisations like the Productivity Commission in its recent report on public infrastructure experienced difficulties and resorted to a patchwork of available statistics.

Some can be, for example the rail line used to transport ore from mine to port is infrastructure.

However, the character of such a rail line is very different to an urban transit rail line. Both benefit the economy, but in different ways; the resources facility is part of national earning from the resources sector and the urban line enhances productive capacity by providing transport for large numbers of consumers and businesses.

Another complication is that over time the private sector has become more involved with conventional infrastructure development through various public private partnerships. These are critical distinctions when it comes to discussions of infrastructure, and this report will also draw out these distinctions.

Given the reluctance of governments to embrace transparency regarding national infrastructure, it is important to devise benchmarks that are useful when evaluating what our leaders are telling us about infrastructure and new infrastructure policies. We cannot solve all information deficiencies, but we can compile readily available statistics from the ABS to shed some light on what is currently happening to infrastructure.

Over the past decade most commentary, especially in the wider media, has treated any engineering construction as though it is infrastructure. This is not the case and, as anyone conversant with the definition used by Infrastructure Australia knows, it includes roads, bridges, railways, harbours, the electricity sector, the water and sewerage sector, and telecommunications assets.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

The importance of infrastructure Engineers Australia is strongly committed to the view that infrastructure is the essential enabler of Australian productivity growth, vital to preserve and improve Australia’s standard of living.

This connection depends on infrastructure being fit for purpose, the flow of infrastructure services moving ahead of population growth and economic growth and utilising the best available technology to manage existing infrastructure assets and to develop new ones.

Engineers Australia has drawn attention to problems with Australia’s infrastructure in its Infrastructure Report Cards, the first of which was released in 19991 with updates in 2005 and 2010.

Although there have been infrastructure improvements since 1999, Engineers Australia is far from convinced that Australian governments have adequately dealt with the problems identified. This position has recently been supported by strong views expressed in a report on public infrastructure by the Productivity Commission2.

The Commission also recently released an update on Australia’s productivity progress3. In 2013-14, Australia’s multifactor productivity growth was 0.4 per cent compared to an average of 0.8 per cent per year between 1973-74 and 201314. Of the 12 market sectors examined, six recorded increases

in multi-factor productivity and six recorded falls. The report also emphasised that public infrastructure and its efficient provision was critical for productivity growth and repeated the recommendations it proposed in its infrastructure report, particularly those dealing with infrastructure governance arrangements, including processes dealing with project selection, project financing and on-going operations.

Engineers Australia’s last assessment of the status of Australia’s infrastructure was in 2010. This indicated that at the time Australia’s infrastructure was just adequate to cope with current and future requirements.

Since then, the Australian economy has expanded by 14.2 per cent in real terms and the population has increased by 8.1 per cent. Both changes signal an increase in demand for infrastructure services simply to maintain the status quo.

The key question is whether the status quo is good enough.

When productivity growth is lagging and infrastructure is just adequate, are the pre-conditions for improved standards of living in place?

1: See https://www.engineersaustralia.org.au/infrastructure-report-card 2: Productivity Commission, Public Infrastructure Inquiry Report, No 71, May 2014, www.pc.gov.au 3: Productivity Commission, Productivity Update, July 2015, www.pc.gov.au

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The key question is whether the status quo is good enough. When productivity growth is lagging and infrastructure is just adequate, are the pre-conditions for improved standards of living in place?

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Engineers Australia’s Principles for Infrastructure Development To be effective, infrastructure must be fit for purpose, and the flow of infrastructure services needs to move ahead of population growth and economic growth. It should also use the best available technology to manage existing infrastructure assets and to develop new ones.

Any new infrastructure development should encompass the following principles:

• Infrastructure must be managed to advance socio-economic goals not political ones.

• Infrastructure planning without land use planning is not sensible.

• Infrastructure planning is not optional – it is an integral role of government.

• The private sector is a key player, which means infrastructure is not the exclusive preserve of governments.

• Infrastructure must be managed sustainability and over its full expected life.

• Infrastructure governance must be rigorous and be removed from political agenda.

• ICT-enabled infrastructure delivers more value for money, especially in a coordinated system.

• Short-term acquisition practices should be discarded in favour of whole of life considerations.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

The State of Infrastructure in Australia OUR APPROACH AND RESEARCH DATA

Unfortunately, the ABS statistics do not deal well with location. Although statistics for states and territories are available, cities and infrastructure connecting cities are not delineated. What this means is that private sector engineering construction specifically designed to provide infrastructure services to mines, gas and oil wells and similar resources facilities are compounded with statistics relating to private sector engineering construction on more conventional infrastructure.

In the absence of comprehensive information about Australia’s infrastructure, this report relies on the analysis of trends in engineering construction statistics produced by the ABS4.

These statistics relate to additions to the infrastructure stock through work completed on new infrastructure assets.

Protocols used by the ABS differentiate the statistics from financial figures that appear in budgets and news accounts. Because these protocols are applied consistently over time, the resulting trends are reliable indicators of infrastructure changes. Changes since 2010, the year of the last Engineers Australia infrastructure assessment, are compared to the long-term trend and to changes in the most recent year. We are examining the period from June 1991 to June 2015.

We use Infrastructure Australia’s definition of economic infrastructure. This includes roads, bridges, railways, harbours, the electricity sector, the water and sewerage sector, and telecommunications assets. It is debateable whether or not recreational facilities should also be included, but in this report they are not.

Changes in engineering construction on resources sector facilities, heavy industry and uncategorised activities are also briefly examined to establish a basis for judging the connection

Historically, governments primarily developed Australia’s infrastructure with nearly all work undertaken by public sector agencies. Gradually more and more work was contracted out to private sector businesses for implementation.

Had this situation continued, it would be sufficient to examine engineering construction directly undertaken by and for public sector agencies. In both cases, the issue was asset ownership by the public sector.

between so-called resources related activity and changes in conventional infrastructure. In all asset classes examined the trends in public and private sector activity are compared.

All statistics have been deflated and are expressed in constant 2012-13 prices.

Over time the situation has changed and there has been increasing private sector involvement in the development, ownership and delivery of infrastructure services through new financial arrangements. As well, some governments have chosen to privatise certain infrastructure assets along with the ongoing responsibility for new investment in these infrastructure classes.

These developments mean that it is no longer sufficient to monitor trends in public sector engineering construction.

4: ABS, Engineering Construction, Australia, Cat No 8762.0, electronic releases, www.abs.gov.au

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Australia: In context This report is set against the background of the 25 years 1990-91 to 2014-15. This period saw Australia’s real GDP more than double from $746 billion to $1,596 billion and its population increase by 36 per cent from 17.3 million to 23.8 million.

Australia’s standard of living also increased strongly from real $43,446 per person to real $67,557 per person, but a larger population meant that the large increase in GDP was shared by more people resulting in an increase of 55.5 per cent in living standards.

in the previous paragraph, Table 1 shows their average annual growth rates for the period between the Engineers Australia infrastructure assessments in 2001, 2005, 2010, and 2015.

This segmentation facilitates assessment of the population growth and economic growth pressures on Australian infrastructure.

Projections of the future are always worrying; however the ABS has prepared projections of Australia’s future population by state, territory and capital city5 within the well-known limitations.

These projections suggest that by 2030 (well within the lifespan of many current infrastructure assets) Australia’s population will increase by 26 per cent to 30.1 million. Population growth in capital cities is expected to be from around 66 per cent to 70 per cent, higher than for the country as a whole.

Economic growth has slowed. This is shown in Table 1 by the falling average growth in GDP as we move from the long-term to successively shorter periods culminating in the growth in 2014-15. The long-term average growth rate since 1990-91 has been 3.2 per cent per year, and by 2014-15 it had fallen to 2.4 per cent. Population growth averaged 1.3 per cent per year over the period since 1990-91, but was particularly strong between 2005-06 and 2009-10 when it averaged 1.8 per cent per year. In the five years since 2009-10 average annual population growth has slowed and in 2014-15 it was slightly higher than the long-term average at 1.4 per cent.

These projections demonstrate the continuing pressures on the capacity of existing infrastructure to provide high quality infrastructure services. They also show the importance of getting the distribution of infrastructure development right. Cities are critical but equity considerations mean that other locations should not be left behind.

Table 1 shows that the slowdown in GDP growth has been accompanied by continuing improvements in living standards, but these increases have also slowed.

Good economic policy would recognise these connections and stimulate productivity through innovation policies and through infrastructure development, particularly in Australian cities.

Throughout this report we will evaluate actual changes in infrastructure against this benchmark.

As well as showing the long-term average and the latest year result for the variables discussed

TABLE 1: SOME USEFUL BENCHMARK STATISTICS

Average Annual Growth (%) in Period

GDP

GDP per person

Population

1990-91 to 2014-15

3.2

1.9

1.3

2000-01 to 2004-05

3.2

2.1

1.2

2005-06 to 2009-10

2.8

1.1

1.8

2010-11 to 2014-15

2.7

1.1

1.6

2014–15

2.4

1.0

1.4

5: ABS, Population Projections, Australia, 2012 to 2101, November 2013, Cat No 3222.0, www.abs.gov.au

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

High level trends in engineering construction In 1990-91, the public sector undertook the majority of engineering construction with $15.4 billion in work completed compared with $5.7 billion by the private sector, both figures expressed in real terms.

in engineering construction and the private sector completed $82.1 billion in engineering construction.

Public sector engineering construction is primarily infrastructure. This is clearly evident in Figure 2 which shows the trends for engineering construction on infrastructure and engineering construction on recreation, the resources sector, the heavy industry sector and other engineering construction in cumulative form. Most of the gap between the infrastructure and total engineering construction trends is accounted for by engineering construction on recreational facilities; in 1990-91 this accounted for 51 per cent of the gap; in 2010-11, it accounted for 88 per cent and in 2014-15 it accounted for 82 per cent. Detailed statistics for public sector engineering construction on the various types of infrastructure assets are shown in Table 2.

As Figure 1 shows, during the following 10 years growth was fairly modest but then accelerated strongly with the majority coming from the private sector. Private sector engineering construction completed peaked at $129 billion in 2012-13 well ahead of work completed by the public sector which peaked a year earlier at $32.5 billion, again with both figures expressed in real terms. The size of private sector construction determined the overall peak in 2012-13 and in the subsequent two years engineering construction fell in each sector. In 2014-15, the public sector completed $24.2 billion

FIGURE 1: CUMULATIVE PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION, 1990-91 TO 2014-15 Private Engineering Construction

Public Engineering Construction

140000.0

120000.0

80000.0

60000.0

40000.0

20000.0

11

5

4

-1

20

14

3

-1

20

13

12

-1

12

11 -

20

20

0

-1 1

10

20

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

-9 90

19

91

1

0.0 19

$M in 2012-13 Prices

100000.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Much more of private sector construction relates to non-infrastructure components of engineering construction and this is shown in Figure 3. There is a pronounced difference between Figures 2 and 3 mainly due to private sector construction on resources sector facilities. In 1990-91, engineering construction on resources sector facilities was 55 per cent of the gap between the two trends. Heavy industry and recreational facilities accounted for 25 per cent and 19 per cent respectively. When private sector engineering construction was at its peak in 2012-13, the resources sector accounted for 91 per cent of the gap with diminished shares from heavy industry and recreation. Even after two years of falls in 2014-15, 92 per cent of the gap between the two trends in Figure 3 is accounted for by the resources sector.

iron ore mine is counted in engineering construction on the resources sector, but construction of the rail line to haul iron ore to harbour and the construction of the harbour facilities are included in the railways and harbours categories in Table 3 which shows detailed statistics for private sector engineering construction of infrastructure.

A feature of the trends illustrated in Figures 1 to 3 is their regularity: although changes over time are quite distinct, year on year changes are fairly consistent. This feature is the result of aggregation.

In the sections dealing with specific asset classes, year on year changes become much greater, in some cases involving very large changes from the year before. Variability becomes even more evident in the companion reports dealing with infrastructure trends in states and territories.

Private sector engineering construction on infrastructure facilities specifically needed to support resources sector facilities are included in private sector engineering construction on infrastructure and is additional to the construction completed in the resources category. For example, construction of an

Engineers Australia regards the high degree of variability in most classes of Australian infrastructure as unnecessary and a serious impediment to longterm effective infrastructure development.

FIGURE 2: TRENDS IN THE MAIN COMPONENTS OF PUBLIC SECTOR ENGINEERING CONSTRUCTION, 1990-91 TO 2014-15

Infrastructure

Resources & Industry

35000.0

25000.0

20000.0

15000.0

10000.0

5000.0

12

0 -1 20 1 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

92

-9

19

91

19

90

-9

1

0.0 19

$M in 2012-13 Prices

30000.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

TABLE 2: PUBLIC SECTOR ENGINEERING CONSTRUCTION ON INFRASTRUCTURE, 1990-91 TO 2014-15 Year

Roads

Bridges

Railways

Harbours

Water

Sewerage

Electricity

Pipelines

Telecommunications

Infrastructure

1990-91

4293.7

414.2

733.4

178.9

1196.6

1051.2

2635.6

188.8

4124.4

14816.7

1991-92

3955.6

430.6

777.8

99.4

1221.4

951.5

2629.7

92.5

3163.6

13322.1

1992-93

5060.7

385.5

900.4

199.9

1082.9

1008.9

2512.5

96.1

3125.3

14372.1

1993-94

5408.1

572.6

1208.9

229.2

1042.7

926.9

2338.0

209.6

2842.1

14778.1

1994-95

5143.2

463.0

1627.0

139.0

787.7

921.0

2193.2

221.0

3768.5

15263.5

1995-96

5387.8

322.1

1662.6

137.1

621.7

806.3

1543.1

540.3

4394.8

15415.8

1996-97

5077.9

334.6

2056.1

287.6

514.3

679.8

1807.5

167.2

4342.4

15267.5

1997-98

5949.4

410.3

1588.6

184.4

525.0

865.8

1659.1

110.7

4491.1

15784.5

1998-99

6615.1

459.5

1409.7

230.5

663.2

941.9

1669.9

173.4

4707.3

16870.6

1999-00

6551.8

563.9

972.3

138.2

866.4

1449.1

2108.1

79.2

5578.8

18307.8

2000-01

6078.0

484.9

789.0

166.9

672.7

1201.1

2361.6

78.6

4960.7

16793.5

2001-02

5442.6

439.4

894.3

325.4

676.2

859.5

2653.1

71.4

4648.4

16010.2

2002-03

5632.6

346.6

1111.2

235.2

684.1

1010.8

2880.8

45.8

4089.4

16036.5

2003-04

5212.7

303.9

1745.9

238.8

873.8

1191.7

2960.6

41.6

3143.6

15712.7

2004-05

5879.2

397.6

2344.4

223.4

1173.7

1117.0

3347.2

20.2

3454.6

17957.4

2005-06

6501.9

608.5

2232.5

179.4

1159.4

1101.9

4579.0

144.9

4422.3

20929.8

2006-07

7350.5

981.5

1911.1

181.8

1422.3

1360.6

5063.8

234.6

1671.7

20178.1

2007-08

8101.7

1203.6

1586.4

528.0

4271.8

1905.9

5345.8

43.4

33.6

23020.2

2008-09

10492.6

1194.8

2257.2

725.2

4121.9

1962.6

6481.3

11.0

57.8

27304.4

2009-10

10043.1

1285.7

3519.7

753.7

4368.5

2463.7

7155.8

15.6

191.2

29797.0

2010-11

11514.7

1207.8

4203.5

750.8

3059.4

2922.9

6722.5

34.2

282.8

30698.6

2011-12

13334.2

821.0

3637.8

359.1

2845.4

2453.3

7188.5

36.2

537.8

31213.3

2012-13

13231.3

722.2

3249.5

267.4

2531.4

2262.8

6884.9

43.2

814.9

30007.6

2013-14

11772.5

632.3

2689.0

494.3

1846.8

2121.0

5544.2

14.0

1089.4

26203.4

2014-15

10943.7

386.5

1953.0

711.8

1376.4

1541.8

4341.7

9.8

1479.0

22743.8

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

TABLE 3: PRIVATE SECTOR ENGINEERING CONSTRUCTION ON INFRASTRUCTURE, 1990-91 TO 2014-15 Year

Roads

Bridges

Railways

Harbours

Water

Sewerage

Electricity

Pipelines

Telecommunications

Infrastructure

1990-91

1849.3

19.9

31.8

88.5

181.1

169.2

170.9

123.2

15.9

2649.8

1991-92

1823.4

21.1

58.6

52.7

105.1

99.5

175.5

174.3

12.0

2522.2

1992-93

1712.0

5.2

22.0

57.3

143.5

130.2

138.4

328.3

121.1

2657.9

1993-94

1996.2

18.2

67.3

120.1

251.9

190.8

264.7

244.0

144.3

3297.4

1994-95

1902.6

10.9

48.7

43.6

457.0

124.3

279.7

292.6

124.3

3283.6

1995-96

1846.6

62.2

102.0

40.9

424.5

247.3

741.6

453.3

324.9

4243.3

1996-97

2434.3

56.8

132.1

132.1

200.5

124.9

681.9

394.2

275.6

4432.4

1997-98

3026.5

38.3

278.7

334.8

227.3

167.1

985.4

485.6

109.8

5653.6

1998-99

3499.0

102.6

254.4

310.9

230.5

126.6

1208.2

647.5

178.9

6558.5

1999-00

2683.6

162.7

241.6

124.9

269.4

234.6

2124.1

647.8

549.0

7037.7

2000-01

1936.8

19.3

138.0

135.0

279.8

290.1

2210.5

358.7

952.1

6320.2

2001-02

2312.3

49.0

402.9

154.2

211.4

232.7

2021.3

746.2

542.2

6672.1

2002-03

3577.6

107.9

764.0

200.9

237.8

407.6

1918.9

1321.9

515.8

9052.3

2003-04

5569.7

60.7

383.0

401.3

413.6

678.0

2078.8

1960.0

1086.0

12631.1

2004-05

6817.8

115.8

651.5

1019.6

473.9

396.0

2851.1

926.0

1241.9

14493.7

2005-06

7079.2

21.2

613.4

1107.4

569.7

405.6

2521.0

1141.4

1539.3

14998.3

2006-07

6256.5

78.9

1157.5

1176.0

555.7

424.1

3511.1

1054.2

3988.5

18202.6

2007-08

5528.8

102.0

1708.9

1118.3

813.9

969.8

4030.3

681.7

4771.9

19725.7

2008-09

6381.9

90.6

1262.2

1286.6

621.2

1061.2

5402.2

918.6

4085.3

21109.8

2009-10

5148.2

48.9

1413.3

1534.0

1836.2

546.8

4507.0

1068.1

3868.1

19970.6

2010-11

5413.5

114.8

2210.7

2998.6

3073.5

680.2

4392.2

1821.5

3783.7

24488.5

2011-12

5518.6

149.8

4159.0

5476.9

2072.2

691.8

4703.9

2567.3

4455.5

29795.0

2012-13

5216.7

68.2

4366.2

6696.9

1425.1

640.7

6925.5

4090.5

4522.0

33951.8

2013-14

4244.2

126.7

3924.8

5209.6

1177.7

591.8

6324.3

5273.8

4793.8

31666.6

2014-15

4468.4

287.4

3211.5

2296.5

921.5

415.5

3626.8

6158.2

4711.6

26097.6

14

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Infrastructure construction requires the assembly of skilled work forces, engineers, trades people and semiskilled workers. High year on year variability reflects a stop start approach to infrastructure development. A large increase in work requires assembly of a suitably sized work force. When completion of this work is followed by a period of much lower infrastructure development, the work force is dispersed as individual engineers, trades and others are forced to find alternative work. Often this pattern is followed by another period of large scale work and re-assembling the required skilled work force leads to additional costs to persuade workers to join the group and to train them. This process also means persistent loss of industry experience and skills, leading to further additional costs.

FIGURE 3: TRENDS IN THE MAIN COMPONENTS OF PRIVATE SECTOR ENGINEERING CONSTRUCTION, 1990-91 TO 2014-15

Infrastructure

Resources & Industry

120000.0

80000.0

60000.0

40000.0

20000.0

90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 98 19 -99 99 20 -00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 20 -05 05 20 -06 06 20 -07 07 20 -08 08 20 -09 09 20 10 10 20 -11 11 20 -12 12 20 -13 13 20 -14 14 -1 5

0.0 19

$M in 2012-13 Prices

100000.0

15

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Measuring growth • 1999: Australia’s infrastructure was assessed as “D”—poor and critical changes were required to enable infrastructure to be fit for purpose.

When evaluating the progress of infrastructure development, both the scale of work carried out and its rate of change over time are important. We deal with the scale of infrastructure development using Tables 2 and 3 and we illustrate trends in these tables throughout the report.

• 2001: Australia’s infrastructure was assessed as “C”—adequate but major changes were required to enable infrastructure to be fit for purpose.

Measuring change is more complex. For the first set of benchmarks, we can calculate average annual changes in infrastructure construction and in its various components. This information is provided in Table 4, while Table 5 completes the picture by adding in the corresponding rates of change for non-infrastructure components of engineering construction.

• 2005: Australia’s infrastructure was assessed as “C+”—slightly better than adequate but major changes were still required to enable infrastructure to be fit for purpose.

To evaluate changes that have occurred, several benchmarks are used. The first of these are Engineers Australia’s past assessments of the status of Australia’s infrastructure. These assessments were as follows6.

• 2010: Australia’s infrastructure assessment remained at “C+”, unchanged from 2005.

TABLE 4: SUMMARY OF AVERAGE ANNUAL GROWTH RATES, INFRASTRUCTURE COMPONENTS, PRIVATE AND PUBLIC SECTORS Period

Roads

Bridges

Railways

Harbours

Water

Sewerage

Electricity

Pipelines

Telecommunications

Infrastructure

Private Sector 1990-91 to 2014-15

5.8

63.1

38.9

32.9

16.8

13.6

19.8

25.3

66.6

11.0

2000-01 to 2004-05

24.9

46.6

51.8

61.3

16.1

20.8

7.2

27.2

30.1

17.1

2005-06 to 2009-10

-4.7

32.6

23.3

8.8

47.2

19.3

12.0

6.3

36.6

7.0

2010-11 to 2014-15

-2.3

64.6

24.3

24.5

-7.1

-3.7

0.1

43.3

4.3

6.8

2014-15

5.3

126.9

-18.2

-55.9

-21.8

-29.8

-42.7

16.8

-1.7

-17.6

Public Sector 1990-91 to 2014-15

4.6

2.9

7.3

18.2

6.2

3.6

3.2

26.1

17.9

2.2

2000-01 to 2004-05

-1.8

-5.2

22.0

16.6

8.3

-3.3

9.8

-21.3

-8.5

-0.1

2005-06 to 2009-10

11.8

28.8

12.4

42.7

44.9

18.1

16.9

112.7

34.2

11.0

2010-11 to 2014-15

2.3

-20.3

-9.9

10.2

-20.1

-7.8

-8.9

9.5

51.8

-5.0

2014-15

-7.0

-38.9

-27.4

44.0

-25.5

-27.3

-21.7

-29.5

35.8

-13.2

Both Sectors Combined 1990-91 to 2014-15

4.5

4.6

10.5

19.5

6.5

4.4

5.5

21.1

2.7

4.7

2000-01 to 2004-05

7.4

-3.9

23.0

41.1

9.7

0.9

8.2

21.6

-4.8

5.5

2005-06 to 2009-10

4.2

23.3

11.4

13.2

40.1

16.8

13.9

7.4

-1.8

9.0

2010-11 to 2014-15

0.7

-12.3

2.8

14.7

-17.6

-7.0

-5.7

43.0

9.1

0.2

2014-15

-3.8

-11.2

-21.9

-47.3

-24.0

-27.8

-32.9

16.6

5.2

-15.6

6: See Engineers Australia Infrastructure Report Cards at www.engineersaustralia.org.au/infrastructure-report-card

16

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

TABLE 5: SUMMARY OF AVERAGE ANNUAL GROWTH RATES, MAIN COMPONENTS, ENGINEERING CONSTRUCTION

Period

Infrastructure

Recreation

Resources

Heavy Industry

Other

Sub-Total

Total

Private Sector 1990-91 to 2014-15

11.0

7.9

20.6

6.9

27.7

16.0

13.1

2000-01 to 2004-05

17.1

10.2

32.4

13.6

8.8

22.4

18.1

2005-06 to 2009-10

7.0

-0.5

27.1

3.3

50.7

22.8

14.2

2010-11 to 2014-15

6.8

8.7

18.9

16.5

5.6

17.5

13.0

2014-15

-17.6

-6.3

-12.0

-29.9

-31.5

-12.6

-14.3

1990-91 to 2014-15

2.2

7.8

57.0

113.9

16.0

6.8

2.3

2000-01 to 2004-05

-0.1

-2.7

-1.7

170.1

12.9

-4.3

-0.3

2005-06 to 2009-10

11.0

19.0

193.2

58.7

61.9

26.5

11.4

2010-11 to 2014-15

-5.0

4.0

58.8

262.0

-5.1

2.1

-4.8

2014-15

-13.2

-27.2

-7.2

-55.2

-11.1

-25.6

-14.1

1990-91 to 2014-15

4.7

7.2

20.1

6.3

21.0

15.0

7.5

2000-01 to 2004-05

5.5

6.2

31.3

10.7

7.7

19.4

7.8

2005-06 to 2009-10

9.0

5.1

27.4

3.4

50.7

22.9

12.9

2010-11 to 2014-15

0.2

6.4

18.8

17.0

3.7

16.6

7.0

2014-15

-15.6

-14.7

-12.0

-31.0

-30.2

-13.0

-14.2

Public Sector

Both Sectors Combined

The second set of benchmarks was set out in Table 1. The overall demand for infrastructure services is driven primarily by population and economic growth. Demand in some asset classes depends on multiples of population growth; for example, the demand for road transport has been well in excess of population growth. We are not in a position to consider in detail the key drivers of demand in each asset category but the information in Table 1 is a useful alternative. To facilitate comparison, the average annual changes in Tables 1, 4 and 5 show the average annual rates of change that have occurred in the five years between each of the assessments in 2001, 2005, 2010, and 2015, the long-term average and the change in 2014-15. This information is provided for both the public and the private sector and for the two sectors combined.

In the sections that follow, the trends in various infrastructure asset classes are examined against these benchmarks. For completeness, the analysis has been extended to include non-infrastructure categories of engineering construction. Based on the conclusion derived from Figure 2 that public sector engineering construction is nearly all infrastructure, particular regard is paid to changes in public sector trends. However, despite the complications mentioned earlier, the private sector is an increasingly important contributor to generally accessible infrastructure and trends for this sector are examined to give some insight to these developments but caution is urged for reasons already explained.

17

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Roads In 1990-91, total engineering construction on roads was $6.1 billion. Of this, $4.3 billion was undertaken by and for the public sector and the remaining $1.8 billion was undertaken by the private sector.

sector fell by an average 2.3 per cent per year since 2010 despite an upward kick last year.

Average population growth and economic growth was slightly lower in the five years since the 2010 roads infrastructure assessment than in the five years before it. Nevertheless, at the end of 2014-15, Australia’s economy was 11.5 per cent larger than in 2010 and its population was 6.6 per cent larger.

Long-term growth in road construction has averaged 4.5 per cent per year; higher in the private sector at 5.8 per cent per year than in the public sector at 4.6 per cent per year. In 2014-15, road construction was about 2.5 times the amount in the base year with $15.4 billion in work completed; $10.9 billion by and for the public sector and $4.5 billion by the private sector.

In the five years leading to the 2010 assessment, cumulative public sector road construction was $42.5 billion and cumulative private sector construction was $30.4 billion for a total of $72.9 billion. In the five years since the 2010 assessment, cumulative public sector construction has increased to $60.8 billion and cumulative private sector construction has fallen to $24.9 billion. The increase in public sector construction more than offset the fall in private sector construction giving a cumulative total of $85.7 billion, 17.5 per cent more than in the earlier period.

Against this background Engineers Australia’s assessments of Australia’s roads makes interesting reading.

In 1999, the assessment was “C-”, somewhat less than adequate requiring major changes to be fit for purpose. This assessment was repeated in 2001 but both the 2005 and 2010 assessments did away with the qualifier and concluded that Australia’s roads were adequate.

There is no doubt that engineering construction on roads has been substantial since the 2010 Engineers Australia infrastructure assessment. In 2014-15, 48.1 per cent of public sector and 17.1 per cent of private sector infrastructure was road construction.

Despite the large share of construction devoted to roads there has been growing congestion in every capital city. At best, the status of road infrastructure is unchanged with an adequate rating.

Leading up to the 2005 assessment, public sector roads construction fell by an average 1.8 per cent per year in real terms. This situation was addressed by average annual increases of 11.8 per cent between the 2005 and 2010 assessments. There has been toll road development in NSW so a portion of private sector road construction must be taken into account. This upsurge in NSW road construction is clearly evident in Figure 4. However, these positive developments were insufficient to warrant an upgraded roads assessment.

Despite the large share of construction devoted to roads there has been growing congestion in every capital city.

The increase in road construction in the five years before 2010 continued for another year before peaking in 2011-12 at $13.3 billion for the public sector and $5.5 billion in the same year for the private sector. This change has meant that public sector road construction shifted from increasing by 11.8 per cent per year in the five years before 2010, to increasing by an average 2.3 per cent per year in the five years since. Road construction in the private

18

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 4: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON ROADS, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

20000.0 18000.0

14000.0 12000.0 10000.0 8000.0 6000.0 4000.0 2000.0

19

0 -1 20 1 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1 20

01

-0

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

91

19

90

-9

1

0.0

19

$M in 2012-13 Prices

16000.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Bridges This category includes road bridges, railway bridges, causeways and elevated highways. Although the statistics are reported separately, Engineers Australia includes bridges in its roads and railways assessments.

• Between the 2005 and 2010 infrastructure assessments, bridge construction increased strongly, growing by an average 28.8 per cent per year in the public sector and an average of 23.3 per cent per year overall.

Figure 5 demonstrates that most of the construction in this asset category is public sector construction, although in recent years the private sector contribution has increased.

• After the 2010 infrastructure assessment, bridge construction contracted as abruptly as it rose in the earlier period. Public sector construction fell by an average 20.3 per cent per year and overall construction fell by 12.3 per cent per year. The pace of contraction has accelerated; the falls in 2014-15 were well above the five year annual average.

The trend shown in Figure 5 is in three parts: • The period leading up to the 2005 infrastructure assessment was one of slowly falling construction levels, averaging falls of 5.2 per cent per year in the public sector and falls of 3.9 per cent per year overall.

FIGURE 5: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON BRIDGES, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

1600.0 1400.0

1000.0 800.0 600.0 400.0 200.0

0

20 11 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

20

04

-0

3

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

91

19

90

-9

1

0.0 19

$M in 2012-13 Prices

1200.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

21

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Railways This category includes tracklaying, overhead power lines and signals, platforms, tramways, tunnels for underground railways and fuel hoppers.

Public sector rail construction has followed something of a roller coaster path. The long-term picture is one of growth averaging 7.3 per cent per year. The five year lead up to the 2005 infrastructure assessment had construction increasing by 22.0 per cent per year but this average growth slowed to 12.4 per cent per year in the five years leading to the 2010 assessment. While this was taking place there was also robust growth in private sector construction averaging 51.8 per cent per year and 23.3 per cent per year, respectively in the two periods mentioned.

In both the 1999 and 2001 assessments, Engineers Australia rated Australia’s railways to be on the negative side of poor and in need of critical changes to be fit for purpose. The 2005 assessment showed an improvement to ‘C-‘, just less than adequate and requiring major changes, but by 2010 the rating had slipped back to ‘D+,’ poor and needing major changes.

The trends in engineering construction that underlie these assessments are illustrated in Figure 6.

Since 2010, both public and private sector trends show strong contraction but, as Figure 6 shows, in many years the scale of railway construction has been quite high. The 2010 assessment was ‘D+’, on the positive side of poor. Public sector railway construction in the five years leading to this assessment was cumulative $11.5 billion in real terms and the corresponding private sector construction was $6.2 billion, but only part of this could be considered as generally accessible infrastructure.

Both the public and private sectors have been active in railway construction. Public sector construction has been primarily focused on urban areas and has covered both freight and passenger needs. Private sector construction in part reflects the privatisation of Australian freight rail assets and private sector construction in support of resources facilities located in fairly remote parts of Australia. Unfortunately we do not know the relative sizes of these components.

FIGURE 6: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON RAILWAYS, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

9000.0 8000.0

6000.0 5000.0 4000.0 3000.0 2000.0 1000.0 0.0

19 90 19 91 91 19 92 92 19 93 93 19 94 94 19 95 95 19 96 96 19 97 97 19 98 98 19 99 99 20 00 00 20 01 01 20 02 02 20 03 03 20 04 04 20 05 05 20 06 06 20 07 07 20 08 08 20 09 09 20 10 10 20 11 11 20 12 12 20 13 13 20 14 14 -1 5

$M in 2012-13 Prices

7000.0

22

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Any improvement is likely to be modest or short lived.

The scale of both public and private sector railway construction increased in cumulative terms in the five years since 2010. In the public sector, five year cumulative construction was $15.7 billion and public sector cumulative construction was $17.9 billion. The extraordinary size of the latter figure reflects the scale of railway development to support private sector resources projects.

Taking account that the national economy is now 11.5 per cent larger and the population is 6.6 per cent larger, construction figures suggest that there has been an improvement in Australia’s railways, but annual construction has been falling for at least three years. Any improvement is likely to be modest or short lived; as rail construction is falling, economic and population growth are continuing.

23

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Harbours This category includes boat and yacht basins, breakwaters, retaining walls, docks and piers, terminals, wharves, dredging works and marinas.

The status of Australian harbours was first assessed by Engineers Australia in 2001, when it was rated as ‘good’, requiring only minor changes to be fit for purpose.

In the 2005 assessment, this rating slipped back to the positive side of adequate with a recommendation that major changes were necessary for the infrastructure to be fit for purpose.

Assessed again in 2010, an improvement was evident with the status of harbour infrastructure raised to the negative side of good with minor changes recommended for the infrastructure to be fit for purpose.

Until about 2003, engineering construction on harbour facilities was comparatively low and shared between the public and private sectors.

The earlier trend continued for the public sector until around 2007 when the scale of construction increased coinciding with the improved infrastructure rating mentioned above.

From 2003 onwards until 2012-13, private sector engineering construction increased dramatically.

There were two phases in this expansion: the first was from 2003 to 2010 and the second from 2010 to 2012.

The latter expansion was quite extraordinary and reflects private sector harbour development essential to export minerals and gas, often from relatively remote locations.

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 7: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON HARBOURS, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

8000.0 7000.0

$M in 2012-13 Prices

6000.0 5000.0 4000.0 3000.0 2000.0 1000.0

In the five years leading to the 2010 infrastructure assessment, cumulative public sector engineering construction on harbours was $2.4 billion. This increased to cumulative $2.6 billion in the five years since 2010 suggesting that at the very least, public sector activity maintained the status quo.

0

20 11 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

91

19

19

90

-9

1

0.0

Taking into account these figures, the 2010 infrastructure assessment and knowing that private sector construction was mainly in relation to remote location export ports, we can conclude that:

• The status of Australia’s main harbour infrastructure is likely to be good.

The corresponding figures for the private sector were much higher reflecting the expansion evident in Figure 7. In the five years leading to 2010, cumulative private sector construction was $6.2 billion and almost four times as much in the five years since 2010 at $22.7 billion. In 2014-15, public sector construction had increased back to 2008 to 2011 levels but private sector construction had reduced sharply. Despite the fall, private sector construction was three times that of the public sector.

• Australia’s harbour infrastructure has become much more geographically extensive and, given the scale of construction undertaken, its status is also most likely good.

25

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Water supplies This category includes dams, weirs, reservoirs, embankments for water diversion, water pipelines, mains and treatment plants, flood prevention and erosion, aqueducts, water conduits and systems conveying water to residences, commercial and industrial establishments.

The trends in Figure 8 show that the earlier assessments were associated with comparatively low construction levels that mainly trended downwards. The higher ratings in 2005 and 2010 coincided with very large increases in engineering construction by both the public and private sectors.

Indeed public sector construction peaked in 2009-10, the last assessment year, and has rapidly fallen each year since. Private sector construction was mainly directed towards the construction of several water desalination plants in capital cities and peaked a year later in 2010-11. Since then private sector construction has also fallen sharply.

Many of Australia’s water desalination plants were constructed under public private partnership arrangements and as a result are included in the private sector figures.

In 1999 and 2001, Engineers Australia assessed Australia’s water infrastructure as adequate but in need of major changes to be fit for purpose. Action to deal with these changes was reflected in the 2005 and 2010 assessments which rated water infrastructure as good but still requiring minor changes to be fit for purpose.

FIGURE 8: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON WATER FACILITIES, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

7000.0

5000.0

4000.0

3000.0

2000.0

1000.0

19

90 -9 1 91 -9 19 2 92 19 93 93 19 94 94 19 95 95 19 96 96 19 97 97 19 98 98 19 99 99 20 00 00 20 01 01 20 02 02 20 03 03 20 04 04 20 05 05 20 06 06 20 07 07 20 08 08 20 09 09 20 10 10 20 11 11 20 12 12 20 13 13 20 14 14 -1 5

0.0 19

$M in 2012-13 Prices

6000.0

26

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

In the five years prior to the 2010 infrastructure assessment cumulative public sector construction in this area was $15.3 billion in real terms. At the same time there was $4.4 billion in real terms completed by the private sector for a combined total of $19.7 billion. In the five years since 2010, public sector construction completed was 24 per cent lower at $11.7 billion in real terms but private sector construction almost doubled to $8.7 billion in real terms so that the combined sector construction was 3 per cent greater than in the previous five years.

a period of normal rainfall following on from the “millennium drought� and it is highly likely that there has been little stress placed on water supplies.

However, drought has remerged in several parts of the country and demand has increased through economic and population expansion. On balance, the absence of stress suggests that the status of water infrastructure remains good but still in need of minor changes to be fit for purpose. The main threat to water supplies is resumption of the low construction levels prevalent prior to and during much of the millennium drought.

At the end of 2014-15, construction on water infrastructure had fallen for five years. This was

The main threat to water supplies is resumption of the low construction levels prevalent prior to and during much of the millennium drought.

27

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Sewerage and drainage This category includes sanitary and storm sewers, sewerage treatment plants, stormwater drains and drainage systems. The statistics cover two areas of Engineers Australia’s infrastructure assessments: waste water and stormwater.

Stormwater infrastructure was not assessed in 1999 and the first assessment in 2001 found that this infrastructure was poor and required major changes to be fit for purpose. There was sufficient change to lift the 2005 assessment to adequate, an assessment that was repeated in 2010.

Over the years, the assessments for wastewater infrastructure have steadily improved. In 1999, the assessment was poor and critical changes were necessary for infrastructure to be fit for purpose.

This improved to adequate, needing major changes in 2001 and 2005. In 2010 wastewater infrastructure was judged to be good but still requiring minor changes to be fit for purpose.

Figure 9 shows that public sector construction is typically much higher than private sector construction. Until about 1998, the overall trend was downwards reflecting the lack of public sector momentum and this was reflected in the first assessment of wastewater infrastructure. There was a short spurt of activity between 1998 and 2002 but the period between 2002 and 2005 yielded a lacklustre average growth of 0.9 per cent for the two sectors combined.

FIGURE 9: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON SEWERAGE AND DRAINAGE FACILITIES, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

4000.0 3500.0

2500.0 2000.0 1500.0 1000.0 500.0

19

90 -9 1 91 -9 19 2 92 19 93 93 19 94 94 19 95 95 19 96 96 19 97 97 19 98 98 19 99 99 20 00 00 20 01 01 20 02 02 20 03 03 20 04 04 20 05 05 20 06 06 20 07 07 20 08 08 20 09 09 20 10 10 20 11 11 20 12 12 20 13 13 20 14 14 -1 5

0.0

19

$M in 2012-13 Prices

3000.0

28

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

The lead up to the 2010 assessment was one of more positive growth. Public sector construction increased by an average 18.1 per cent per year and private sector construction by an average of 19.1 per cent per year. This period of growth is readily discernible in Figure 9. During this five year period, cumulative public sector construction was $8.8 billion in real terms and the corresponding private sector construction was $3.4 billion for an overall total of $12.2 billion.

Since 2010 construction trends have changed direction. Public sector construction peaked in 201011 and has fallen each year since. Private sector construction peaked several years earlier, in 200809, and has followed a less severe downwards path.

Still, construction levels were fairly high compared to historical figures. The five year cumulative total since 2010 for the public sector was 28.5 per cent higher at $11.3 billion in real terms but the private sector equivalent was down 11.4 per cent. Overall, the five year cumulative total increased by 17.4 per cent to $14.3 billion in real terms.

...economic and population pressures persist and the challenge for infrastructure is to at least stay pace with it, problematic given present trends.

Cumulative construction on wastewater infrastructure over the five years since the 2010 infrastructure assessment was well above economic and population expansion, suggesting the potential for improvement. However, current trends show several years of falling infrastructure construction suggest the opposite. The reality is that economic and population pressures persist and the challenge for infrastructure is to at least stay pace with it, which is problematic given present trends. On balance the rating for this infrastructure class is maintained at good but requiring minor changes to be fit for purpose.

29

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Electricity generation and distribution The category includes power stations, substations, hydro-electric generating plants, and associated structures of these facilities. Transmission and distribution lines are also included.

The situation here is similar in character to the expenditure on desalination in the water sector: a history of poor maintenance followed by rapid remediation which calls into question the supporting planning, and financial and economic analyses, as well as the parameters used by the national regulator to manage a monopolistic market.

Australian electricity infrastructure was assessed Australian electricity infrastructure was assessed for the first time in 2001 when it was rated as good but in need of minor changes to be fit for purpose.

In both 2005 and 2010 electricity infrastructure was accorded the lower rating of adequate and major changes were required to be fit for purpose.

An important challenge mentioned in the 2010 assessment was the replacement of aging coal fired generation plants.

In the five years leading to the 2010 infrastructure assessment, public sector construction on electricity assets was $28.6 billion while private sector construction was $20 billion for an overall total of $48.6 billion. A large proportion of this can be attributed to the upgrading of transmission systems.

Cumulative public sector construction in the five years since 2010 was $30.7 billion, an increase of 7.2 per cent on the earlier period. Corresponding private sector construction increased by 30.0 per cent to $26 billion. Since 2010 combined electricity infrastructure construction has increased by 16.5 per cent to $56.7 billion.

Several state governments have privatised large sections of their electricity generation and distribution systems and it is not surprising to find this reflected in the engineering construction trends illustrated in Figure 10. In 1990-91, engineering construction in the electricity sector was $2.8 billion and about 94 per cent was undertaken by or for the public sector. Construction trends were flat during the 1990s and a clear upward trend was not established until about 1998-99, about when the National Electricity Market (NEM) commenced. The opposing trends during these years reflect the process of privatisation leading up to market formation.

After the formation of the NEM, engineering construction on electricity assets surged upwards with only a few hiccups along the way to peak at $13.8 billion in 2012-13 with approximately even sector splits. During this growth surge there was considerable construction carried out on the transmission and distribution grid with some commentary suggesting that the development suffered from unnecessary ‘gold plating’.

30

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 10: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON ELECTRICITY GENERATION AND DISTRIBUTION, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

16000.0 14000.0

$M in 2012-13 Prices

12000.0 10000.0 8000.0 6000.0 4000.0 2000.0

0 -1 20 1 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

91

19

19

90

-9

1

0.0

Public sector construction of electricity assets peaked in 2011-12 and has fallen each year since. Private sector construction peaked a year later and has also fallen each year since. By all accounts the redevelopment of the transmission network has been completed.

However, aging fossil fuel generation plants are now five years older and there has been minimal progress towards their replacement. The issue here is not whether replacement is necessary over the coming 10 to 15 years, but what the replacement will be. These considerations suggest that the status of electricity infrastructure has not yet progressed beyond being adequate and requiring major changes to be fit for purpose.

...aging fossil fuel generation plants are now five years older and there has been minimal progress towards their replacement.

31

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Pipelines The statistics on pipelines include oil and gas pipelines, urban supply gas mains and pipelines for refined petroleum products, chemicals and other manufactured products.

Gas infrastructure was assessed as adequate but in need of major changes in both 2001 and 2005.

Figure 11 shows that construction levels over this period experienced a significant burst in the two years leading up to 2005 but otherwise followed a modest upwards trend which continued through to 2009-10. This trend was sufficient for the status of gas infrastructure to be upgraded to the negative side of good and requiring minor changes in 2010.

The majority of this infrastructure is private sector construction and over the past decade nearly all construction has been oil and gas pipelines. As shown in Figure 11 there has been some construction by the public sector but during the period commonly described as the resources boom this has been minimal. For these reasons the statistics covered in this section correspond to gas infrastructure in Engineers Australia’s assessments.

Cumulative private sector construction associated with that upgrade was $4.9 billion. From 2010 onwards gas pipeline construction has been extraordinary and the cumulative private sector construction since 2010 has been $20 billion in real terms, over four times that in the previous five years.

Construction has included new LNG export facilities in Western Australia and the Northern Territory and there have also been important additions and improvements to the eastern coast gas network. On balance, the scale of construction suggests that the status of gas infrastructure has improved.

...the scale of construction suggests that the status of gas infrastructure has improved.

FIGURE 11: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON PIPELINES, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

7000.0

5000.0

4000.0

3000.0

2000.0

1000.0

0.0 19 90 19 91 91 19 92 92 19 93 93 19 94 94 19 95 95 19 96 96 19 97 97 19 98 98 19 99 99 20 00 00 20 01 01 20 02 02 20 03 03 20 04 04 20 05 05 20 06 06 20 07 07 20 08 08 20 09 09 20 10 10 20 11 11 20 12 12 20 13 13 20 14 14 -1 5

$M in 2012-13 Prices

6000.0

32

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Telecommunications This category includes mobile phone, radio, television, microwave and radar transmission towers, telephone lines and underground cables and coaxial cables.

progress on the construction of the NBN network is reflected by the rising segment of the public sector construction trend. These changes mean there is little point in discussing sector trends separately.

Instead the focus will be on the overall construction level.

Engineers Australia assessed Australia’s telecommunications infrastructure for the first time in 2010. The infrastructure was rated as adequate but in need of major changes to be fit for purpose.

The assessment noted the disparity in service quality between urban and regional areas and the limitations of the existing infrastructure system. At the time the move to the National Broadband Network (NBN) had just been announced but little work towards it had commenced.

In the five years leading to the 2010 infrastructure assessment, cumulative engineering construction on telecommunications was $24.6 billion. In the five years since 2010, cumulative construction has increased by 7.5 per cent to $26.4 billion. The public sector share of this construction was 15.9 per cent; the remainder was construction on privatised facilities, mainly the mobile phone network.

A major feature of Australia’s telecommunications sector over the past decade has been the privatisation of what historically was a wholly government-owned system. This is evident in the high levels of public sector construction up to about 2006-07 in the trends illustrated in Figure 12. The following year public sector construction fell to zero as privatisation was completed and was replaced by a corresponding increase in private sector engineering construction. NBN Co is a public sector entity and

Following the change of government in 2013, there was a fundamental change in strategy regarding the technology to be rolled out in the NBN. This slowed progress and is reflected in the public sector trend. Any reappraisal of telecommunications infrastructure depends on practical completion of the NBN. While there have been undoubtable improvements in the mobile phone network, overall the systems remain adequate and in need of major changes to be fit for purpose.

FIGURE 12: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON TELECOMMUNICATIONS, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

7000.0

5000.0

4000.0

3000.0

2000.0

1000.0

0

20 11 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

05

4

-0

04

20

20

3

-0

20

33

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

92

-9

19

91

19

90

-9

1

0.0

19

$M in 2012-13 Prices

6000.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Recreation The ABS includes in recreation statistics relating to the construction of golf courses, playing fields, racecourses, stadiums, swimming pools, landscaping and park construction. For the purposes of this report construction on these facilities falls outside of our definition of infrastructure. However, because there has been widespread inclusion of these and other non-infrastructure components of engineering construction in discussions of infrastructure, this section considers recreation construction to emphasise their place in the overall scheme of things.

Recreational facilities are constructed by both public and private sectors and detailed statistics are provided in Tables 6 and 7 respectively. Sector trends are illustrated in Figure 13.

Even though this asset category is not part of our definition of infrastructure it warrants consideration because it involves more construction than occurs in several infrastructure asset classes, including bridges, harbours, water and sewerage. Construction in this area has direct economic value even if it is not associated with the productivity multiplier effects of infrastructure.

There was a steady increase in construction levels to a peak of $2.2 billion in 2004-05, followed by a construction lull for several years. From 2008-09 engineering construction has increased each year to a new peak of $4.2 billion in 2013-14 with about 60 per cent undertaken by the private sector. In 2014-15, engineering construction fell to $3.6 billion in both the public and private sectors.

In 1990-91, engineering construction on recreation was $866.5 million with about one third undertaken by the public sector and the rest by the private sector. An interesting observation is that there appears to be little difference in the trends in the years before and after the Sydney Olympics.

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Resources This asset category includes construction of production, storage and distribution facilities for oil, gas, coal, bauxite, alumina and other minerals as well as refineries, pumping stations and the construction of mines.

The statistics covered by this section are the direct engineering construction activities associated with the resources boom.

Supporting infrastructure is included in the relevant infrastructure asset classes. A major limitation of the statistics is that we do not know what proportion of infrastructure construction relates to resources development and what proportion is infrastructure that is generally and widely accessible by businesses and the community.

However, this confusion is mainly confined to private sector statistics. We saw from Figures 2 and 3 that almost all public sector engineering construction was infrastructure in contrast to the private sector where infrastructure construction is divided as just described. This can be further checked by reviewing the statistics in Tables 6 and 7.

There has also been a widespread tendency for commentators to describe all engineering construction that has occurred in the resources sector as infrastructure. The purpose of this section is to demonstrate how much of resources sector engineering construction has been carried out on the primary resources facilities. These facilities are important economic resources

There has also been a widespread tendency for commentators to describe all engineering construction that has occurred in the resources sector as infrastructure. and together with their associated infrastructure assets will deliver a flow of national income for many years. The important point to note is that the function of the associated infrastructure is specifically to serve the needs of the resources facility to which it is attached. By virtue of location, access to the infrastructure is often limited to the business that owns the infrastructure in question or to a small number of like businesses in the same location that have successfully negotiated third party access arrangements

35

under ACCC regulations. As critical as this infrastructure is to these resources businesses, it is not accompanied by the same productivity multiplier effects that occur with infrastructure located in such a way that it is widely and generally accessible by businesses and the community.

The engineering construction trends in the resources sector have truly been amazing and exceptionally demanding. The key trends are illustrated in Figure 14.

It is important to take a moment to examine the differences in scale between private sector engineering construction in the resources sector and engineering construction on infrastructure, particularly by the public sector.

Private sector engineering construction peaked at $97.1 billion in 2012-13. Of this $57.3 billion was engineering construction carried out directly to develop primary resources facilities. Private sector engineering construction on infrastructure that year was $34.0 billion. An unknown portion of this was associated with the resources construction with the rest being private sector construction on privatised generally accessible infrastructure. The peak in private sector engineering construction occurred one year later at $58.7 billion. By way of comparison, the peak in public sector infrastructure occurred in 2011-12 and was $32.5 billion in real terms.

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

TABLE 6: PUBLIC SECTOR NON-INFRASTRUCTURE COMPONENTS OF ENGINEERING CONSTRUCTION ($M IN 2012-13 PRICES) Year

Infrastructure

Recreation

Resources

Heavy Industry

Other

Sub-Total

Total Construction

1990-91

14816.7

286.1

182.4

39.5

54.7

562.6

15379.4

1991-92

13322.1

273.0

262.7

12.6

42.8

591.1

13913.2

1992-93

14372.1

256.9

127.4

55.3

40.9

480.5

14852.6

1993-94

14778.1

269.5

129.8

55.3

25.0

479.6

15257.7

1994-95

15263.5

237.2

46.1

59.4

15.8

358.6

15622.1

1995-96

15415.8

297.3

58.4

54.0

20.5

430.1

15843.9

1996-97

15267.5

324.4

188.1

23.5

20.0

556.0

15823.5

1997-98

15784.5

362.2

157.0

14.0

26.6

559.8

16344.4

1998-99

16870.6

413.2

178.9

14.6

32.5

639.1

17509.7

1999-00

18307.8

593.5

72.5

29.4

50.7

746.2

19054.0

2000-01

16793.5

452.4

79.5

56.0

64.2

652.1

17445.6

2001-02

16010.2

541.5

50.8

1.1

62.6

655.9

16666.1

2002-03

16036.5

544.3

36.3

8.0

48.1

636.7

16673.2

2003-04

15712.7

531.2

15.2

35.9

39.5

621.7

16334.3

2004-05

17957.4

490.5

31.0

3.4

71.6

596.5

18553.9

2005-06

20929.8

537.9

325.5

6.8

119.0

989.2

21919.0

2006-07

20178.1

654.3

572.3

10.4

87.2

1324.3

21502.4

2007-08

23020.2

708.3

178.0

14.3

67.3

968.0

23988.2

2008-09

27304.4

941.0

246.9

3.4

267.9

1459.2

28763.6

2009-10

29797.0

1151.8

175.9

9.4

253.3

1590.3

31387.4

2010-11

30698.6

1332.2

59.0

8.1

115.1

1514.4

32213.0

2011-12

31213.3

1104.7

34.1

3.1

108.9

1250.8

32464.1

2012-13

30007.6

1478.8

179.4

48.1

208.7

1915.0

31922.6

2013-14

26203.4

1698.0

149.0

53.1

112.9

2013.0

28216.4

2014-15

22743.8

1236.2

138.2

23.8

100.3

1498.6

24242.4

36

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

TABLE 7: PRIVATE SECTOR NON-INFRASTRUCTURE COMPONENTS OF ENGINEERING CONSTRUCTION ($M IN 2012-13 PRICES) Year

Infrastructure

Recreation

Resources

Heavy Industry

Other

Sub-Total

Total Construction

1990-91

2649.8

580.4

1656.3

751.9

47.7

3036.3

5686.0

1991-92

2522.2

322.2

2021.8

644.1

55.2

3043.3

5565.5

1992-93

2657.9

384.4

1617.4

529.5

30.1

2561.4

5219.4

1993-94

3297.4

388.4

2134.7

661.2

12.6

3196.9

6494.3

1994-95

3283.6

559.3

2112.7

688.9

21.0

3381.8

6665.5

1995-96

4243.3

650.8

2852.4

754.4

62.4

4320.0

8563.3

1996-97

4432.4

965.1

2946.9

945.3

57.3

4914.7

9347.1

1997-98

5653.6

1052.5

4451.7

722.5

76.2

6302.9

11956.5

1998-99

6558.5

954.6

5091.2

1005.2

107.2

7158.3

13716.8

1999-00

7037.7

1092.8

3390.1

526.3

212.1

5221.3

12259.0

2000-01

6320.2

1086.2

2148.2

434.0

187.9

3856.3

10176.6

2001-02

6672.1

1167.2

4647.0

546.7

285.4

6646.2

13318.4

2002-03

9052.3

1468.4

8172.2

327.5

330.4

10298.5

19350.8

2003-04

12631.1

1450.7

7601.2

379.1

327.4

9758.3

22389.4

2004-05

14493.7

1736.4

8616.8

696.6

290.6

11340.4

25834.1

2005-06

14998.3

1640.2

15580.6

1036.4

642.9

18900.1

33898.4

2006-07

18202.6

1398.6

17384.5

1357.4

528.5

20669.0

38871.6

2007-08

19725.7

1222.7

19776.4

1006.6

528.1

22533.8

42259.5

2008-09

21109.8

1272.0

25241.6

1199.2

1299.6

29012.4

50122.1

2009-10

19970.6

1605.4

25613.5

522.5

1352.5

29094.0

49064.6

2010-11

24488.5

1661.1

30184.0

893.4

818.0

33556.4

58044.9

2011-12

29795.0

1930.4

54890.2

917.9

1351.5

59090.0

88885.0

2012-13

33951.8

2405.7

57324.0

1389.6

2053.6

63173.0

97124.8

2013-14

31666.6

2535.3

58718.2

1213.1

1675.9

64142.5

95809.1

2014-15

26097.6

2374.6

51677.9

850.5

1148.0

56051.0

82148.6

37

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 13: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON RECREATION FACILITIES, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

4500.0 4000.0

$M in 2012-13 Prices

3500.0 3000.0 2500.0 2000.0 1500.0 1000.0 500.0

0

20 11 11 20 12 12 -1 20 3 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

07

6

-0

06

20

5

-0

05

20

4

-0

04

20

20

3

-0

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

99

8

-9

98

19

7

-9

97

19

19

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

91

19

19

90

-9

1

0.0

FIGURE 14: TRENDS IN PRIVATE AND PUBLIC SECTOR ENGINEERING CONSTRUCTION ON RESOURCES SECTOR FACILITIES, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

70000.0

50000.0

40000.0

30000.0

20000.0

10000.0

38

0 -1 20 1 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1

-0

-0

20

01

0 -0

20

00

9 19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

-9

19

95

4 -9

19

94

3 -9

19

93

2 -9

92

19

91

19

90

-9

1

0.0

19

$M in 2012-13 Prices

60000.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Other heavy industry This category includes construction of chemical plants, blast furnaces, steel mills, ovens and other industrial processing plants. As expected almost all engineering construction on heavy industry is by the private sector with occasional minor forays by the public sector. This class of engineering construction has been quite low and exceptionally variable as demonstrated by the trends illustrated in Figure 15.

periods: from 2005-06 to 2008-09, and 2012-13 to 2013-14. These periods coincided with strong engineering construction in the resources sector and were most likely the construction of gas processing plants for domestic consumption and LNG exports.

Aside from these periods, engineering construction in heavy industry has been flat for more than 20 years. In 1990-91, engineering construction on heavy industry was $791.3 million but in 201415 it was still only $874.3 million. These figures underscore why the capital equipment in Australian heavy industry is so old. For example, the youngest Australian oil refinery is Bulwer Island built in 1964. There are several similar examples in other industries.

Figure 15 shows that virtually all engineering construction on heavy industry is undertaken by the private sector. Like many other components of engineering construction, a feature of the trend illustrated is its exceptional variability. Another feature of the trend is that it has been heavily influenced by higher activity during two short

FIGURE 15: TRENDS IN PUBLIC AND PRIVATE SECTOR ENGINEERING CONSTRUCTION ON HEAVY INDUSTRY, 1990-91 TO 2014-15

Public Sector

Private Sector

Combined

1600.0 1400.0

1000.0 800.0 600.0 400.0 200.0

39

20 10 10 20 11 11 20 12 12 20 13 13 20 14 14 -1 5

-0 9

20

09

-0 8

20

08

-0 7

20

07

-0 6

20

06

-0 5

20

05

-0 4

20

04

-0 3

20

03

-0 2

20

02

-0 1

20

01

-0 0

20

00

-9 9

19

99

-9 8

19

98

-9 7

19

97

-9 6

19

96

-9 5

19

95

-9 4

19

94

-9 3

19

93

-9 2

92

19

91

19

90

-9 1

0.0

19

$ M in 2012-13 Prices

1200.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 16: TRENDS IN PRIVATE AND PUBLIC SECTOR 'OTHER' ENGINEERING CONSTRUCTION, 1990-91 TO 2014-15

Private Sector

Public Sector

Combined

2500.0

$M in 2012-13 Prices

2000.0

1500.0

1000.0

500.0

0

20 11 11 20 12 12 20 13 13 20 14 14 -1 5

20

10

9

-1

20

09

8

-0

20

08

7

-0

20

07

6

-0

20

06

5

-0

20

05

4

-0

20

04

3

-0

20

03

2

-0

20

02

1

-0

20

01

0

-0

20

00

9

-0

19

99

8

-9

19

98

7

-9

19

97

6

-9

19

96

5

-9

19

95

4

-9

19

94

3

-9

19

93

2

-9

19

92

-9

91

19

19

90

-9

1

0.0

Other engineering construction This category is included for completeness and because the level of engineering construction has exhibited quite robust growth in recent years. In 1990-91, other engineering construction was $102.4 million, quite low in the context of the time. Construction in the ‘other’ category peaked at $2.3 billion in 2012-13. Although it has fallen in the last two years, in 2014-15 it was still $1.2 billion.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

The Engineering Construction Pipeline Our discussion has been based on measures of infrastructure and engineering construction work completed each year. But infrastructure projects by their nature have long construction times and the amount of work completed in a year only tells part of the story.

The amount of unfinished construction increased dramatically from 2004-05 onwards. Up until 200304, the average amount of unfinished infrastructure construction was 1.5 years. From 2004-05 to 2014-15 this average increased to 2.09 years. Two observations follow: • The amount of unfinished public sector infrastructure in 2014-15 is about on par with the average since 2004-05. As a result, completing this work will keep completions reasonably high even though it may continue to fall.

A more complete picture is found from reviewing the whole engineering construction pipeline.

As well as construction completed, the pipeline considers the amount of work still uncompleted on projects underway and the amount of work involved in just commenced construction where the level of completed work is minimal. Analysing the construction pipeline provides important insights on the direction that construction completions may take in the immediate future.

• The amount of unfinished public sector infrastructure is falling rapidly and will continue to diminish unless replenished by new commencements.

In 2014-15, new public sector infrastructure commencements were $24 billion. Figure 17 shows that the trend in commencements has been falling since its peak at $29.6 billion in 2010-11. Figure 17 shows that commencements have followed a similar trend to completions. On average, commencements have been equivalent to 1.02 years of construction at the prevailing rate of completions. In 2014-15, this ratio was slightly higher at 1.06 years.

PUBLIC SECTOR INFRASTRUCTURE The public sector infrastructure pipeline since 1990-91 is shown in Figure 17. The blue line in this illustration is the infrastructure completed trend from Figure 2. The public sector asset components discussed above aggregate to this trend. The red line in Figure 17 is infrastructure construction yet to be completed on projects underway. The green line is the trend in new construction commencements.

We observed from Figure 2 that virtually all public sector engineering construction is infrastructure with very little in the non-infrastructure components.

All components of the public sector infrastructure pipeline, commencements, completions and unfinished work have trended downwards for at least four years.

Combining commencements and construction yet to be completed shows that in 2014-15 there was 3.17 years of infrastructure construction underway and this was consistent with over the past decade. The concern, however, is that both new commencements and unfinished construction have been falling for several years over most of the time since the 2010 infrastructure assessment.

This has occurred against the background of strong population growth and falling economic growth.

There are consistent reports concerning transport congestion. Australia needs to reform its energy sector in line with its commitment in the Paris Accord, and revitalise economic growth through innovation and productivity growth. None of these objectives are consistent with falling public sector infrastructure trends.

In 2014-15, infrastructure valued at $22.7 billion in real terms was completed in Australia. Even though the amount of uncompleted construction underway has fallen sharply from its 2011-12 peak, in 2014-15 there was still construction valued at $48 billion yet to be completed. At the 2014-15 rate of completions this is equivalent to 2.11 years of work.

41

1

91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 98 19 -99 99 20 -00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 20 -05 05 20 -06 06 20 -07 07 20 -08 08 20 -09 09 20 10 10 20 -11 11 20 -12 12 20 -13 13 20 -14 14 -1 5

19

-9

90

19

$M in 2012-13 Prices

Commenced

42

Completed 10

0 -1 20 1 11 20 12 12 20 13 13 20 14 14 -1 5

20

9 -1

09

20

8

-0

08

20

7

-0

07

20

6

-0

06

Completed

20

-0

5

4

-0

05

20

04

20

3

-0

03

20

2

-0

02

20

1

-0

Commencements

01

20

0

-0

00

20

9

-0

99

19

8

-9

98

19

7

-9

97

19

6

-9

96

19

5

-9

95

19

4

-9

94

19

3

-9

93

19

2

-9

92

19

1

-9

91

-9

90

19

19

$M in 2012-13 Prices

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 17: THE PUBLIC SECTOR INFRASTRUCTURE PIPELINE, AUSTRALIA, 1990-91 TO 2014-15

Yet to Complete

70000.0

60000.0

50000.0

40000.0

30000.0

20000.0

10000.0

0.0

FIGURE 18: THE PRIVATE SECTOR INFRASTRUCTURE PIPELINE, AUSTRALIA, 1990-91 TO 2014-15

120000.0

Yet to Complete

100000.0

80000.0

60000.0

40000.0

20000.0

0.0

ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

PRIVATE SECTOR INFRASTRUCTURE

NON-INFRASTRUCTURE ENGINEERING CONSTRUCTION

Figure 18 shows the private sector infrastructure pipeline. Private sector infrastructure construction peaked in 2012-13 and has fallen each year since.

In 2014-15 it was $26.1 billion in real terms. The amount of unfinished private sector infrastructure peaked at an extraordinary $115.6 billion in 201213, and has fallen sharply but was still $53.4 billion in 2014-15. This was equivalent to 2.05 years of construction at the 2014-15 rate of completions.

This ratio was on average considerably lower up to 2006-07 at 1.83 years. From 2007-08, the resources boom gathered extraordinary momentum and the ratio of unfinished to finished private sector infrastructure increased to 2.91 years for the years 2007-08 to 2014-15. The lower value in 2014-15 reflects the rapid completion of unfinished work.

Figure 19 shows the construction pipeline for non-infrastructure components of engineering construction. We observed earlier in this report that virtually all non-infrastructure construction in this area is by the private sector and a substantial portion was the result of the resources boom. There are two reasons why it is important to consider Figure 19. The first is to emphasize the scale of this construction and second, to verify that the resources boom is now behind us.

In 2014-15, private sector non-infrastructure engineering construction completed was $56 billion compared to a peak achieved in 2013-14 of $64.1 billion. Over 92 per cent was construction completed in the resources sector. These figures were substantially larger than the peak of public sector infrastructure construction of $31.2 billion achieved in 2011-12.

In 2014-15, private sector infrastructure commencements were $17.3 billion compared to a peak of $29.7 billion in real terms achieved in 2010-11. Commencements have fallen each year since the peak. On average, the ratio of private sector infrastructure commencements to completions has been 1.00 year since 1990-91. In 2014-15, the ratio was 0.66 years reflecting the degree to which commencements have fallen.

In 2014-15, there was unfinished non-infrastructure construction valued at $247.4 billion underway.

This extraordinary figure pales compared to the peak of $435.7 billion in real terms achieved in 2012-13. Until 2003-04, on average unfinished non-infrastructure construction was 1.88 times the prevailing construction completed. From 2004-05 to 2014-15, this ratio increased to 5.12. The rapid fall in unfinished construction during the past two years has reduced the 2014-15 ratio to 4.4. In other words, at the 2014-15 rate of completions there was 4.4 years of work in the system awaiting completion.

Combining private sector infrastructure commencements and construction yet to be completed, there was 2.71 years of construction in the system at the 2014-15 rate of completions compared to an average 2.91 years since 2007-08.

This decline reflects the fact that a substantial and unknown portion of private sector infrastructure has been in support of specific resources sector projects.

New commencements in this area peaked in 201112 at $60.7 billion and have fallen each year since. In 2014-15 new commencements had fallen to $12.4 billion, just 0.22 years of work at the 2014-15 rate of completions.

As we will see below, the resources boom is now behind us. Given prevailing commodities prices, the main risk for private sector resources related infrastructure is how prices affect project economics.

Typically, resources projects assume values for commodity prices over their expected life – when commodity prices fall below such assumed values for any length of time, project economics come under threat and in some cases may mean that unfinished construction is moth balled before completion.

Given prevailing commodities prices, the main risk for private sector resources related infrastructure is how prices affect project economics.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

FIGURE 19: THE PIPELINE OF NON-INFRASTRUCTURE COMPONENTS OF ENGINEERING CONSTRUCTION, AUSTRALIA, 1990-91 TO 2014-15

Commenced

Completed

Yet to Complete

450000.0 400000.0

$M in 2012-13 Prices

350000.0 300000.0 250000.0 200000.0 150000.0 100000.0 50000.0

19

90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 98 19 -99 99 20 -00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 20 -05 05 20 -06 06 20 -07 07 20 -08 08 20 -09 09 20 10 10 20 -11 11 20 -12 12 20 -13 13 20 -14 14 -1 5

0.0

All three elements of the private sector noninfrastructure engineering construction pipeline are falling. Construction completed has fallen for two years, unfinished construction in the system has fallen for three years and new commencements have fallen for four years. Combining unfinished construction and new commencements in 2014-15 there was 4.62 years of construction in the system at the 2014-15 rate of completions. The main risk is to unfinished work and comes from the fall in commodity prices as described earlier.

created by general business and community access to the flow of infrastructure services. Over the past five years, cumulative public sector infrastructure construction completed was $140.9 billion in real terms. There was a further cumulative $8.2 billion in non-infrastructure construction so that overall public sector engineering construction was $149.1 billion.

Cumulative private sector infrastructure construction during this period was higher at $146 billion but only part of this was infrastructure that was generally accessible to businesses and the community. The rest was infrastructure required to provide infrastructure services to specific resources projects. The economic value of this infrastructure is indisputable but is closely aligned with the relevant resource, in most cases export resources. In these situations the multiplier effect of infrastructure is not as high as for generally accessible infrastructure,

Economic transition from the mining boom is a frequent press topic. Various options have been canvased, typically without consideration of the numbers involved. Engineering construction is a component of economic demand. When it takes the form of infrastructure, engineering construction is associated with widespread multiplier effects

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

especially in large population centres.

So, if as the trends suggest, private sector engineering construction falls back to its 2009-10 level, an additional $35.3 billion will be necessary somewhere else to maintain the level of domestic demand. The sixty-four dollar question is: where?

Some commentators have suggested that residential and commercial construction could take up the slack.

However, in 2014-15, residential and commercial construction was $97 billion. Expecting this sector to take up the slack is not realistic. A more pragmatic option would be to address Australia’s infrastructure deficiencies.

Private sector non-infrastructure engineering construction over the past five years was $276 billion, almost twice all public sector construction during that period. When private sector infrastructure is added, cumulative engineering construction over the past five years has been $422 billion in real terms, an average of $84.4 billion per year. In 2009-10, the year before the five years cumulated, private sector engineering construction was $49.1 billion in real terms, still an extraordinary number but $35.3 billion less than the average over the following five years.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

Conclusion

We can draw conclusions about infrastructure development in two ways:

Our discussion has shown:

• By considering only public sector construction on infrastructure

• Construction of roads has been higher in 2010-2015 than 2005-2010 but population growth, economic growth and persistent congestion suggest at best a slight improvement. More likely the status quo has been maintained.

• By considering construction by the public and private sectors together.

The base line for our discussion is the 2010 Engineers Australia infrastructure assessment and the discussion will focus on a comparison of infrastructure construction in the five years leading to this assessment (2005-2010) with the five years since (2010-2015) as well as the most recent trends.

In 2010, Engineers Australia rated Australia’s infrastructure as slightly better than adequate but requiring major changes to be fit for purpose.

• Bridges - not separately assessed.

• Railways - both public and private sector construction have increased with the latter focused on resources locations.

The improvement that has occurred is endangered by the direction of current trends.

• Harbours - infrastructure construction has increased and public sector construction has maintained the status of infrastructure while private sector construction has made it more geographically extensive.

• Water - public sector construction has decreased but private sector construction has increased. The indications are that the status of water infrastructure has been maintained.

• Sewerage - public sector construction has increased while private sector construction has experienced a small fall. Indications are that the status of infrastructure has been maintained.

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ENGINEERS AUSTRALIA | NATIONAL INFRASTRUCTURE INVESTMENT UPDATE 2016

• Electricity generation and distribution - public and private sector construction have both increased but has been primarily directed to overcoming past neglect of the transmission network.

Replacement of aging power stations has not progressed.

When these assessments are weighted in proportion to asset shares in infrastructure the overall rating remains at ‘C+’: a little better than adequate but requiring major changes. In other words, there have been improvements in some areas but insufficient to improve the overall status of infrastructure since 2010.

Of greatest concern is that real infrastructure construction fell in the public sector, the private sector and for the two sectors combined in 2014-15. Only private sector roads and pipelines, public sector harbours and telecommunications and in the combined sectors of pipelines and telecommunications, showed construction increases within the context of this overall contraction. When we look at both the public and private sector infrastructure pipelines, we see rapid contraction in construction underway but not yet finished and contraction in new commencements. This is a fairly bleak picture given there is no abatement in population growth.

• Pipelines - mainly a private sector industry where construction since 2010 has increased markedly. Developments have occurred on domestic facilities as well as export oriented facilities and construction has not yet peaked.

• Telecommunications - overall construction slightly up in last five years compared to previous five years.

There is little evidence that the NBN has materially affected construction levels.

Given changes to the NBN strategy and slow rollout, improvements seem to be confined to mobile sector and not broadband where improvement is unlikely.

It is no coincidence that economic growth has been slowing because when infrastructure is barely adequate it can impede growth.

The end of the resources boom has led to a substantial contraction of macroeconomic demand. The scale of this contraction is such that market driven increases in other sectors are unlikely to cover the difference without active government intervention.

...there have been improvements in some areas but insufficient to improve the overall status of infrastructure since 2010.

Engineers Australia believes that this intervention needs to provide a significant enhancement of Australia’s urban and interurban infrastructure.

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Contact us Public Affairs Engineers Australia 11 National Circuit, Barton ACT 2600 (02) 6270 6555 publicaffairs@engineersaustralia.org.au

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